Question 1

The statement of cash flows summarizes the changes in a firm's cash position for a specified period of time and details why the change occurred.

Accepted Answer

The statement of cash flows provides information on the sources and uses of a company's cash during a particular period of time, explaining both the increase or decrease in cash and providing insight into the company's overall financial health.

Question 2

The pro forma balance sheet provides a firm a sense of how its activities will affect its ability to meet its short-term liabilities and how its finances will evolve over time.

Accepted Answer

The pro forma balance sheet is a financial statement that projects a company's financial position based on its expected future activities. It includes estimates of assets, liabilities, and equity for a future period of time, usually the next fiscal year. By analyzing the pro forma balance sheet, a firm can evaluate its ability to pay its short-term debts and plan for long-term financial goals.

Question 3

What is ratio analysis? Why is it important?

Accepted Answer

The answer of What is ratio analysis? Why is it...

Question 4

Describe the purpose of the income statement, the balance sheet, and the statement of cash flows.

Accepted Answer

The answer of Describe the purpose of the income statement,...

Question 5

The pro forma income statement shows the projected flow of cash into and out of the company during a specified period.

Accepted Answer

The pro forma income statement shows the projected revenues, expenses, and profits of a company during a specified period. It does not show the flow of cash into and out of the company. The statement of cash flows is the financial statement that shows the actual flow of cash into and out of the company.

Question 6

Describe the difference between historical and pro forma financial statements.

Accepted Answer

The answer of Describe the difference between historical and pro...

Question 7

Describe each of the four primary financial objectives of firms.

Accepted Answer

The answer of Describe each of the four primary financial...

Question 8

A firm's profit margin, or return on sales, is computed by dividing net income by net sales.

Accepted Answer

This is correct, as profit margin is calculated by dividing net income by net sales.

Question 9

The same financial ratios used to evaluate a firm's historical financial statement should be used to evaluate the pro forma financial statements.

Accepted Answer

The same financial ratios used for historical financial statements should be used for pro forma statements to ensure consistency and accuracy in the evaluation process.

Question 10

The major categories of assets listed on a balance sheet include current assets, fixed assets, and other assets.

Accepted Answer

This statement is true. The major categories of assets listed on a balance sheet are current assets, fixed assets, and other assets. Current assets include items that can be easily converted to cash within a year such as cash, accounts receivable, and inventory. Fixed assets include items owned by the company that are used to generate revenue such as property, plant, and equipment. Other assets include items such as long-term investments or intangible assets like patents or trademarks.

Question 11

A firm's working capital is defined as its fixed assets minus its long-term liabilities.

Accepted Answer

A firm's working capital is defined as its current assets minus its current liabilities. Fixed assets and long-term liabilities are not included in the calculation of working capital.

Question 12

What are forecasts? What role do they play in the preparation of pro forma financial statements?

Accepted Answer

The answer of What are forecasts? What role do they...

Question 13

The break-even point for a new restaurant or product is the point where the total revenue received equals total costs associated with the output of the restaurant or the sale of the product.

Accepted Answer

This definition accurately describes the break-even point.

Question 14

A statement of cash flows is a snapshot of a company's assets, liabilities, and owners' equity at a specific point in time.

Accepted Answer

A statement of cash flows shows the inflows and outflows of cash for a specific period of time, not a snapshot of a company's financial position at a specific point in time.

Question 15

In the context of a firm's statement of cash flows, operating activities include the purchase, sale, or investment in fixed assets, such as real estate, equipment, and buildings.

Accepted Answer

Operating activities in the statement of cash flows refer to the cash inflows and outflows from the company's normal course of business, such as sales and payments to suppliers, employees, and taxes. The purchase, sale, or investment in fixed assets falls under investing activities.

Quiz 8: Assessing a New Ventures Financial Strength and Viability