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Questions and Answers
The personal screen requires entrepreneurs to answer if they have the drive, will invest time, and will sacrifice comfort.
True
The risk-return grid categorizes opportunities based solely on their return potential.
False
There are twelve criteria used for opportunity screening in addition to the risk-return grid.
True
The return on sales (ROS) ratio indicates how much profit is generated for each peso sold.
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A business opportunity is considered good if it offers a low return with a high risk according to the risk-return grid.
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The return on sales for ABC Company is calculated as $500,000 / 5,000,000$ resulting in 10%.
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A feasibility study is less detailed and comprehensive than a pre-feasibility study.
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The total liabilities and equity for Mang Juan's Manufacturing equal P1,648,150.
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The return on assets for ABC Company is $500,000 / 1,500,000$, equating to 50%.
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Current liabilities and stockholders' equity combine to make up the entire liabilities section of a balance sheet.
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Accounts receivable is considered a liability in the balance sheet equation.
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The balance sheet equation shows that total assets must equal the sum of liabilities and equity.
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Stockholders' equity represents an enterprise's debt to suppliers.
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Financial forecasting involves predicting sales and costs for a business.
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Liabilities must always exceed the total assets of a business.
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The income statement is one of the four critical financial statements.
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Utilities are classified as operating expenses in a financial forecast.
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A pre-feasibility study only focuses on projected revenues and ignores costs.
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Funds flow statements are created to track the movement of cash resources in a business.
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Commissions are generally not considered an expense in financial forecasting.
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Study Notes
Opportunity Seeking, Screening, and Seizing
- The process of identifying, evaluating, and pursuing business opportunities is crucial for entrepreneurs.
- Opportunities can arise from macro-environment trends, industry shifts, market changes, micromarket developments, and consumer behavior.
- Opportunity Screening is the process of evaluating potential opportunities and selecting the most promising ones.
- Entrepreneurs must consider personal preferences, drive, and capabilities when screening opportunities.
- A Risk-Return Grid helps entrepreneurs assess the potential return on investment (ROI) against the level of risk involved.
- The 12 Rs of Opportunity Screening provide a framework for evaluating opportunities based on criteria such as relevance, resonance, reinforcement of entrepreneurial interests, revenues, responsiveness, reach, range, revolutionary impact, returns, relative ease of implementation, resources required, and risks.
- Relevance means the opportunity aligns with the entrepreneur's vision, mission, and objectives.
- Resonance refers to the alignment of the opportunity with the entrepreneur's values and desired virtues.
- Reinforcement of Entrepreneurial Interests considers how well the opportunity aligns with the entrepreneur's personal interests, talents, and skills.
- Revenues refer to the potential financial gains from the opportunity.
- Responsiveness assesses how well the opportunity addresses unmet customer needs and wants.
- Reach considers the opportunity's potential for expansion through branches, distributorships, dealerships, or franchises.
- Range evaluates the opportunity's potential to offer a wide range of products or services, targeting various market segments.
- Revolutionary Impact explores whether the opportunity has the potential to be groundbreaking or disruptive in the industry.
- Returns consider both tangible and intangible rewards, such as financial gains and brand recognition.
- Relative Ease of Implementation assesses the ease of implementing the opportunity.
- Resources Required explores the resources needed for the opportunity, such as finances, talent, and infrastructure.
- Risks examines the potential risks involved in the opportunity, such as technological, market, financial, and personnel risks.
- An Opportunity Screening Matrix can be used to quantify and evaluate the 12 Rs, providing evidence for selecting the best opportunities.
- A Feasibility Study is a comprehensive analysis conducted for larger projects requiring significant investment.
- A feasibility study includes a detailed market potential analysis, product or service design verification, financial analysis, and a competitive assessment.
- Financial Forecasts project the financial transactions expected to occur within the business.
- Key financial statements to forecast include the Income Statement, Balance Sheet, Cash Flow Statement, and Funds Flow Statement.
- An Income Statement forecasts revenues and expenses, providing insight into profitability.
- A Balance Sheet forecasts assets, liabilities, and stockholders' equity, reflecting the financial position of the business.
- A Cash Flow Statement forecasts the movement of cash in and out of the business.
- A Funds Flow Statement forecasts the flow of resources within the business.
- Determining the Target Market Segment involves identifying the specific group of customers the business will focus on.
- Assessing Competition involves evaluating existing competitors in the market and understanding their strengths and weaknesses.
- Entrepreneurs should aim to differentiate their products or services to stand out in a competitive market and gain a competitive edge.
- Market Saturation refers to the level of competition within a particular market.
- Entrepreneurs must evaluate whether they can enter a saturated market successfully, considering their strengths and weaknesses.
- Market Share represents the percentage of a specific market that a business controls.
- Entrepreneurs should estimate their potential market share and sales volume based on their target market segment.
- Entrepreneurs must consider the Financial Feasibility of their business idea by assessing their resource availability and projected costs. This involves comparing their sales projections with their monthly production or service delivery costs to determine their profitability.
- Entrepreneurs should consider the Personal Screen before embarking on a new business venturing, taking into account their personal preferences, capabilities, and willingness to make sacrifices required for success.
- The Pre-Feasibility Study is an initial evaluation of a business opportunity, used to determine whether a detailed feasibility study is worthwhile.
- A Pre-Feasibility Study includes a market analysis, financial analysis, and a competitive assessment.
Financial Analysis in Opportunity Screening
- Key financial ratios used in opportunity screening include Return on Sales (ROS), Return on Assets (ROA), and Return on Investments (ROI).
- ROS measures the profit earned per unit of sales.
- ROA measures profits relative to investments in assets.
- ROI measures the profitability of an investment.
Financial Statements in Opportunity Screening
- Balance Sheet is a financial statement reflecting the assets, liabilities, and shareholder equity of the business at a specific point in time.
- Income Statement is a financial statement presenting the revenues and expenses of the business over a specified period.
- Cash Flow Statement is a financial statement that shows the movement of cash in and out of a business over a period of time.
- Funds Flow Statement is a financial statement that shows the movement of funds, both cash and non-cash, within a business over a period of time.
- These financial statements provide insight into the financial health and performance of a business, helping entrepreneurs make informed decisions about investment, financing, and overall strategy.
The Balance Sheet Equation
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Assets = Liabilities + Equity
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This equation represents a core principle of accounting: the resources of a business must be equal to the claims on those resources (liabilities and equity).
Important Expenses to Consider During Financial Analysis
- Cost of goods sold (COGS) includes the expenses associated with producing or acquiring the goods the business sells.
- Operating expenses are the costs associated with running the business, such as rent, utilities, wages, marketing, and administrative expenses.
- Non-operating expenses are expenses not directly related to the business's core operations, such as interest expense or taxes.
- Fixed costs are expenses that remain relatively constant regardless of the level of production or sales.
- Variable costs are expenses that vary directly with the level of production or sales.
Important Financial Considerations in Opportunity Screening
- Break-even analysis: This helps entrepreneurs determine the sales volume needed to cover all costs and operate at a profit.
- Profitability analysis: This assesses the potential profitability of the opportunity.
- Sensitivity analysis: This helps entrepreneurs assess the impact of changes in key assumptions on the financial forecasts.
Opportunity Screening Process
- Opportunity screening is a continuous process that involves evaluating potential opportunities, updating the analysis as new information becomes available, and adapting to changing market conditions.
- Entrepreneurs should select opportunities that align with their personal strengths, interests, and values.
- Entrepreneurs should gather as much information as possible about the opportunity, including market data, financial information, and competitive landscape.
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Description
This quiz delves into the essential processes of seeking, screening, and seizing business opportunities. It explores how entrepreneurs identify and evaluate market trends and consumer behaviors, while also assessing risks and returns. Understand the 12 Rs of Opportunity Screening and how they shape the decision-making process.
