Deck 13: Using Financial Statements to Guide a Business

Question 1

An income statement shows whether the difference between revenues (sales) and expenses (costs) is a profit or a ________.

A) Loss
B) Net profit
C) Breakeven
D) Mess
E) Yield

Answer 1

A

Question 2

Calculate the return on sales for a business that has net income of $25,000 and sales of $60,000.

A) 42%
B) 0.42
C) 4.2
D) 0.042
E) None of the above

Answer 2

A

Question 3

Successful entrepreneurs use their financial records to prepare ________ income statements that show sales and costs for the previous period.

A) Quarterly
B) Yearly
C) Monthly
D) Biannually
E) None of the above

Answer 3

E

Question 4

In a business formula such as Return on Investment, "on" means ________.

A) "Divided by"
B) "Deducted from"
C) "On top of"
D) "Instead of"
E) None of the above

Question 5

Examining ________ monthly can help determine what is doing well, or poorly, in a business.

A) Operating ratios
B) Income statement ratios
C) Financial ratios
D) All of the above
E) None of the above

Question 6

To see how costs are affecting net profit, try analyzing the income statement by expressing each item on the income statement ________.

A) As a percentage of sales
B) As a percentage of profit
C) As a percentage of costs
D) As a percentage of operations
E) As a percentage of assets

Question 7

You can create ________ from your income statement that will help you analyze your business further.

A) Financial ratios
B) Asset categories
C) Liabilities categories
D) All of the above
E) None of the above

Question 8

EBIT is an acronym for ________.

A) Earnings before interest and taxes
B) Earnings before income taxes
C) Earnings before information technology costs
D) All of the above
E) None of the above

Question 9

What analytic tool allows you to compare income statements from different periods, even if the dollar figures are very different?

A) Financial analysis
B) Asset analyses
C) Income analyses
D) Same-size analysis
E) None of the above

Question 10

Cash itself or items that could quickly be turned into cash or will be used within 1 year are called ________.

A) Current assets
B) Long-term assets
C) Liquid assets
D) Current liabilities
E) Stuff

Question 11

Jared analyzed the income statement for his independent label and found that for every dollar of sales, 30 cents was spent on cost of goods sold. The gross profit per dollar was 70 cents. If 20 cents was spent on operating costs and 10 cents on taxes, what is the net profit per dollar?

A) 40 cents
B) 60 cents
C) 30 cents
D) 70 cents
E) 50 cents

Question 12

What must balance with assets on the balance sheet?

A) Liabilities and owner's equity
B) Net worth and owner's equity
C) Capital and owner's equity
D) Net profit
E) Available cash

Question 13

When an entrepreneur makes a scheduled payment on a conventional loan ________.

A) Part of it goes to principal and part goes to interest
B) All of it goes to principal (balance sheet)
C) All of it goes to interest (income statement)
D) Part of it pays penalties
E) None of the above

Question 14

The last line of an income statement shows a business's ________.

A) Net profit or net loss
B) Gross profit or gross loss
C) Profit or loss
D) Taxes
E) Fixed costs

Question 15

The return on sales ratio is ________.

A) Net income/sales
B) Also called the operating ratio
C) Revenue/expenses
D) Debt/income
E) Inventory/receipts payable

Question 16

Ideally, you want to have a positive "double" bottom line. This means ________.

A) You are achieving a profit and meeting your mission
B) You have twice the number of customers that you expected
C) You have twice the profit that you expected
D) All of the above
E) None of the above

Question 17

Entrepreneurs use a(n) ________ to track assets and liabilities.

A) Balance sheet
B) Cash flow statement
C) Income statement
D) Balance report
E) Liabilities list

Question 18

A business's operating ratios are computed by ________.

A) Expense/sales
B) Cost of goods sold/sales
C) Income/sales
D) Expense/cost of goods sold
E) None of the above

Question 19

An older term used for the income statement is the ________.

A) Profit and loss statement
B) Cash flow analysis
C) Balance sheet
D) Liabilities report
E) None of the above

Question 20

Liabilities that will be paid over a period of more than one year are ________.

A) Long-term liabilities
B) Long-term assets
C) Equity
D) Current liabilities
E) None of the above

Question 21

Owner's equity is the difference between assets and liabilities.

Question 22

Long-term liabilities are debts that are scheduled for payment within one year. These include the portion of long-term debt due within the year.

Question 23

ROI is always calculated for ________.

A) A specific time period, such as a month or a year
B) The length of a business's fiscal year
C) A month
D) Ever
E) None of the above

Question 24

Depreciation reflects the wear and tear on an asset over time or other loss of value through obsolescence.

Question 25

Which of the following is not something that can be invested?

A) Expertise
B) Money
C) Energy
D) Time
E) All of the above

Question 26

In the income statement, gross profit minus fixed operating costs equals ________.

A) Pretax profit
B) Net profit
C) Gross profit
D) COGS
E) Margin

Question 27

Return on Sales (ROS) is also called a(n) ________.

A) Profit margin
B) Operating margin
C) Contribution margin
D) Gross margin
E) Profit scope

Question 28

To create a same size analysis, calculate each line item as a percentage of ________.

A) Sales
B) Income
C) Costs
D) Units
E) None of the above

Question 29

Contribution margin equals revenues plus COGS and other variable costs.

Question 30

If revenues are greater than expenses, the income statement balance will be positive, showing that the business has incurred loss.

Question 31

If you invest $1,525,000 in a business and earn a return of $775,000, what is your ROI?

A) 51%
B) 42%
C) 45%
D) 37%
E) 57%

Question 32

A fiscal year may differ from the calendar year.

Question 33

How would you express a ratio as a percentage?

A) Multiply it by 100
B) Divide it by 100
C) Add a percentage sign
D) Subtract 100
E) This is impossible to do.

Question 34

Growth of ________ is a good way to measure company success.

A) Owner's equity
B) Long-term debt
C) Cash
D) Liabilities
E) None of the above

Question 35

COGS is an acronym for "Cost of Goods Shipped."

Question 36

Current assets are cash itself or items that could quickly be turned into cash (liquidated), or will be used by the business within one year.

Question 37

The expression, "What you made over what you paid, times one hundred," is a device to remember how to compute ________.

A) ROI
B) ROA
C) ROS
D) All of the above
E) None of the above

Question 38

In a balance sheet, the difference between assets and liabilities is called ________.

A) Owner's equity
B) debt
C) Cash flow
D) Profit
E) Income

Question 39

Return on sales is the percentage created when sales are divided into gross margin.

Question 40

Investment is something you put time, energy, or money into because you expect to gain profit or satisfaction in return.

Question 41

Revenue is income received from sales of the company's products or services.

Question 42

Define debt and equity and explain the difference between them. Where does each appear on financial statements?

Question 43

How does a debt-to-equity ratio help describe the financial health of a company?

Question 44

The double bottom line answers the question, "Are you able to make a profit and operate the business in a way that makes you feel satisfied and fulfilled?"

Question 45

Businesses in different countries prepare and present income statements in the same way anywhere in the world.

Question 46

Steve starts his business on January 1, and compiles all of his first month's sales and expenses and does his financial statements on February 1. Is Steve doing a good job with his record keeping?

Question 47

A balance sheet is a financial statement that shows the assets, liabilities, and cash flow of a business.

Question 48

What is the purpose of financial ratio analysis?

Question 49

If cash has decreased from $10,000 to $8000 on the balance sheet, it means the company is doing poorly.

Question 50

Describe the parts of an income statement.