Exam week 3
Venture Financial Performance Quiz
Test your knowledge on the financial performance and management of ventures through various life cycle stages. This quiz covers essential concepts such as cash conversion cycles, cash budgeting, and financial planning.
- Assess your understanding of financial management.
- Explore key terms and concepts in venture finance.
- Enhance your financial literacy with practical scenarios.
The actions of monitoring financial performance, determining project cash needs, and obtaining first-round financing occurs during a venture’s survival stage
True
False
�First-round financing” usually occurs during a venture’s rapid-growth life cycle stage.
True
False
Short-term financial planning is critical during the survival stage because operations not yet turning a profit and the associated cash burn often lead to a venture’s inability to pay its maturing liabilities.
True
False
Cash shortages during the rapid growth stage frequently derive from the lack of operating profits to fund working capital and fixed asset investments needed to support sales growth.
True
False
Short-term cash planning tools include preparation of a: sales schedule, a purchases schedule, a wages and commissions schedule, and a cash budget.
True
False
Short-term financial planning typically involves preparing monthly financial statements and focuses on identifying and planning for net income demands on the business.
True
False
A cash budget shows a venture’s projected revenues and expenses over a forecast period.
True
False
Preparing monthly cash budgets for a full year allows the entrepreneur to determine whether there will be a cash need, the maximum size of the cash need, and whether the need can be repaid during the year.
True
False
Conversion period ratios show the average time in days it takes to convert certain current assets and current liabilities into cash.
True
False
A venture’s operating cycle is the same as its cash conversion cycle.
True
False
The cash conversion cycle refers to the time it takes to convert a sale into net income.
True
False
A venture’s cash conversion cycle will decrease if the purchase-to-payment conversion period increases.
True
False
Short-term financial planning forecasts address whether a venture is expected to generate the required cash to meet its coming obligations.
True
False
A firm is said to be an early stage venture when it is in which of the following except?
Rapid growth stage
Startup stage
Development stage
Survival stage
Early-maturity stage
Seed financing is generally associated with which one of the following life cycle stages:
Development stage
Startup stage
Survival stage
Rapid-growth stage
Early-maturity stag
Which of the following is not part of the operating cycle?
Time it takes to purchase products
Time it takes to produce products
Time it takes to sell the products
Time it takes to pay suppliers
Time it takes to collect receivables
Which one of the following “measures” the average days of sales committed to the extension of trade credit?
Sale-to-cash conversion period
Inventory-to-sale conversion period
Purchase-to-payment conversion period
Cash conversion cycle period
Which of the following is measured by dividing the average daily cost of goods sold into the average inventory?
Sale-to-cash conversion period
Inventory-to-sale conversion period
Purchase-to-payment conversion period
Cash conversion cycle
Which of the following measures the average time from purchase of materials and labour to actual cash payment?
Sale-to-cash conversion period
Inventory-to-sale conversion period
Purchase-to-payment conversion period
Cash conversion cycle
Which one of the following conversion periods operates to reduce the length of the cash conversion cycle?
Inventory-to-sale conversion period
Sale-to-cash conversion period
Purchase-to-payment conversion period
Fixed assets-to-usage conversion period
A venture’s operating cycle measures the time it takes:
To purchase raw materials
Assemble a product
Book the sale
Collect on the sale
All of the above
A major difference between a venture’s operating cycle and the cash conversion cycle is the conversion cycle includes the time to:
Buy materials
Produce a finished good
Collect sales made on credit
Pay suppliers for purchases on credit
�Cash burn” is the cash a venture expends on its operating, financing, and depreciation expenses.
True
False
�Net cash burn” occurs when cash burn exceeds cash build in a specified time period.
True
False
The “cash burn rate” is the cash burn for a fixed period of time, typically a month.
True
False
The term “cash build” as used in Chapter 5 is equal to net sales minus the change in receivables.
True
False
Liquidity ratios indicate the venture’s ability to pay short term assets from short-term liabilities.
True
False
Net working capital reflects current assets deducted from current liabilities.
True
False
The current ratio and the quick ratio differ only because average inventories are subtracted in the numerator of the quick ratio.
True
False
Net working capital is a dollar amount measure of the cushion between current assets and current liabilities.
True
False
Total debt includes current liabilities, long-term debt, and retained earnings.
True
False
During the development and startup stages of a venture’s life cycle, important financial ratios and measures include cash burn rates and liquidity ratios.
True
False
During the development and startup stages of a venture’s life cycle, important users of financial ratios and measures include the entrepreneur, business angels, and venture capitalists (VCs).
True
False
Leverage ratios are generally considered to be more important during the survival and rapid-growth stages compared to the development and startup stages.
True
False
Accounting rules require that the current maturities of long-term debt obligations be classified as short-term liabilities.
True
False
The term “cash build” is measured as:
Net income plus depreciation
Net sales minus expenses minus (plus) an increase (decrease) in inventories
Net sales minus (plus) an increase (decrease) in receivables
Net income plus depreciation minus (plus) an increase (decrease) in payables Option 1
�Net cash burn” is calculated as:
Cash burn plus cash build
Cash build minus cash burn
Cash burn minus cash build
Cash burn minus cash build squared
Using the following information, determine the average monthly net cash burn rate: annual net income = $20,000; annual interest = $10,000; annual cash build = $150,000; and annual cash burn = $186,000
$1,000
$3,000
$4,000
$6,000
$7,000
Use the following information to determine a firm’s “cash build:” net sales = $150,000; net income = $15,000; beginning-of-period accounts receivable = $60,000; end-of-period accounts receivable = $90,000; and interest = $10,000.
$10,000
$15,000
$30,000
$60,000
$120,000
Average current assets minus average inventories when divided by average current liabilities is called which of the following ratios?
Current ratio
Quick ratio
Net working capital ratio
Current liabilities to total debt ratio
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