Prelims and Finals Flashcards
The process of identifying opportunities for which marketable needs exists and assuming the risk of creating an organization to satisfy them.
Entrepreneurship
T or F. A business can be risk-free.
F. A business will always involve ‘risk’.
What are reasons to be an entrepreneur?
1) Be your own boss, or work for your boss.
2) The range is very wide: (1) makers and or sellers of various products; (2) service providers.
What are possible reasons to start a business?
1) To fulfill a dream to have a business.
2) To make a difference or to solve a problem
3) Sudden employment
T or F. Every venture will be successful.
F. Not every venture will be successful.
T or F. Entrepreneurs invest money, time, and effort to start a business
T.
What concept states that it is difficult to compete with large firms?
Economies of Scale
The average cost of producing products will go down relative to the increase in production.
Economies of Scale
Give examples of how entrepreneurs address the challenge of economies of scale.
1) Respond more quickly to the complaint of customers
2) Immediately identify potential customers specific needs and take action accordingly
Anything that a particular business entity does better than anyone else in a specific industry
Competitive Advantage
T or F. Entrepreneurs may be non-profit oriented.
T
Flexibility in the form of excess resources of large firms is usually not available to entrepreneurs.
Organizational Slack
T or F. It is important to determine your (as an entrepreneur) risk tolerance.
T.
Individuals act to maximize their own individual benefits.
Agency Theory
T or F. Due to limited resources, an entrepreneur treats the expenses of the business similarly as that of a manager of a firm.
F. An entrepreneur treats the expenses of the business very differently than that of a manager of a firm.
A plan to take advantage of business growth and exit a business
Harvest Plan
Sell the entire business
Full exit
Going public
Initial public offering
Facilitates rapid growth of the business
Harvest Plan
Which of the following is NOT a characteristic of Venture Capital Backed Firms?
A) Well funded by venture capital or angel investment
B) Formed with a harvest plan
C) Has a developed organizational structure
D) Organized to grow slowly and steadily
D. VCBFs are organized to grow as quickly as possible
T or F. Venture Capital Backed Firms are engaged in inherently secure and safe operations.
F. They are engaged in inherently risky operation (e.g., introducing new invention to the market)
T or F. VCBFs are self-funded or closely funded
T.
Which of the following is a characteristic of VCBFs?
A) Development plan is oriented around positive cash flow
B) Usually designed to take advantage of the skills of the employees
C) The business is oriented toward the personal goals of the investor
D) With various employees to assist the day to day operations
A.
Correct Statements:
B) Usually designed to take advantage of the skills of the founder
C) The business is oriented toward the personal goals of the founder
D) With a few or no employee at all
It takes time to reach a level where the revenue can cover the expenses.
Break-even point
T or F. You should spend no more than your personal risk tolerance
T.
Rational decision making that is constrained by the background and history of the person making the decision
Bounded Rationality
T or F.
Extrovert: Internet-based business
Introvert: A business that focuses more on interpersonal interaction
F.
Extrovert: a business that focuses more on interpersonal interaction
Introvert: internet-based business
What are the three supports an entrepreneur can get?
Family, Networks, and Community
A usual source of constant support, guidance, and suggestions
Family
T or F. Family members, being unfamiliar with the expertise in a business, cannot be expected to provide key insights when an entrepreneur is taking the wrong approach to an issue.
F. Family members can easily and immediately provide key insights when an entrepreneur is taking the wrong approach to an issue.
May help introduce the products to potential customers and may provide the necessary feedback and advice.
Networks
A facility that houses new businesses and provides many critical services for new ventures
Incubator
In generating a business idea, what must be considered?
1) Skills of the potential founder
2) Identifying opportunities
3) Availability of initial funding
What are the 3 suggested approach in developing a business idea?
1st: Founders should list and evaluate their own personal skills. These may arise from hobbies, current/past work, family history.
2nd: Analyze the market and look for a gap or some need that is not being met effectively.
3rd: Potential founders need to compare their ability to fill the gaps with the available opportunity.
A process of systematically examining the difference, or gap, between what is expected and what occurs.
Gap Analysis
A creative process whereby a group of individuals are brought together and asked to generate ideas with little or no effort made to evaluate the potential for each idea rather than focus is to generate numerous ideas.
Brainstorming
What should be considered in choosing a business?
Finances
Time
Non-financial Resources
Risk
Competitors
In choosing a business, it requires a meticulous process such as:
Idea on new business that fits well with your skill.
Identify the opportunities.
Identify the risks.
Identify the competitors.
Amount of money required to start and operate a business and involves building a sufficient client base requires this
Finances
What are some expenses to be considered?
Rent, equipment, supplies, utilities, and others.
How much ___ you can dedicate to starting and managing your business? What will be the hours of operation?
Time
What are the non-financial resources?
Contacts with the supplier
Contacts with the customer
Competitive advantage
Physical location of business
What are the two level of risks?
Personal and Business Level Risk
What will you do if the business fails?
Personal Level Risk
What are the factors that could disrupt your supply chain?
Business Level Risk
What are the threats to business success?
Threat to Profit Margin
Threat to Sales Generation Schemes
Threat to Operational Financing
What is involved in threats to profit margin?
- Pricing constraints
- Who are the significant competitors
What is involved in threats to sales generation schemes?
Can your competitors:
- Exceed the quality of your products?
- Offer a lower price?
- Locate themselves in a better location?
- Lock you out of suppliers?
What is involved in threats to operational financing?
Selling products on credit but having to pay cash for the raw materials
Accurately defining your customer may help you with the following:
- Content of your product
- Pricing
________ have no clear and dominant competitor and are instead made up of a large number of similar-sized firms.
Fragmented Markets
T or F. Most entrepreneurial businesses compete in fragmented markets
T
A product that performs a similar function or achieves the same result but is not a precise imitation.
Substitute Product
It refers to customers switching to substitutes or not using a product as the price of the product rises.
Elasticity of Demand
A barrier, such as investment in capital assets, that keeps a firm from leaving the industry.
Exit Barrier
T or F. To stop operating a business is actually difficult, but to recover the initial investment is marginally easier.
F. To stop operating a business is very easy, but to recover the initial investment is difficult.
Working with and learning from a company outside of your industry that has a particular skill that is potentially critical to your operation.
Benchmarking
T or F. A Sales Forecast can be 100% accurate with the proper formula.
F. This is not 100% accurate.
What must be considered in a sales forecast?
When to sell?
How much will be the selling price?
The advantage of an established company in forecasting sales
Fixed Costs
Vary according to the quantity of production
Variable Costs
FORMULA (Contribution Margin or Break-even Point in Units)
Fixed Cost / (Selling price per unit - Variable Cost per unit)
FORMULA (Sales Revenue)
Break-even Point in units x Selling Price per unit
FORMULA (Variable Cost)
Break-even Point in units x Variable Cost per unit
What are the different sources of funds?
1) Equity Investment
2) Crowdfunding
3) Loan
4) Asset-Based Lending
5) Credit Card
6) Grants
7) Factoring
Funds received by a business in exchange for a percentage ownership of the business. This involves shares of stocks
and is considered when the company is a large business already.
Equity Investment
Funds received by a business by soliciting a large number of very small investors usually via the internet
Crowdfunding
Contractual agreement whereby the firm receives some amount of money that must be repaid over a specified period of time at a specified interest rate
Loan
First thing that comes to mind when talking about business expansion
Loan
T or F. You can’t really negotiate on the interest rate in a loan so you should provide a collateral when obtaining such so that you will not lose assets.
F. You can possibly negotiate on the interest rate. There must be a collateral present when obtaining a loan.
A loan provided for the purchase of a necessary asset for the business
Asset-Based Lending
T or F. In asset-based lending, you are not allowed to pull out assets upon discretion.
F. The assets can be pulled out upon discretion
Used when equipment is needed but cannot afford
Asset-Based Lending
Typically has a set of upper limit and is usually tied to a higher interest rate (compared to loan transactions)
Credit Card
Special funds that do not require repayment and are design to aid businesses in specific areas.
Grants
Accounts receivable that are sold at a discount to another company to receive immediate cash.
Factoring
T or F. Factoring may be applicable for start-ups more than for big firms and companies.
F. This is not applicable to start-ups, but rather big companies
T or F. Promissory Notes are not required in Factoring.
F. Promissoy Notes are required here since your accounts receivable are your right to collect.
The following are four areas of company performance EXCEPT?
A) Profitability
B) Rationality
C) Liquidity
D) Activity
B) Rationality
The four areas of company performance are: Liquidity, Activity, Leverage, and Profitability
T or F. The form of a contract in factoring must be in writing.
T.
A series of ratios along four areas of company performance (liquidity, activity, leverage, profitability) that provides a picture of the health of the company
Ratio Analysis
Ratios that measure the short-term (current assets and liabilities) ability of the firm to meet its obligations.
Liquidity Ratios
The following are examples of current assets EXCEPT?
A) Merchandise Inventories
B) Accounts Receivable
C) Bonds and Shares
D) Cash
C) Bonds and Shares
Bonds and Shares are examples of non-current assets that are for long-term use by the business and are expected to help generate income.
T or F.
Current liabilities are those obligations that will mature within 3 years.
F. They mature within 1 year.
Measures how quickly assets can be turned into cash and used to pay for current liabilities. This gets paid first. There are assets that are not yet cash (account receivable)
Current Ratio
Examines the pure cash position relative to current liabilities
Quick (Acid) Ratio
T or F. Current liabilities are those obligations that will mature within one year.
T
What are the different liquidity ratios?
Current Ratio, Quick (Acid Test) Ratio, Activity Ratio, Inventory Turnover Rate, Accounts Receivable Turnover Ratio
FORMULA (Current Ratio)
Current Assets / Current Liabilities
What is the interpretation for current ratio?
Ratio is > 1: The business can easily pay its current debt
Ratio is = 1: The current assets are just enough to pay its current debt
Ratio is < 1: The business will have a problem in paying its current debt
FORMULA [Quick (Acid Test) Ratio]
Current Assets (Excluding Inventories) / Current Liabilities
What is the interpretation for quick (acid test) ratio?
Ratio is > 1: The business can easily pay its current debt using its most liquid assets
Ratio is = 1: The most liquid current assets are just enough to pay its current debt
Ratio is < 1: The business will have a problem in paying its current debt using its most liquid assets
Measures the efficiency with which the entrepreneur is handling the resources of the business
Activity Ratio
FORMULA (Inventory Turnover Rate)
(Beginning Inventory + Ending Inventory) / 2 = Average Inventory
Cost of Goods Sold / Average Inventory = Inventory Turnover Rate
What is the interpretation for inventory turnover rate?
High Ratio: Excellent sales or insufficient inventory
Low Ratio: Weak sales or excess inventory
Measures how fast the company turns credit sales into cash
Accounts Receivable Turnover Ratio
FORMULA (Accounts Receivable Turnover Ratio)
Net Credit Sales / Average Accounts Receivable
To examine the ability to generate sales from the fixed assets employed by the organization.
Fixed Asset Turnover
What are examples of fixed assets?
Land, Building, Office equipment, Machinery
T or F. High revenue indicates high fixed asset turnover.
T.
FORMULA (Fixed Asset Turnover)
Net Sales / Fixed Assets
What is the interpretation for fixed asset turnover?
The quotient is directly proportional to efficiency.
To examine the relative level of indebtedness
Leverage Ratio
T or F. Creditors would want to determine the debtor’s ability to generate funds to pay the latter’s monetary obligation.
T.
It indicates the firm’s dependence on borrowed funds
Debt to Equity Ratio
T or F. Few debts means less risk.
T.
T or F. A higher debt to equity ratio means lower risk.
F. A higher ratio means higher risk
What is a good D/E Ratio?
Lower than 1
FORMULA (Debt to Equity Ratio)
Total Liabilities / (Total Assets — Total Liabilities)
T or F. Total Liabiities = Owner’s Equity
T
Accounting Equation
Asset = Liabilities + Owner’s Equity
T or F. A high debt to asset ratio indicates low risk.
F. It indicates high risk.
T or F. Creditors prefer a low debt-to-asset ratio.
T.
T or F. If the liabilities are higher than the assets, it is considered as insolvent.
T.
T or F. Under the FREA, only courts can declare insolvency.
T.
T or F. A low debt-to-asset ratio indicates that equity is used to fund the majority of assets. The company has more assets than liabilities. The company can fund its libilities by selling assets if need be.
T
FORMULA (Debt to Assets Ratio)
Total Liabilities / Total Assets
To estimate the number of times the debtor could repay the current interest on its debt.
Times Interest Earned
T or F. Times Interest Earned is not part of operating income but is part of the passive income, earning interest.
T.
T or F. Interest is considered as part of the expenses.
T.
FORMULA (Times Interest Earned)
Operating Income / Interest
What is the interpretation for Times Interest Earned?
The higher the number is, the more capable the debtor is to pay
In operating the business, the following must be considered:
Benefit to the stakeholders
Avoid harming any person
Avoid harming environment
Types of Corporate Social Responsibility
Economic Responsibility
Legal Responsibility
Ethical Responsibility
Philantrophic Responsibility
Distribute dividends to stockholders and sustain other stakeholders such as employees and creditors
Economic Responsibility
Follow the: 1) Laws, and 2) Rules and Regulations
Legal Responsibility
Do business honestly and fairly
Ethical Responsibility
Be charitable to the community.
Philantrophic Responsibility
Benefits of CSR?
Avoid investors dissatisfaction
Avoid government sanctions
Minimize, if not totally avoid, customers’ complaint
Minimize employee turnover
T or F. Producing goods and consuming products have some degree of negative impact on the environment. Some business organizations address this problem by using technology that minimizes the impact on the environment
T.
T or F. Labor laws in different jurisdictions are designed to protect the welfare of the worker.
T
T or F. Customer satisfaction sustains profitability.
T
The set of organzational activities directed at attracting, developing, and maintaining an effective workforce.
Human Resource Management
A systematized procedure for collecting and recording information about jobs within an organization.
Job Analysis
2 Parts of Job Analysis
Job Description and Job Specification
Lists the duties of a job, the job working condition, and the tools, materials, and equipment used to perform it
Job Description
Lists the skills, abilities, and credentials needed to do the job
Job Specification
Lists each managerial position in the organization, who occupies it, how long he or she will probably remain in the position and who is or will be a qualified replacement.
Replacement Chart
Contains information on each employee’s education, skills, experience, and career aspirations.
Employee Information System (Skills Inventory)
Usually computerized and helps to quickly locate an employee within an organization who is qualified to fill a vacant position.
Employee Information System (Skills Inventory)
The process of attracting individuals to apply for jobs that are open.
Recruiting
This type of recruiting helps build morale and keep high-quality employees from leaving the company
Internal Recruiting
This type of recruiting may attract a more qualified employee or may attract an employee who can share a new idea from his previous employer
External Recruiting
Provides the applicant with a real picture of what it would be like to perform the job that the organization is trying to fill.
Realistic Job Preview
The plan developed by the entrepreneurial business to specify who the customers are and how they will be attracted to the company.
Marketing Plan
What are the various types of promotion?
Pure Promotion, Mixed-Model Promotion, and Bootstrap Marketing
Any form of advertising that is purely designed to promote the product.
Pure Promotion
Which of the following is not considered a pure promotion?
A) Newspaper or Radio/Television
B) Signs and Flyers
C) Trade Shows
D) Partnership
E) Web Page and Internet Promotion
D.
Promotions that are strictly financial arrangements in which you pay for some outputs, such as radio advertisement.
Pure Promotion
Promotions that cost something but also have an element of community support
Mixed-Model Promotions
Angling your sponsorship to those activities that will provide maximum exposure to your potential client base is an effective and relatively inexpensive means of keeping your name in front of them.
Mixed-Model Promotions
Marketing efforts that require little capital
Bootstrap Marketing
What are the different methods of developing a pricing model?
Pricing Floor, Loss Leader, Cost-Plus Pricing
The break-even point, or the lowest amount that can be charged for a product or service while still making a minimal profit.
Pricing Floor
A product or service that is sold at a non-operating loss to simply get customers in the store.
Loss Leader
Pricing in which the entrepreneur initially determines her cost structure and then determines what profit margin is desired and adds that to the cost.
Cost-Plus Pricing
Actions that must occur, and in what order they should occur.
Critical Path
It demonstrates how activities (are) necessary to startthe firm fit togather and build on each other.
Critical Path Chart
What is an importance of critical path
It allows the new business to have a faster, more thorough, less expensive start-up
What are two examples for location?
Strip Shopping Center and Anchor Store
A small retail center located typically along a major road.
Strip Shopping Center
Major retail stores, such as department stores in a mall. They serve as the anchor for the retail establishment.
Anchor Store
The acceptance by key stakeholders such as customers and suppliers that you are a genuine business that will still be in operation next year.
Legitimacy
Items that may help establish a business’ legitimacy?
- A business checking account with the firm’s name printed on the checks.
- A business credit card
- Professional business card
- Letterheads
- Prestige of business address
- Telephone answering support
- A high-quality web page
- Trustworthy Board of Directors
- Endorsement from a respected individual
New businesses need to be clear about the expectations for _______ in whatever business they pursue.
Quality
One of the keys to successfully delivering quality is the _________ and ________ put into place by the founders.
Monitoring and Measuring Systems
The joining together of firms to form long-term, mutually beneficial relationship.
Strategic Alliance
