Entrepreneurship Theory Process Practice

The pro forma income statement is prepared before the pro forma balance sheet.

When using regression analysis, the entrepreneur may draw conclusions about the relationship between product sales and advertising expenditures.

Break-even analysis is used to tell how many units must be sold in order to break even at a particular selling price.

Accounts receivable turnover measures the rate at which accounts receivable are being collected on a monthly basis.

Financial information pulls together all the information presented in the other segments of the business.

The first type of expense to be estimated when preparing an operating budget is cost of goods sold.

An entrepreneur must graph at least two numbers-total sales and total expenses-when using the graphic approach for break-even analysis.

Horizontal analysis looks at financial statements and ratios over time.

The cash-flow budget provides an overview of cash inflows and outflows for the budget period.

After the operating budget has been prepared, an entrepreneur can proceed to the next phase of the budget process, which is the cash-flow budget.

Capital investments or capital expenditures are expected to last beyond one year.

The traditional accounting equation is: Assets + Liabilities = Owners' Equity.

Contribution margin is the difference between the selling price and the fixed cost per unit.

A budget is one of the most powerful tools that an entrepreneur can use in planning business operations.

The first step in the preparation of the cash-flow budget is the identification and timing of cash outflows.

The principal objective of capital budgeting is to maximize the value of the firm.

The typical business will have cash inflows from three sources: cash sales, cash payments received on account, and loan proceeds.

It is typical for a firm to prepare an operating budget but not a cash-flow budget.

The handling questionable costs approach of break-even analysis was specifically designed for firms that have expenses that are difficult to assign.

Pro forma statements show the firm's present financial position.