Q&A Hero

Q: One must be cautious in stating whether a specific ratio is good or bad because "goodness" is frequently a matter of perspective or strategy. a. True b. False

Q: The equity multiplier shows the extent by which assets are supported by equity and debt. a. True b. False

Q: Liquidity ratios indicate the venture's ability to pay short-term assets from short-term liabilities. a. True b. False

Q: Net working capital is a dollar amount measure of the cushion between current assets and current liabilities. a. True b. False

Q: The term "cash build" as used in Chapter 5 is equal to net sales minus the change in receivables. a. True b. False

Q: A venture's cash, marketable securities, and receivables comprise its liquid assets. a. True b. False

Q: For a venture with inventories, the quick ratio will always be greater than the current ratio. a. True b. False

Q: If a firm has positive net income, a decrease in a venture's asset intensity ratio will increase its ROE. a. True b. False

Q: Second-round, mezzanine, and liquidity-stage financing generally occur during a venture's survival stage. a. True b. False

Q: Trend analysis is used to examine a venture's performance over time. a. True b. False

Q: The types of financing used during the survival life cycle stage is second-round, mezzanine, and liquidity-stage financing. a. True b. False

Q: Net working capital is calculated as fixed assets minus current liabilities. a. True b. False

Q: The cash burn rate is the cash burn for a fixed period of time, typically a month. a. True b. False

Q: The return on assets model states: ROA = Net Profit Margin Asset Turnover Equity Multiplier. a. True b. False

Q: Financial ratios show the relationships between two or more financial variables or between financial variables and time. a. True b. False

Q: Cash burn is the cash a venture expends on its operating, financing, and depreciation expenses. a. True b. False

Q: Investment bankers are users of financial ratios and measures primarily during a venture's rapid-growth stage relative to the development and startup stages. a. True b. False

Q: The extent to which a venture is in debt and in its ability to repay its debt obligations is indicated by leverage ratios. a. True b. False

Q: The part of a venture's interest payment that is subsidized by the government because of the deductibility of interest is called the interest tax shield. a. True b. False

Q: Total debt includes current liabilities, long-term debt, and retained earnings. a. True b. False

Q: Profitability and efficiency ratios are generally considered to be more important during a venture's development and startup stages compared to the survival and rapid-growth stages. a. True b. False

Q: Leverage ratios are generally considered to be more important during a venture's survival and rapid-growth stages compared to the development and startup stages. a. True b. False

Q: During the development and startup stages of a venture's life cycle, important financial ratios and measures include cash burn rates and liquidity ratios. a. True b. False

Q: Commercial banks are important users of financial ratios and measures during the development and startup stages of ventures. a. True b. False

Q: Accounting rules require that the current maturities of long-term debt obligations be classified as short-term liabilities. a. True b. False

Q: Financial ratios are a useful way to summarize large amounts of financial data to simplify comparisons of a venture's performance with itself and other firms over time. a. True b. False

Q: Leverage ratios indicate the extent to which the venture has used debt and its ability to meet debt obligations. a. True b. False

Q: The current ratio and the quick ratio differ only because average inventories are subtracted in the numerator of the quick ratio. a. True b. False

Q: Net cash burn occurs when cash burn exceeds cash build in a specified time period. a. True b. False

Q: How efficiently a venture controls its expenses and uses its assets and debt is evaluated with profitability and efficiency ratios. a. True b. False

Q: Industry comparable ratio analysis involves comparing a venture's ratios against the industry average for the same ratios. a. True b. False

Q: Indicate whether the statement is true or false.The equity multiplier is considered an efficiency ratio.a. Trueb. False

Q: Acme Pest Control has sales of $13,500, cost of goods sold of $4,000, selling expenses of $3,500, depreciation of $2,000, interest expense of $2,000, and a tax rate of 34%. What is Acme's operating income? a. $4,000 b. $2,000 c. $9,500 d. $6,000

Q: Which of the following is not a category on the statement of cash flows? a. cash flow from operating activities b. cash flow from equity activities c. cash flow from investing activities d. cash flow from financing activities

Q: EBITDA is "earnings before interest, taxes, depreciation, and amortization." a. True b. False Indicate the answer choice that best completes the statement or answers the question.

Q: Economic value added (EVA) measures a firm's market value added over a specified time period. a. True b. False

Q: How quickly an asset can be converted into cash is called liability. a. True b. False

Q: Variable expenses are costs that are expected to remain constant over a range of revenues for a specific time period. a. True b. False

Q: The balance sheet equation is: Total Assets = Total Liabilities + Net Income. a. True b. False

Q: Cash fixed costs equals survival revenues minus variable cost revenue ratio multiplied by survival revenues. a. True b. False

Q: Net cash build occurs when the sum of cash flows from operations and investing is positive. a. True b. False

Q: The acquisition of production assets (e.g., inventories and equipment to produce products and give credit to customers) usually occurs during the development stage in a new venture's life cycle. a. True b. False

Q: During the development stage in a new venture's life cycle, the balance sheet reflects the acquisition of initial assets and the obtaining of seed financing. a. True b. False

Q: Long-term, noncancelable leases whereby the owner receives payments that cover the cost of the equipment plus a return on investment in the equipment are known as capital leases. a. True b. False

Q: GAAP stands for "general American accounting principles." a. True b. False

Q: GAAP stands for "generally accepted accounting principles." a. True b. False

Q: The reduction in value of a fixed asset over its expected life intended to reflect the usage or wearing out of the asset is called depreciation. a. True b. False

Q: EBIT is "equity before interest and taxes." a. True b. False

Q: Net cash burn occurs when the sum of cash flows from operations and investing is positive. a. True b. False

Q: On the balance sheet, total liabilities equals total assets minus owners' equity. a. True b. False

Q: Fixed expenses are costs that are expected to remain constant over a range of revenues for a specific time period. a. True b. False

Q: Variable expenses are costs or expenses that vary directly with revenues. a. True b. False

Q: The income statement is a financial statement that reports the revenues generated and expenses incurred over an accounting period. a. True b. False

Q: Assets are financial and physical items controlled or owned by the business. a. True b. False

Q: When EBIT is zero, a firm's net operating profit after taxes (NOPAT) is also zero because no taxes are payable. a. True b. False

Q: NOPAT equals net sales multiplied by one minus the tax rate. a. True b. False

Q: Survival revenues is the amount of revenues just offsetting variable and cash fixed costs. a. True b. False

Q: Accrual accounting is the practice of recording economic activity when recognized rather than waiting until realized. a. True b. False

Q: EBDAT is "earnings before depreciation, assets, and taxes." a. True b. False

Q: During the startup stage in a new venture's life cycle, the income statement typically shows no sales and shows expenses for the production and marketing of products or services. a. True b. False

Q: Amounts owed to another for purchases made on credit which come due in less than one year are known as receivables. a. True b. False

Q: Seed financing (e.g., financing from the entrepreneur's assets, family, and friends) usually occurs during the development stage in a new venture's life cycle. a. True b. False

Q: During the startup stage in a venture's life cycle, financing may be obtained from business angels and venture capitalists in addition to seed financing sources. a. True b. False

Q: Cash or other assets that are expected to be converted into cash in less than one year are known as current liabilities. a. True b. False

Q: The production and inventories schedules are two internal operating schedules needed to prepare a venture's financial statements. a. True b. False

Q: Cost of goods sold is the cost of materials, labor, and advertising incurred to produce the products that were sold. a. True b. False

Q: Startup financing (e.g., financing from business angels and venture capitalists) usually occurs during the development stage in a new venture's life cycle. a. True b. False

Q: The practice of recording economic activity when realized is known as accrual accounting. a. True b. False

Q: During the development stage in a new venture's life cycle, the income statement typically shows no sales and shows expenses such as rent, utilities, and a subsistence salary for the entrepreneur. a. True b. False

Q: Making sales usually begins during the development stage in a venture's life cycle. a. True b. False

Q: Economic value added (EVA) is a measure of a firm's economic profit over a specified time period. a. True b. False

Q: Net income, or profit, is the bottom-line measure of what's left from the firm's net sales after operating expenses, financing costs, and taxes have been deducted. a. True b. False

Q: The statement of cash flows is a financial statement that shows how cash, as reflected in accrual accounting, flowed into and out of a company during a specific period of operation. a. True b. False

Q: Gross earnings are net sales minus net income. a. True b. False

Q: Contribution profit margin is the portion of the sale of a product that contributes to covering the cash variable costs. a. True b. False

Q: Indicate whether the statement is true or false.Operating income, or earnings before interest and taxes, reflects the firm's profit after all operating expenses, excluding financing costs, have been deducted from net sales.a. Trueb. False

Q: Which of the following is not considered to be a current asset? a. cash b. receivables c. inventories d. fixed assets

Q: Last year, Beth's Baked Goods exactly broke even with cash fixed costs of $63,000. If its breakeven survival revenues level was $94,000, what was its variable cost revenue ratio (VCRR)? a. 0.27 b. 0.30 c. 0.33 d. 0.67

Q: Which of the following is not a likely source of financing available during a venture's startup stage? a. the entrepreneur's assets, family, and friends b. business angels c. bank loans d. venture capitalists

Q: Which of the following is depreciated? a. inventory b. machinery c. land d. cash