Cam Carner BUS Exam

Seed capital

one-time expense of

opening a business

Prototype

don't have in chapter 7

Payback period

estimated time required to earn

sufficient net cash flow to cover start-up investments

Variable costs

expenses that change directly with

changes in production or sales volume. The more

chips you make, the potatoes you have to buy

Fixed costs

must be paid whether sales are being generated. They may not be the same each month but are due regardless of sales

Contribution margin

the gross profit per unit. the selling

price minus total variable costs

Inventory costs

expenses associated with materials and direct labor for production until the product is sold

Fixed operating costs

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

Depreciation

the percentage of value of an asset

subtracted periodically to reflect the declining value

Net profit

revenues remaining after you subtract fixed and variable costs and taxes

Audit

a review of financial and business records to ascertain integrity and compliance with standards and

laws

Cash accounting method

the procedure where the only

time that an accounting entry is made is when cash is

paid out or received

Accrual method

Account process where transactions are

recorded at the time of occurrence, regardless of the

date of the payment

Income statement

financial document showing the

difference between revenue and expense - giving a profit

or a loss over a given time period

Double bottom line

you are making a profit so you

can stay in business and achieve your mission

Balance sheet

a financial statement showing a snapshot in

time. assets = liability + owners' equity

Net worth (owners' equity)

the difference between

assets and liabilities

Fiscal year

the 12-month financial reporting period for a company

Current assets

cash or items that can

be quickly converted to cash or will be used within one year

Long term assets

those items that will

take more than one year to use.

Current liabilities

debts that are scheduled for payment within that year

Long term liabilities

debts that are due in over one year

Return on investment (ROI)

the net profit of a business

divided by its start-up investment (percentage). What

percentage of your investment did you get back

Return on Equity

(balance & income) $101,000/$804,000 = .12 For every $1 invested you earn 12cents.

Return on Sales (ROS)

the amount of profit earned from each sales dollar. Ex: 15% would mean that your earned 15 cents

profit from each dollar of sales.

Operating ratio

tells you the percentage of sales dollars that a given expense is using up. Ex: if your expense was rent and it was 20% that means that your rent us using up 20% of your sales

Liquidity

the ability to convert assets into cash

Current ratio

a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. Can you convert assets into cash quickly

Marketable securities

investments that can be

converted into cash within 24 hours

Quick ratio

whether or not you have enough

cash to pay your current debt. The things due

within this month or week. Cash only, no inventory

Debt-to-equity ratio

the comparison of total debt to

total equity. How much debt do you have for each

dollar of equity

Debt ratio

the comparison of total debt to total assets. How many of the total dollars in the business

have been provided by creditors

Collection-period ratio

how long does it take to collect your accounts receivables or money owed

Receivable turnover ratio

How many times per period do

you collect your receivables

Inventory turnover ratio

the number of times that

inventory is sold & replaced per period

Cash flow statement

financial document that

tracks the money coming into and going out of

an organization

Noncash expenses

adjustments to asset

values not involving cash, such as depreciation

Working Capital

the value of current assets

minus current liabilities. It tells you how much cash

the company would have if it paid its short-term

debt with the cash it had on hand

Pilferage

theft of inventory by

customers or even employees

Factoring

provides cash to companies in

exchange for the rights to the cash that will be

collected from their customers . Selling your

accounts receivable

Burn Rate

the pace at which a company

spends capital before generating any positive cash flow. The amount of time before cash runs out

Future Value

the amount an asset will be worth

in "X" number of periods from now

Compound Interest

the interest accumulating

on the interest in addition to earnings on the

principal

Present Value

the value of a future asset

discounted back to the present. Take into account

inflation, risk & opportunity

Inflation

when prices rise so that a dollar buys less

Self-employment/sales tax

federal tax that

business owners pay on wages paid to themselves. You will pay a penalty if you do not pay self-employment taxes quarterly

Tax Structures for business types

Sole proprietorship - personal tax (usually lower than

corporate rates) as if you were working for someone else.

Partnership - personal tax

Limited Partnership - personal tax

C Corporation - corporate tax rate, usually higher.

Double-taxed as profits and dividends (if paid).

S Corporation - personal tax, does not have double-tax

Limited Liability Company - can be either personal or

corporate.

Financing

the act of providing or raising funds

(capital) for a purpose

Creditor

person or organization that is owed

money

Risk Tolerance

he amount of "threat of loss" that

an individual is willing to sustain

Tax Abatement/credit

legal reduction in taxes.

You don't have to pay a certain % of taxes owed.

Generally done to encourage new business

Crowdfunding

a person-to-person lending often done through the internet. The investor might get a small gift in

return or even some equity in the company

Debt financing

money that is borrowed & must be

repaid

Principal

the amount of a loan before interest

and fees are added

Leveraged

financed by debt, as opposed to

equity

Default

the result of a borrower failing to meet the repayment agreement on a debt

Equity financing

in return for money, an investor will

receive a percentage of ownership in a company

Debt Service

the amount a borrower is obligated to pay in a given period until a loan is repaid. Your monthly

payment

Venture Capitalists

investors that specialize in

financing new, high-potential entrepreneurial

companies and second-stage companies

Angel Investor

a wealthy individual who invests

in businesses. Typically expect 10 times return in

5 years

Policy Loan

a loan made against an insurance policy with cash value

Bootstrap financing

funding a business by creatively

stretching existing capital as far as possible, including

extensive use of the entrepreneur's time

Float

the time between a payment

transaction and when the cash is actually in the payee's account

Trade credit

a vendor allowing you to

receive merchandise now and pay for it later.

Store credit

Stocks

shares of company ownership. Equity Financing

Bonds

loans made to companies or government entities for more than one year. Debt financing