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Questions and Answers
What do financial statements help to gauge about a business?
What do financial statements help to gauge about a business?
- The market share of the business
- The financial condition of the business (correct)
- The number of employees hired
- The location of the business premises
Which action regarding the business does not require written permission from the publisher?
Which action regarding the business does not require written permission from the publisher?
- Photocopying the presentation
- Calculating start-up costs (correct)
- Developing sales projections
- Interpreting financial statements
What is one of the objectives mentioned in Chapter 11 of the book?
What is one of the objectives mentioned in Chapter 11 of the book?
- Estimating start-up costs (correct)
- Developing a product prototype
- Creating social media campaigns
- Designing promotional materials
What is a key aspect of financial planning according to the text?
What is a key aspect of financial planning according to the text?
What is the primary focus of financial statements in relation to a business?
What is the primary focus of financial statements in relation to a business?
Which task is NOT mentioned as an objective in Chapter 11 for building a financial plan?
Which task is NOT mentioned as an objective in Chapter 11 for building a financial plan?
What is the primary focus of a financial plan according to the text?
What is the primary focus of a financial plan according to the text?
Which document is NOT listed as one of the three basic financial documents?
Which document is NOT listed as one of the three basic financial documents?
Which term is NOT considered a key financial term for entrepreneurs?
Which term is NOT considered a key financial term for entrepreneurs?
Which financial outcome is specifically mentioned in the text as a focus of the financial plan?
Which financial outcome is specifically mentioned in the text as a focus of the financial plan?
What kind of document are pro forma financial statements?
What kind of document are pro forma financial statements?
Which term refers to what remains after deducting expenses from revenue?
Which term refers to what remains after deducting expenses from revenue?
What does the Cash Flow Statement reflect?
What does the Cash Flow Statement reflect?
What type of capital is needed for working day-to-day operations of a fashion retail business?
What type of capital is needed for working day-to-day operations of a fashion retail business?
Which financial statement provides a comparison of expenses and revenue over a certain period of time?
Which financial statement provides a comparison of expenses and revenue over a certain period of time?
What is included in the Financial Planning Template mentioned in the text?
What is included in the Financial Planning Template mentioned in the text?
Which type of funding involves obtaining funds through credit cards and microloan programs?
Which type of funding involves obtaining funds through credit cards and microloan programs?
What is the purpose of the Balance Sheet in financial reporting?
What is the purpose of the Balance Sheet in financial reporting?
Which category of financial ratios focuses on how well a company can meet its short-term obligations?
Which category of financial ratios focuses on how well a company can meet its short-term obligations?
What do profitability ratios primarily assess?
What do profitability ratios primarily assess?
Which type of financial ratio evaluates the level of risk associated with a company's operations?
Which type of financial ratio evaluates the level of risk associated with a company's operations?
Efficiency ratios are primarily concerned with assessing a company's:
Efficiency ratios are primarily concerned with assessing a company's:
Which financial metric helps determine the point at which a business neither makes a profit nor incurs a loss?
Which financial metric helps determine the point at which a business neither makes a profit nor incurs a loss?
What do liquidity ratios primarily indicate about a company?
What do liquidity ratios primarily indicate about a company?
What financial statement is used to represent a company's financial position at a specific point in time?
What financial statement is used to represent a company's financial position at a specific point in time?
Which ratio measures a company's ability to cover its short-term liabilities with its most liquid assets?
Which ratio measures a company's ability to cover its short-term liabilities with its most liquid assets?
What does the debt-to-equity ratio indicate about a company?
What does the debt-to-equity ratio indicate about a company?
Which term refers to the portion of revenue that exceeds total costs and expenses in a business?
Which term refers to the portion of revenue that exceeds total costs and expenses in a business?
What does the return on assets (ROA) ratio measure for a company?
What does the return on assets (ROA) ratio measure for a company?
Which type of financing involves raising funds by selling shares of ownership in a company?
Which type of financing involves raising funds by selling shares of ownership in a company?
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Study Notes
The Importance of Financial Planning
- Financial statements are used to gauge the financial condition of a business and tell a story about its financial health.
- Almost every decision made about the business has a financial impact.
Analyzing Financial Statements
- Financial statements are divided into four categories: liquidity, profitability, risk, and efficiency ratios.
- These ratios help entrepreneurs understand how well their business is operating.
Key Financial Ratios
- Liquidity ratios measure a company's ability to pay its debts.
- Profitability ratios measure a company's ability to generate earnings.
- Risk ratios measure a company's ability to manage its debt.
- Efficiency ratios measure a company's ability to use its assets and resources.
The Break-Even Point
- The break-even point is the point at which a business's revenue equals its total fixed and variable costs.
- Fixed costs are costs that remain the same even if the business produces more or less.
- Variable costs are costs that change depending on the business's production level.
Maintaining Financial Records
- Maintaining good financial records helps prevent catastrophes and ensures the business's financial health.
Finding Financial Information
- Resources for finding financial information include the National Retail Federation, magazines, and journals.
- The North American Industry Classification System (NAICS) is also a useful resource.
Key Financial Terms
- Sales or revenues refer to the income generated by a business.
- Asset refers to something a business owns or controls.
- Cost of goods sold or cost of product/service refers to the cost of producing or purchasing a product.
- Liability refers to a debt or obligation that a business owes.
- Debt refers to borrowed money.
- Net income refers to the profit earned by a business.
- Equity refers to the ownership interest in a business.
- Owner's equity refers to the amount of money invested in a business by its owners.
- Stock or merchandise refers to the goods or products that a business sells.
- Expenses refer to the costs incurred by a business.
- Pro forma financial statements are projected financial statements that estimate a business's future performance.
Financial Outcomes
- The financial plan focuses on three primary outcomes: financial performance, cash flow, and profitability.
The Financial Statements
- The three basic financial documents are:
- The Cash Flow Statement, which reflects all cash flowing in and out of the business each month.
- The Income Statement, or profit and loss statement, which compares expenses and revenue over a certain period of time.
- The Balance Sheet, which is a snapshot of the business at a given point in time.
Financial Planning Template
- A financial planning template includes:
- Financial assumptions
- Start-up costs
- Planned sales
- Planned markdowns
- Six-month merchandising plan
- Operating expenses
- Capital expenditures
- Market value
- Depreciation
- Equity and loan amortization
- Equity injections
- Amortizing business loans
- Line of credit
- Owner's draw
Accessing Capital
- Fashion retail businesses need three types of capital: seed capital, working capital, and growth capital.
- There are two types of funding: debt financing and equity financing.
- Sources of funds include:
- Family and friends
- Credit cards
- Commercial banks
- Microloan programs
- Crowd funding
- Angel investors
- Venture capitalists
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