Small business Management Chapter 11

It provides a snapshot of a business's finacial position, estimating it's worh on a given date; it is built on the fundamental accounting equation: Assets = Liabilities + Owner's Equity

Assets such as cash and other items to be converted into cash within one year, or within a company's normal operating cycle are.

Assets acquired for long-term use in a business.

Creditors' claims against a company's assets.

Those debts that must be paid within one year or within the normal operating cycle of a company.

Liabilities that come due after one year.

The value of the owner's investment ina business.

A finacial statement that represents a moving picture of a business, comparing its expenses agains it's revenue over a period of time to show its net profit (or loss)

The total cost, including shipping, of the merchandise sold during an accounting period.

Gross profit divided by net sales revenue

Those costs that contribute directly to the manufacture and distribution of goods.

A financial statement showing the changes ina company's working capital from the beginning of the year by listing both the sources and the uses of those funds.

Tell whether a small business will be able to meet its short-term obligations as they come due.

Measures a small firm's solvency by indicating its ability to pay current liabilities out of current assets.

A conservative measure of a firm's liquidity, measuring the extent to which its most liquid assets cover current liabilities.

Current Ratio and Quick Ratio

Measure the financing supplied by a firm's owners agains that supplied by its creditors; they are a gauge of the depth of a company's debt.

Measures the percentage of total assets financed by a company's creditors compared to its owners.

The relationship between the capital contributions from creditors and those from woners. It measures how highly leveraged a company is.

Measures a small firm's ability to make the interest payments on its debt.

Debt Ratio, Debt to Net Worth Ratio(or debt to equity), and Times Interest Earned Ratio

Help an entrepreneur evaluate a small company's overall performance and indicate how effectively the business employs its resources.

Measures the number of times its average inventory is sold out, or turned over, during an accounting period.

Measures the number of days it takes to collect accounts receivable.

Measures the number of days it takes a company to pay its accounts payable.

Measures a company's ability to generate sales in relation to its asset base.

Average Inventory Turnover, Average Collection Period, Average Payable Period, and Net Sales to Total Assets.

Indicate how efficiently a small company is being managed.

Measures a company's profit per dollar of sales.

A ratio that tells how much profit a company generates for each dollar of assets that it owns.

Measures the owners rate of return on investment.

Net Profit on Sales, Net Profit to Assets, and Net Profit to Equity

Indicators that measure key financial and operation aspects of a company's performance; when these number are moving in th right direction, a business is on track to reach its objectives.

The level of operation (sales dollars or production quantity) at which a company neither earns a profit nor incurs a loss.

Expenses that do not vary with changes in the volume of sales or production

Expenses that vary directly with changes in the volume of sales or production.