ENTR 460 Exam # With
Complete Solution
why is short-term financial planning critical during the survival stage? - Answer -
operations are typically not yet turning a profit
- associated cash burn often leads to a firms inability to pay its maturing liabilities
what are chronic cash requirements treated with? - Answer acute cash injections
what is the primary cash planning tool? - Answer the cash budget
what is included in the short-term cash planning tools? - Answer - balance sheet
- sales schedule
- purchases schedule
- wages and commissions schedule
- cash budget
what does short-term cash planning tell us? - Answer - our current cash position
- our anticipated future monthly cash recipes
- our anticipated future monthly cash disbursements
- if / when we anticipate running out of cash in the future
balance sheet cash account - Answer current cash on-hand position
sales schedule - Answer future monthly cash collections
purchases schedule - Answer future monthly purchase cash disbursements
wages and commissions schedule - Answer future monthly W & C cash disbursements
what is a cash budget? - Answer - future monthly fixed and misc. expense cash
disbursements
- future and end of month cash on-hand requirements
- future monthly financing activities
- projected future end of month cash balances
what is a conversion period ratio? - Answer ratios that indicate the average time it takes
in days to convert certain current asset and current liability accounts into cash
, what is an operating cycle? - Answer the time it takes to purchase required materials,
assemble, and sell the product plus the time needed to collect receivables if the sales
are on credit
what is the cash conversion cycle? - Answer the inventory-to-sale conversion period
plus sale-to-cash conversion period minus the purchase-to-payment conversion period.
(the goal is to get this to zero)
inventory-to-sale conversion period - Answer average inventories / (COGS / # of days in
period)
sale-to-cash conversion period - Answer average receivables / ( net sales / # of days in
period)
purchase-to-payment conversion period - Answer (Avg payables + accused liabilities) /
(COGS / # of days in period)
implicit and explicit capital costs for a new venture - Answer - cash flow is a better
determinant of health versus traditional accounting measures (accrued revenues,
accrued expenses)
- the costs of financial capital, where possible, should be incorporated into evaluations,
projections and strategy (provides transparency for potential lenders and equity
investors)
what is included in the costs of a ventures financial capital - Answer - the cost of debt is
fully reflected in financial statements (F/S)
- fully explicit
- principal load amounts recorded
- interest paid recorded
- cost of equity partially reflected in F/S
- explicit - dividend / distribution events recorded
- implicit - non-dividend equity costs go up as dividends / distributions are cut
public financial markets - Answer - markets involving the issuance, buying and trading
of standardized liquid securities such as stocks and bonds
- successful, well-established corporations are the most common issuers of these public
market securities
real-time / liquid / transparent costs
private financial markets - Answer - markets involving the issuance and sale of illiquid,
less standardized financial contracts and securities such as private equity financing,
Complete Solution
why is short-term financial planning critical during the survival stage? - Answer -
operations are typically not yet turning a profit
- associated cash burn often leads to a firms inability to pay its maturing liabilities
what are chronic cash requirements treated with? - Answer acute cash injections
what is the primary cash planning tool? - Answer the cash budget
what is included in the short-term cash planning tools? - Answer - balance sheet
- sales schedule
- purchases schedule
- wages and commissions schedule
- cash budget
what does short-term cash planning tell us? - Answer - our current cash position
- our anticipated future monthly cash recipes
- our anticipated future monthly cash disbursements
- if / when we anticipate running out of cash in the future
balance sheet cash account - Answer current cash on-hand position
sales schedule - Answer future monthly cash collections
purchases schedule - Answer future monthly purchase cash disbursements
wages and commissions schedule - Answer future monthly W & C cash disbursements
what is a cash budget? - Answer - future monthly fixed and misc. expense cash
disbursements
- future and end of month cash on-hand requirements
- future monthly financing activities
- projected future end of month cash balances
what is a conversion period ratio? - Answer ratios that indicate the average time it takes
in days to convert certain current asset and current liability accounts into cash
, what is an operating cycle? - Answer the time it takes to purchase required materials,
assemble, and sell the product plus the time needed to collect receivables if the sales
are on credit
what is the cash conversion cycle? - Answer the inventory-to-sale conversion period
plus sale-to-cash conversion period minus the purchase-to-payment conversion period.
(the goal is to get this to zero)
inventory-to-sale conversion period - Answer average inventories / (COGS / # of days in
period)
sale-to-cash conversion period - Answer average receivables / ( net sales / # of days in
period)
purchase-to-payment conversion period - Answer (Avg payables + accused liabilities) /
(COGS / # of days in period)
implicit and explicit capital costs for a new venture - Answer - cash flow is a better
determinant of health versus traditional accounting measures (accrued revenues,
accrued expenses)
- the costs of financial capital, where possible, should be incorporated into evaluations,
projections and strategy (provides transparency for potential lenders and equity
investors)
what is included in the costs of a ventures financial capital - Answer - the cost of debt is
fully reflected in financial statements (F/S)
- fully explicit
- principal load amounts recorded
- interest paid recorded
- cost of equity partially reflected in F/S
- explicit - dividend / distribution events recorded
- implicit - non-dividend equity costs go up as dividends / distributions are cut
public financial markets - Answer - markets involving the issuance, buying and trading
of standardized liquid securities such as stocks and bonds
- successful, well-established corporations are the most common issuers of these public
market securities
real-time / liquid / transparent costs
private financial markets - Answer - markets involving the issuance and sale of illiquid,
less standardized financial contracts and securities such as private equity financing,
