EEE 2023 Final Exam Study Guide

10-K

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A report that is similar to the annual report, except that it contains more detailed information about the company’s business.

Accounts Receivable

The money owed to a firm by its customers

Assumptions Sheet

An explanation in a new firm’s business plan of the sources of the numbers for its financial forecast and the assumptions used to generate them.

**Balance Sheet**

A snapshot of a company’s assets, liabilities, and owner’s equity at a specific point in time.

Break-Even Point

The point at which total revenue received equals total costs associated with the output.

Budgets

Itemized forecasts of a company’s income, expenses, and capital needs that are also important tools for financial planning and control.

Constant Ratio Method Of Forecasting

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A forecasting approach using the percent of sales method in which expense items on a firm’s income statement are expected to grow at the same rate as sales.

Cost Of Sales

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All of the direct costs associated with producing or delivering a product or service, including the material costs and direct labor costs (also the cost of goods sold). 

Current Assets

Cash plus items that are readily convertible to cash, such as accounts receivable, inventories, and marketable securities. 

Current Liabilities

Obligations that are payable within a year, including accounts payable, accrued expenses, and the current portion of long-term debt. 

Current Ratio

A ratio that equals the firm’s current assets divided by its current liabilities. 

Debt-To-Equity Ratio

A ratio calculated by dividing the firm’s long-term debt by its shareholders’ equity.

Efficiency

How productively a firm utilizes its assets relative to its rate of return.

Financial Management

he process of raising money and managing a company’s finances in a way that chives the highest rate of return. 

Financial Ratios

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Ratios showing the relationship between items on a firm’s financial statements that are used to discern whether a firm is meeting its financial objectives and how it stacks up against industry peers. 

Financial Statement

Written report that quantitatively describes a firm’s financial health. 

Financing Activities

Activities that raise cash during a certain period by borrowing money or selling stock, and/or use cash during a certain period by paying dividends, buying back outstanding stock, or buying back outstanding bonds.

Fixed Assets

Assets used over a longer time frame, such as real estate, buildings, equipment, and furniture. 

Forecasts

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Estimates of a firm’s future income and expenses, based on its past performance, its current circumstances, and its future plans. 

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Historical Financial Statements

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Financial statements that reflect past performances and are usually prepared on a quarterly and annual basis. 

**Income Statement**

A financial statement that reflects the results of the operations of a firm over a specified period of time: prepared on a monthly, quarterly, or annual basis.

**Inventory**

A company’s merchandise, raw materials, and products waiting to be sold.

**Investing Activities**

Activities that include the purchase, sale, or investment in fixed assets, such as real estate and buildings. 

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**Liquidity**

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The ability to sell a business or other asset quickly at a price that is close to its market value; also, a company’s ability to meet its short-term financial obligations. 

**Long-Term Liabilities**

Notes or loans that are repayable beyond one year, including liabilities associated with purchasing real estate, buildings, and equipment.

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**Net Sales**

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Total sales minus allowances for returned goods and discounts. 

**Operating Activities**

Activities that affect net income (or loss), depreciation, and changes in current assets and current liabilities other than cash and short-term debt.

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**Operating Expenses**

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Marketing, administrative costs, and other expenses not directly related to producing a product or service. 

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**Other Assets**

Miscellaneous assets including accumulated goodwill. 

**Owner’s Equity**

The equity invested in the business by its owner(s) plus the accumulated earnings retained by the business after paying dividends.

**Percent-Of-Sales-Method**

A method for expressing each expense item as a percent of sales.

**Price-To-Earnings (P/E) Ratio**

A simple ratio that measures the price of a company’s stock against its earnings.

**Pro Forma Balance Sheet**

Provides a firm a sense of how its activities will affect its ability to meet its short-term liabilities and how its finances will evolve over time.

**Pro Forma Financial Statements**

Projections for future periods, based on a firm’s forecasts, and typically completed for two to three years in the future.

**Pro Forma Statement Of Cash Flows**

A financial statement that shows the projected flow of cash into and out of a company for a specific period.

**Profit Margin**

A measure of a firm’s return on sales that is computed by dividing net income by average net sales.

**Profitability**

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The ability to earn a profit. 

**Regression Analysis**

A statistical technique used to find relationships between variables for the purpose of predicting future values.

**Sales Forecast**

A projection of a firm’s sales for a specified period (such as a year); most firms, though, forecast their sales for two to five years into the future.

**Stability**

The strength and vigor of the firm’s overall financial posture.

**Statement Of Cash Flows**

A financial statement summarizing the changes in a firm’s cash position for a specified period of time and detailing why the changes occurred. Similar to a month-end bank statement, it reveals how much cash is on hand at the end of the month as well as how the cash was acquired and spent during the month.

**Working Capital**

A firm’s current assets minus its current liabilities.

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**The four primary financial objectives of a startup**

* Profitability- A company’s ability to make a profit 


* Liquidity- A company’s ability to meet its short-term obligations 
* Efficiency- How productively a firm utilizes its assets 
* Stability- The strength and vigor of the firm’s overall financial posture, particularly as it relates to its debt-to-equity ratio

**Advisory Board**

A panel of experts who are asked by a firm’s managers to provide counsel and advice on an ongoing basis; unlike a board of directors, an advisory board possesses no legal responsibilities for the firm and gives nonbinding advice.

**Board Of Directors**

**A panel of individuals who are elected by a corporation's shareholders to oversee the management of the firm.** 

**Consultant**

An individual who gives professional or expert advice. Consultants fall into two categories: paid consultants and consultants who are made available for free or at a reduced rate through a non-profit or governmental agency.

**Employee**

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Someone who works for a business, at the business location or virtually, utilizing the business’s tools and equipment and according to the business’ policies and procedures. 

**Freelancer**

A person who is in business for themselves works on their own time with their own tools and equipment and performs services for a number of different clients.

**Founding Team**

A team of individuals chosen to start a new venture. A firm with this team has an advantage over firms started by an individual because a team brings more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneur.

**Heterogeneous Team**

A team whose individual members are diverse in terms of their abilities and experiences.

**Homogeneous Team**

A team whose individual member’s experiences and areas of expertise are very similar to one another.

**Inside Director**

A person on a firm’s board of directors who is also an officer of the firm.

**Intern**

A person who works for a business as an apprentice or trainee for the purpose of obtaining practical experience.

**Intern**

A person who works for a business as an apprentice or trainee for the purpose of obtaining practical experience.

**Networking**

Building and maintaining relationships with people whose interests are similar or whose relationships could bring advantages to a firm.

**New-Venture Team**

The group of founders, key employees, and advisors that move a new venture from an idea to a fully functioning firm.

**Outside Director**

Someone on a firm’s board of directors who is not employed by the firm.

**Prior Entrepreneurial Experience**

Prior start-up experience; this experience has been found to be one of the most consistent predictors of future entrepreneurial performance.

**Relevant Industry Experience**

Experience in the same industry as an entrepreneur’s current venture that includes a network of industry contacts and an understanding of the subtleties of the industry.

**Signaling**

The act of a high-quality individual agreeing to serve on a company’s board of directors, indicating that the individual believes that the company has the potential to be successful.

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**Skills Profile**

A chart that depicts the most important skills that are needed and where skills gaps exist.

**Virtual Assistant**

A freelancer who provides administrative, technical, or creative assistance to clients remotely from a home office.

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**Preferred Attributes of the Founder(s) of an Entrepreneurial Venture**

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* **Strong communication with the CEO** 


* **Customer-Focused point of view** 
* **A complementary mix of talents**
* **Decisiveness** 
* **Mutual Respect and regard for each other and the firm’s management team** 
* **Ability and willingness to stand up to the CEO and the firm’s top managers** 
* **Strong Ethics**

Seven Members of a new Venture Team

1\. Founder (s) 2. Board of Directors 3. Board of Advisors 4. Lenders and Investors 5. Management Team 6. Key Employees 7. Other Professionals

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**Loan Guaranty Program**

The main small business administration (SBA) program available to small businesses operating through private sector lenders providing loans that are guaranteed by the SBA; loan guarantees reserved for small businesses that are unable to secure financing through normal lending channels.

**Accredited Investor**

A person who is permitted to invest in high-risk investments such as business start-ups.

**Bootstrapping**

Using creativity, ingenuity, or any means possible to obtain resources other than borrowing money or raising capital from traditional sources.

**Burn Rate**

The rate at which a company is spending its capital until it reaches profitability.

**Business Angels**

Individuals who invest their personal capital in new ventures.

**Carry**

The percentage of the profits the venture capitalists receive is called the carry.

**Corporate Venture Capital**

A type of capital similar to traditional venture capital, except that the money comes from corporations that invest in new ventures related to their areas of interest.

**Crowdfunding**

A method of funding in which people pool their money and other resources, usually via the Internet, to support efforts initiated by other people or organizations.

**Debt Financing**

Getting a loan; most common sources of debt financing are commercial banks and the small business administration’s (SBA’s) guaranteed loan program.

**Due Diligence**

The process of investigating the merits of a potential venture and verifying the key claims made in the business plan.

**Elevator Speech (or pitch)**

A brief, carefully constructed statement that outlines the merits of a business opportunity.

**Equity-Based Crowdfunding**

This type of funding helps businesses raise money by tapping individuals who provide funding in exchange for equity in the business.

**Equity Financing**

A means of raising money by exchanging partial ownership in a firm, usually in the form of stock, for funding.

**Factoring**

A financial transaction whereby a business sells its accounts receivable to a third party, called a factor, at a discount in exchange for cash.

**Final Prospectus**

Documents issued by the investment bank after the Securities and Exchange Commission (SEC) has approved the offering that sets a date and issuing price for the offering.

**Follow-on Funding**

Additional funding for a firm following the initial investment made by the investors.

**General Partners**

The venture capitalists who manage a venture capital fund.

**Initial Public Offering (IPO)**

The first sale of a company’s stock to the public and an important milestone for a firm for four reasons: it is a way to raise equity capital; it raises a firm’s public profile; it is a liquidity event; it creates another form of currency (company stock) that can be used to grow the company.

**Investment Bank**

A financial intuition that acts as an underwriter or agent for a firm issuing securities.

**Lease**

A written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified period of time in exchange for regular payments.

**Limited Partners**

Participants in a partnership, such as a venture capital fund, which have limited liability, meaning that they are only liable up to the amount of their investment and have no management authority.

**Line of Credit**

A borrowing “cap” is established and borrowers can use the credit at their discretion; requires periodic interest payments.

**Liquidity Event**

An occurrence such as a new venture going public, finding a buyer, or being acquired by another company that converts some or all of a company’s stock into cash.

**Peer-to-Peer Lenders**

A category of financial transactions **that** occur directly between individuals or “peers”.

**Preliminary Prospectus**

A document issued by an investment bank that describes the potential offering to the general public while the SEC is conducting an investigation of the offering (also red-herring).

**Private Placement**

A variation of the IPO in which there is a direct sale of an issue of securities to a large institutional investor.

**Promissory Note**

A document that details the terms of a loan agreement.

**Rewards-Based Crowdfunding**

This type of funding allows entrepreneurs to raise money in exchange for some type of amenity or reward.

**Road Show**

A whirlwind tour taken by the top management team of a firm wanting to go public; consists of meeting**s** in key cities where the firm presents its business plan to groups of investors.

**Rounds**

Stages of subsequent investments made in a firm by investors.

**Sarbanes-Oxley Act**

A federal law that was passed in response to corporate accounting scandals involving prominent corporations, like Enron and WorldCom.

**SBA Guaranteed Loan Program**

An important source of funding for small businesses in general in which approximately 50 percent of the 9,000 banks in the United States Participate.

**SBIR Program**

Small Business Innovation Research (SBIR) competitive grant program that provides over $1 Billion per year to small businesses for early-stage and development projects.

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**Secondary Market Offering**

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Any later public issuance of shares after the initial public offering. 

**Single-Purpose Loan**

One common type of loan in which a specific amount of money is borrowed that must be repaid in a fixed amount of time with interest.

**STTR Program**

A government grant program, similar to the SBIR program, which requires the participation of a research organization, such as a research university or a federal laboratory.