Square-Wave Voltage IThe relationship is valid only for voltages that vary sinusoidally. Find the relationship between and for the square-wave voltage shown in Figure 2426.
MGMT 3850 Foundations of Entrepreneurship Ch.11 Creating a Successful Financial Plan Financial Management o A process that provides entrepreneurs with relevant financial information in an easytoread format on a timely basis; it allows entrepreneurs to know not only how their businesses are doing financially but also why they are performing that way. LO1: Describe how to prepare the basic financial statements and use them to manage a small business. A balance sheet o A financial statement that provides a snapshot of a business’s financial position, estimating its worth on a given date; it is built on the fundamental accounting equation: Assets = liabilities +owner’s equity o Ex: Page 407 o Any increase or decrease on one side of the equation must be offset by an increase or decrease on the other side, hence the name balance sheet. Current assets o Assets such as cash and other items to be converted into cash within one year or within the company’s normal operating cycle. Fixed assets: o Assets acquired for long term use in a business. Liabilities: o Creditors’ claims against a company’s assets Current liabilities o Those debts that must be paid within one year or within the normal operating cycle of a company Longterm liabilities o Liabilities that come due after one year Owner’s equity o Value of the owner’s investment in the business. Income statement o A financial statement that represents a moving picture of a business, comparing its expenses against revenue over a period of time to show its net income (or loss). o Ex: Page 408 Cost of goods sold o The total cost, including shipping, of the merchandise sold during the accounting period Gross profit margin o Gross profit divided by net sales revenue Operating expenses o Those costs that contribute directly to the manufacture and distribution of goods. Statement of cash flows o A financial statement showing the changes in a company’s working capital from the beginning of the year by listing both the sources and the uses of those funds. LO2: Create projected (pro forma) financial statements. Projected financial statements are a basic component of a sound financial plan. They help the manager plot the company’s financial future by setting operating objectives and by analyzing the reasons for variations from targeted results. In addition, the small business in search of startup funds will need these pro forma statements to present to prospective lenders and investors. They also assist In determining the amount of cash, inventory, fixtures, and other assets the business will need to begin operation. Determine the amount of funding required to begin operation as well as the amount required to keep the company going until it begins to generate positive cash flow. Every new firm must have enough capital to cover all startup costs, including funds to rent or buy plant, equipment, and tools, and to pay for advertising, wages, licenses, utilities and other expenses. The Projected Income Statement o Create a sales forecast o Net profit margin = (net income/ sales (annual) The Projected Balance Sheet o An entrepreneur must develop a pro forma balance sheet outlining the fledgling firm’s assets and liabilities. Assets o Cash Is one of the most useful assets the business owns; it is highly liquid and can be converted into other tangible assets. o Average inventory turnover =(cost of goods sold/average inventory level) LO3: Understand the basic financial statements through ratio analysis. The 12 key ratios described are divided into four major categories: liquidity ratios, which show the small firm’s ability to meet its current obligations; leverage ratios, which tell how much of the company’s financing is provided by owners and how much by creditors; operating ratios, which show how effectively the firm uses its resources; and profitability ratios, which disclose the company’s profitability. Many agencies and organizations regularly publish such statistics. If there is a discrepancy between the small firm’s ratios and those of the typical business, the owner should investigate the reason for the difference. A belowaverage ratio does not necessarily mean that the business is in trouble. To avoid becoming a failure statistic, entrepreneurs must understand the numbers that drive their businesses. Ratio analysis o A method of expressing the relationship between any two accounting elements that allows business owners to analyze their companies’ financial performance. Liquidity ratios o Tell whether a small business will be able to meet its shortterm financial obligations as they come due. o The primary measures of liquidity are the current ratio and quick ratio. o Current ratio: Current assets/ current liabilities Measures a small firm’s solvency by indicating its ability to pay current liabilities out of current assets o Quick ratio: Quick assets/ current liabilities A conservative measure of a firm’s liquidity, measuring the extent to which its most liquid assets cover its current liabilities Leverage ratios o Measure the financing supplied by a firm’s owners against that supplied by its creditors; they are a gauge of the depth of a company’s debt. Debt ratio o Measures the percentage of total assets financed by a company’s creditors compared to its owners. Debttonetworth (debttoequity) ratio o Expresses the relationship between the capital contributions form creditors and those from owners and measures how highly leveraged a company is. Timesinterestearned ratio o Measures a small firm’s ability to make the interest payments on its debt. Operating Ratios o Helps an entrepreneur evaluate a small company’s overall performance and indicate how effectively the business employs its resources. Averageinventoryturnover ratio o Measures the number of times its average inventory is sold out, or turned over, during an accounting period. Averagecollectionperiod ratio o Measures the number of day it takes to collect accounts receivable. Averagepayableperiod ratio o Measures the number of days it takes a company to pay its accounts payable. Float o The net number of days of cash flowing into or out of a company; float= days payables outstanding (DPO) Days sales outstanding (DSO) Netsalestototal assets (total assetturnover) ratio o Measures a company’s ability to generate sales in relation to its asset base. Profitability ratios o Indicate how efficiently a small company is being managed. Netprofitonsales ratio o Measures a company’s profit per dollar of sales. Operating leverage o A situation in which increases in operating efficiency mean that expenses as a percentage of sales revenue flatten or even decline. Netprofittoassets (returnonassets) ratio o Measures how much profit a company generates for each of dollar of assets that it owns. Netprofittoequity ratio o Measures the owners’ rate of return on investment LO4: Explain how to interpret financial ratios. To benefit from ratio analysis, the small company should compare its ratios to those of other companies the same line of business and look for trends over time. When business owners detect deviations in their companies’ ratios from industry standards, they should determine the cause of the deviations. In some cases, such deviations are the result of sound business decisions; in other instances, however, ratios that are out of the normal range for a particular type of business are indicators of what could become serious problems for a company. Critical numbers (or key performance indicators, KPIs) o These indicators measure key financial and operational aspects of a company’s performance o Ex: Employee satisfaction, sales per labor hour, utilization ratio, site traffic and sales dollars per transaction. Ratio Analysis o Ex: Page 432,433 LO5: Conduct a break-even analysis for a small company. Business owners should know their firm’s breakeven point, the level of operations at which revenues equal total costs; it is the point at which companies neither earn a profit nor incur a loss. Although just a simple screening device, breakeven analysis is a useful planning and decisionmaking tool. Breakeven point o The level of operation (sales dollars or production quantity) at which a company neither earns a profit nor incurs a loss. Fixed expenses o Expenses that do not vary with changes in the volume of sales or production Variable expenses o Expenses that vary directly with changes in the volume of sales or production Step 1: Forecast the expenses the business can expect to incur.