The Entrepreneurial Mind Midterm PDF

The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Curious being...

The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Curious being Entrepreneurs make it a habit to be open and curious about every- thing and curiosity keeps them asking questions and generating ideas for their next moves. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Curiosity is the difference Curious being between average success and great success and ordinary people stop working when they run out of creative energy, while highly effective entrepreneurs never stop generating new ideas. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Turn obstacles into assets The best entrepreneurs believe and act as if everything is a gift. It is a good way of looking at the challenges in any endeavor, such as getting a new venture off the ground or launching a new product line. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits 1. First, an entrepreneur will discover what others did and did not like about his idea. Better to learn it early, before he sinks more resources into the concept, venture, or product line. Entrepreneurs must always keep potential losses to a minimum. Turn obstacles into assets 2. Second, the feedback could take an entrepreneur in another direction. For instance, one might think of starting a public relations firm, but a quick survey revealed that the field was already saturated. 3. Third, the entrepreneur will gain an advantage over his competi- tors since he knows something they don't. He is ahead of the game DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Having a high tolerance for ambiguity Most people need a clear set of rules and expectations. As people mature, they become more adept at assessing risk. Children, however, indulge in "risky" behaviors to test their limits and explore DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Some of the most successful entrepreneurs share that trait Having a high tolerance for ambiguity with kids. They tend to have a high tolerance for ambiguity, which makes them more likely to take risks based on limited information. Indeed, starting a business is all about confronting one unknown after another. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Having a high tolerance for ambiguity High tolerance for ambiguity makes entrepreneurs less likely to get anxious in novel situations or when faced with uncertainty. They can think quickly on their feet 1 / 15  The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t and see things from different angles. The unfamiliar is simply an opportunity to adapt DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Using fears and anxieties as fuel Research by Dr. Alison Wood Brooks of Harvard Business School says, "Anxiety is incredibly pervasive. People strongly believe that trying to calm down is the best way to cope with their anxiety, but that can be difficult and ineffective." DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Using fears and anxieties as fuel Wood Brooks has found that trying to calm down during an anxiety attack can only worsen performance. Instead, the anxiety must be reframed as excitement. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Using fears and anxieties as fuel That's one reason professional athletes and successful entrepre- neurs frame their anxieties as feeling "pumped up," harnessing those normal jitters to work in their favor. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Focus on the causes, not effects, of confidence and success Success represents more incredible adversity than failure. It is apparent long before the rise of modern psychology. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Focus on the causes, not effects, of confidence and success braham Lincoln said, "Nearly all men can stand adversity, but if you want to test a man's character, give him power." DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Focus on the causes, not effects, of confidence and success When people succeed, they tend to focus on the causes of their success, believing they were right all along. Successful entrepre- neurs have the presence of mind to resist that shift in focus. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Focus on the causes, not effects, of confidence and success Their behavior is remarkably consistent regardless of whatever success or defeats they experience. They know that their confidence and achievements are the products of a constant, internal drive to improve their craft. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Be proactive Proactivity means more than merely taking the initiative. It means that as human beings, people are responsible for their lives. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Be proactive Highly proactive people recognize that responsibility means the ability to choose a response. They do not blame circumstances, conditions, or conditioning for their behavior. 2 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Be proactive Proactive people are influenced by external physical, social, or psychological stimuli. But their response to stimuli, conscious or unconscious, is a value-based choice or response. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Begin with the end in mind This principle involves envisioning the future. It states that all things are created twice, but not all first creations are by conscious design. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Begin with the end in mind There is a mental (first) creation, and a physical (second) creation. The physical creation follows the mental, just as a building follows a blueprint (Covey, n.d.). DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Begin with the end in mind People must make a conscious effort to reach their blueprint or what they envision themselves to be. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Two (2) factors define an activity: urgent and important. Urgent Put first things first means it requires immediate attention. For example, a ringing phone is urgent; most people can't stand the thought of just allowing the phone to ring. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Put first things first most people can't stand the thought of just allowing the phone to ring. Urgent matters are usually visible; they insist on action. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Put first things first Importance, on the other hand, has to do with results. If something is important, it contributes to an entrepreneur's mission, values, and high-priority goals. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Think win-win Win-win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Think win-win Win-win means that agreements or solutions are mutually bene- ficial and satisfying. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Think win-win A win-win solution makes all parties feel good about the decision and committed to the action plan 3 / 15  The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Seek first to understand, then to be understood "Seek first to understand" involves a profound paradigm shift. People typically seek first to be understood. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Seek first to understand, then to be understood Most people do not listen with the intent to understand; they listen with the intent to reply. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits They are either speaking or preparing to speak. They filter everything through their paradigms, reading their autobiog- raphy into other people's lives. Seek first to understand, then to be understood EXAMPLE: If a parent has a problem with their child, the usual response is, "I understand him/her; know what s/he's going through. I went through the same thing myself. I don't understand why s/he won't listen to me." In reality, the parent doesn't have the vaguest idea about his/her kid. S/he thought of him/herself and assumed the kid had the same per- spective DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Sympathy It is a form of agreement or a form of judgment, and it is sometimes the more appropriate emotion and response DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Seek first to understand, then to be understood Empathy is not sympathy DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Synergy In synergize this means that the relationship of departments within an organization is catalytic, empowering, unifying, and exciting (Covey, 1989) DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Sharpen the saw It means having a balanced program in four (4) areas of life (physical, social/emotional, mental, and spiritual). DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Sharpen the saw This balance allows individuals to become more productive, efficient, and effective (Covey, n.d.). DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits Sharpen the saw The body can be renewed through exercise, proper nutrition, stress management, etc. Emotions can be refreshed by establishing meaningful relationships. DEVELOPING THE ENTREPRENEURIAL MIND -Entrepreneurial Habits 4 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t Mental well-being can be transformed through reading, writing, or Sharpen the saw learning new things. Lastly, the spirit can be renewed by revisiting values, providing service, or meditating with nature. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Naert's Model Philippe Naert He is a dean of the Antwerp Management School in Belgium believes that value creation is the purpose of business. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Naert's Model Shareholder model Philippe Naert criticizes a theory that focuses on maximizing financial returns on investments with zero regard for customers and employees DEVELOPING BUSINESS ACUMEN The Purpose of Business | Naert's Model Naert's model It proposes that economic and societal values can be pursued simultaneously (Erisman & Gautschi, 2015). DEVELOPING BUSINESS ACUMEN The Purpose of Business | Naert's Model Economic Value What companies created by developing, producing, and delivering goods and services and it maximizes value or the difference between benefits and costs DEVELOPING BUSINESS ACUMEN The Purpose of Business Larger value chain | Naert's Model In creating value, companies are typically part of what? DEVELOPING BUSINESS ACUMEN The Purpose of Business | Naert's Model Economic and Societal Values Modern companies created these values while establishing a win-win relationship between business and society. Societal value has many dimensions DEVELOPING BUSINESS ACUMEN The Purpose of Business | Naert's Model Energy-saving lamps It is good for society because it reduces energy consumption. It is suitable for the consumer whose electricity charges decrease. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Naert's Model Energy-saving lamps It is good for the producing company because it increases sales in new markets with low electricity and buying power. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model He is a dean of the School of Business and Economics at Seattle 5 / 15  The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t Pacific University, shares some commonalities with Naert in his criticism of the shareholder model. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model He shares some commonalities with Naert in his criticism of the shareholder model DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model To serve customers by providing goods and services that promote human flourishing It is one of the two proposes of Van Duzer which is about the purpose of business and its focus is primarily on customers and the broader community. It highlights the role that business plays in bringing products to markets. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model To serve employees by providing opportunities for meaningful and It is one of the two proposes of Van Duzer which is about the creative work purpose of business and its focus on employees and vendors. Businesses create jobs that allow people (through their labor) to sustain their lives. Intentionally, it encourages the development of human potential and extends far beyond mere material suste- nance DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model To serve employees by providing opportunities for meaningful and It is one of the two proposes of Van Duzer which is about the creative work purpose of business and its focus on businesses creating jobs that allow people (through their labor) to sustain their lives. Intentionally, it encourages the development of human potential and extends far beyond mere material suste- nance DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model Profit Duzer sees this as the means of attracting a business's capital to pursue its first-order purpose. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model Traditional Approach Under this approach which has a concern for the employees and integrity with customers are cast aside from the the goal of profit maximization. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model DEVELOPING BUSINESS ACUMEN The Purpose of Business | Van Duzer's Model Van Duzer's Model, In this model this generates a reasonable return on shareholders' investments allow the business to do what it is supposed to do 6 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t in the first instance: provide food, meaningful jobs, and beneficial products and services. DEVELOPING BUSINESS ACUMEN The Purpose of Business Profit | Van Duzer's Model It becomes the means; jobs and products become the ends. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Indira Parikh She is the president of the Foundation for Liberal and Manage- ment Education (FLAME) DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Indira Parikh She argues that the ancient wisdom of Hindu scriptures can be appropriated to business practices DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Bhagavad Gita It asserts that people should focus on their thoughts and actions rather than the outcomes of those actions DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Bhagavad Gita This ancient text describes the concepts of emotional intelligence and servant leadership and is the foundation for a new terminology karma capitalism. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Greed is bad Bhagavad Gita: Entrepreneurs should never engage in action only for the desire of rewards. Acting on worldly desires leads to failure. Do well, and good things will come DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Be fair Bhagavad Gita: Enlightened leaders are compassionate and self- less. "They treat everyone as equals." Followers will rally around them and follow their example. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Act rather than react Bhagavad Gita: A leader's actions today can become the "karma" that influences their status tomorrow. Leaders accomplish "excel- lence by taking action." DEVELOPING BUSINESS ACUMEN The Purpose of Business Seek higher consciousness | Parikh's Model Bhagavad Gita: Leaders should view problems within their larg- 7 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t er contexts. Show sensitivity to multiple stakeholders, including shareholders, employees, partners, and neighbors. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Dharma Generally speaking, this can be understood as a righteous duty or the right path to uphold the family and the organizational and social fabric. She renowned management guru has highlighted some of the Dr. Athreya core concepts of Dharma as enshrined in the Indian Shastras. DEVELOPING BUSINESS ACUMEN The Purpose of Business Natural Law | Parikh's Model Dharma: What does dharma means? DEVELOPING BUSINESS ACUMEN The Purpose of Business Timeless Principles | Parikh's Model Dharma: What does Shastras means? DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Loka Sangraha (Public Good) Dharma: It is the practice of seeking one's gains and catering to the welfare of others. DEVELOPING BUSINESS ACUMEN The Purpose of Business Loka Sangraha (Public Good) | Parikh's Model Dharma: It primarily reflects all the stakeholders. DEVELOPING BUSINESS ACUMEN The Purpose of Business Kausalam (Efficacy) | Parikh's Model Dharma: It is sensible use of resources for future generations DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Kausalam (Efficacy) Dharma: It reflects concern for ecology as well as for stakeholders. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Vividhta (Innovation) Dharma: It is beyond survival, the business must be the engine of innovation, constantly seeking more effective solutions to meet its economic and social expectations. DEVELOPING BUSINESS ACUMEN The Purpose of Business | Parikh's Model Jigyasa (Learning) Dharma: Change and continuity coexist. Corporate governance must keep learning from the feedback loop of society and through internal processes of questioning, challenging, debating, and training. 8 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t DEVELOPING BUSINESS ACUMEN -Business Models Business Model It is embedded in a firm's business plan, income statements, and cash flow projections and It is a conceptual, rather than a financial, framework. DEVELOPING BUSINESS ACUMEN -Business Models Business Model It makes implicit assumptions about customers, the behavior of revenues and costs, the changing nature of user needs, and competitor responses. DEVELOPING BUSINESS ACUMEN -Business Models Business Model It outlines the business logic required to earn a profit (if one is available to be earned) and, once adopted, defines the way the enterprise "goes to market" (Teece, 2010) DEVELOPING BUSINESS ACUMEN -Business Models Business Model This describes how a company creates and captures value. DEVELOPING BUSINESS ACUMEN -Business Models Business Model The model's features define the customer value proposition and the pricing mechanism, indicate how the company will organize itself and whom it will partner with to produce value, and specify how it will structure its supply chain. DEVELOPING BUSINESS ACUMEN -Business Models Business Model It is a system whose various features determine the company's success DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations A more personalized product or service Many new models offer products or services tailored to customers' individual and immediate needs DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations Millennial A more personalized product or service: They are particularly attracted to the idea of customization considering they customized merchandise such as shirts, mugs, name tags, etc. DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations A more personalized product or service Companies often leverage technology to achieve this at competitive prices. DEVELOPING BUSINESS ACUMEN Business Models A closed-loop process | The Six (6) Considerations Many models replace a linear consumption process (in which 9 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t products are made, used, and disposed of) with a closed loop, in which used products are recycled DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations A closed-loop process This shift reduces overall resource costs. Consider companies selling bottled beverages. Instead of disposing of the bottles after consumption, they are returned for reuse or recycling. DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations Some innovations succeed because they enable the sharing of Asset sharing costly assets. For example, Airbnb allows homeowners to share them with trav- elers, and Uber shares assets with car owners. Sometimes, assets may be shared across a supply chain DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations The sharing typically happens using two (2)-sided online market- places that unlock value for both sides. Asset sharing An example is a landowner who gets money from renting a spare room, and the renter gets a cheaper and nicer place to stay. Sharing also reduces entry bar- riers to many industries because an entrant need not own the assets in question; it can merely act as an intermediary DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations Usage-based pricing Some models charge customers when they use the product or service rather than requiring them to buy something outright. DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations When the customers benefit because they incur costs only Usage-based pricing as offerings generate value; the company benefits because the number of customers is likely to grow. For instance, customers are billed for credit cards at the end of each month only if they use the service. DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations A more collaborative ecosystem This model helps the firm improve, scale up, and market new products and technologies (Smith, 2015). DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations Some innovations are successful because a new technology im- proves the relationship with supply chain partners and helps al- 10 / 15  The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t locate business risks more appropriately, making cost reductions possible. A more collaborative ecosystem For example, Proctor & Gamble uses the "connect and develop" model through external networks (suppliers, competitors, scien- tists, entrepreneurs, etc.) to crowdsource new ideas. DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations An agile and adaptive organization Innovators sometimes use technology to move away from traditional hierarchical decision-making models to make decisions that better reflect market needs and allow real-time adaptation. DEVELOPING BUSINESS ACUMEN Business Models | The Six (6) Considerations The result is often more significant value for the customer at less An agile and adaptive organization cost to the company. Amazon understands, embraces, and anticipates change, making it agile and adaptive to changing business conditions and cus- tomer requirements. THE LANGUAGE OF BUSINESS -Understanding Financial Statements Balance Sheet/Statement of Financial Position It shows the financial position of a business on a certain date (usually the end of the month or year) THE LANGUAGE OF BUSINESS -Understanding Financial Statements Balance Sheet/Statement of Financial Position It is important to note that the date on the balance sheet is a single date. THE LANGUAGE OF BUSINESS -Understanding Financial Statements Balance Sheet It presents a business view of assets equal to the sum of liabilities and capital. (Needles, Powers, & Crosson, 2014) THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Balance Sheet/Statement of Financial Position Business fund The statement of financial position shows the capital contribution of owners and outside lenders as well as it presents the acquired assets of the business. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Balance Sheet/Statement of Financial Position Business value The statement of financial position provides a starting point for assessing a firm's value since it lists all the assets and business claims. THE LANGUAGE OF BUSINESS -Understanding Financial Statements It can be helpful to look at relationships between various state- 11 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t ments of financial position items. | Balance Sheet/Statement of Financial Position Business assets and claims For example, the relationship between how much wealth is tied up in current assets and how much is owed in the short-term (current liabilities). THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Balance Sheet/Statement of Financial Position Business performance The effectiveness of a business in generating wealth can be assessed against the amount of investment involved. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Balance Sheet/Statement of Financial Position Business performance The relationship between profit earned during a period and the value of the net assets invested can be helpful to users, particu- larly owners and managers (Atrill & McLaney, 2018). THE LANGUAGE OF BUSINESS -Understanding Financial Statements Income Statement It summarizes the revenues earned and expenses incurred by a business over an accounting period. THE LANGUAGE OF BUSINESS -Understanding Financial Statements Profit-and-Loss (P&L) Statement The Income statement is also called THE LANGUAGE OF BUSINESS -Understanding Financial Statements Income Statement It the most important financial report because it shows whether a business achieved its profitability goal (whether it earned an acceptable income). THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Income Statement Wealth generation It assess how much wealth has been created is vital for busi- nesses. The income statement reveals the firm's profit for a given period. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Income Statement Wealth generation It provides a measure of the wealth created for the owners. Gross profit and operating profit are also useful measures of wealth creation THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Income Statement Profit derivative The income statement also provides information needed to gauge business performance THE LANGUAGE OF BUSINESS -Understanding Financial Statements Profit derivative | Income Statement 12 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t It reveals the level of sales revenue and the nature and amount of expenses incurred, which can help understand how profit was derived (Atrill & McLaney, 2018). THE LANGUAGE OF BUSINESS -Understanding Financial Statements Cash Flow Statement It focuses on liquidity (or balancing the cash inflows and outflows to enable firms to operate and pay their bills when they are due) THE LANGUAGE OF BUSINESS -Understanding Financial Statements Cash flows They are the inflows and outflows of cash into and out of business. Net cash flows are the difference between inflows and outflows. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Return on Investments (ROI) Generally means the return on the owner's equity; hence, it is sometimes referred to as return on equity (ROE) THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Return on Investments (ROI) It relates income or profit after income tax to the total stockholder's equity (preferably on the average stockholder's equity). THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Profit Margin/Return on Sales (ROS) It is the income-to-net sales ratio and on a basic level, a low profit margin can be interpreted as indicating that a company's prof- itability is not secure. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Profit Margin It may also indicate a company's ability to manage expenses. High expenditures relative to revenue (i.e., a low profit margin) may suggest that a company struggles to keep its costs low, perhaps due to management problems. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Profit Margin It can also illuminate certain aspects of a company's pricing strat- egy. For example, a low profit margin may indicate a company is underpricing its goods (Segal, 2023) THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Return on Assets (ROA) This profitability measure shows how effectively the company has utilized its assets. In other words, it is a measure of asset utilization. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios 13 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t Return on Assets (ROA) It is equal to operating income divided by average total assets and average of total assets is used to better gauge asset utilization. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Current Ratio It relates current assets to current liabilities and shows a firm's immediate solvency and liquidity. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Solvency It is the ability of a firm to meet long-term obligations, while liquidity refers to an enterprise's ability to pay short-term bills and debts. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Quick Ratio (Acid-Test Ratio) It indicates a company's short-term liquidity and measures its ability to meet its short- term obligations with its most liquid assets THE LANGUAGE OF BUSINESS -Understanding Financial Statements Debt Ratio | Financial Ratios It compares a company's total debt to its total assets. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Debt Ratio It gives creditors and investors a general idea of the amount of leverage a company uses. THE LANGUAGE OF BUSINESS -Understanding Financial Statements Stockholder's Ratio | Financial Ratios It indicates the firm's financial stability in the long run. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Stockholder's Ratio It measures how much of a company's assets are funded by issuing stock rather than borrowing money (Hayes, Investopedia, 2022). Instead of using the formula above, the stockholder's ratio can be computed alternatively. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Debt-Equity Ratio It measures the percentage of the company's balance sheet fi- nanced by suppliers, lenders, creditors, and obligors versus what the shareholders have committed. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Debt-Equity Ratio It provides another vantage point on a company's leverage posi- tion. 14 / 15 The Entrepreneurial Mind | Midterm Study online at https://quizlet.com/_fn6b6t THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Debt-Equity Ratio It compares total liabilities to shareholders' equity instead of total assets in the debt ratio. Similar to the debt ratio, a lower percent- age means that a company uses less leverage and has a stronger equity position. THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Interest Coverage Ratio It indicates a company's ability to meet its interest payment oblig- ations and computed by dividing the operating income by the interest expense THE LANGUAGE OF BUSINESS -Understanding Financial Statements | Financial Ratios Interest Coverage Ratio It shows how many times the company earns its annual interest expense. 15 / 15