Term

Definition
is obtaining the highest possible return with the minimum use of resources 


Term

Definition
is accomplishing a specific task or reaching a goal 


Term

Definition
is an absolute number that is earned on an investment 


Term

Definition
for a business, is typically shown at the bottom of the income statement as net income 


Term

Definition
the amount that is earned above and beyond what the entrepreneur would have earned if he or she had chosen to invest time and money in some other enterprise 


Term

Definition
can be measured in a business by using a ratio that is obtained by dividing net profit by total assets. Profitability, therefore, is our ROI (Return on Investment) 


Term

Definition
can be defined as the product of two factors: (1) the company's ability to generate income on the amount of revenue it receives, which is also known as net profit margin; and (2) its ability to maximize sales revenue from proper asset employement, also known as total asset turnover. 


Term

Definition
a process of determining how many units of production must be sold, or how much revenue must be obtained, before we begin to earn a profit 


Term
How to calculate BEQ (Breakeven quantity)? 

Definition
BEQ= FC/ PVC where FC is fixed costs, P is price charged per unit, and VC is Variable cost per unit 


Term
What two cost categories are on a monthly payment basis? 

Definition


Term
What two cost categories are on an annual payment basis? 

Definition
Employee Benefits and Propety Taxes 


Term
What payment basis is the cost category, insurance, on? 

Definition


Term
Wood, Paint and finishing, labor, and packing and shipping are on what payment basis? 

Definition


Term
How do you calculate breakeven dollars? 

Definition
BE$= FC/CMratio, where contribution margin ratio equals contribution margin divided by sales (either per unit or in total) 


Term

Definition
the amount of profit that will be made by a company on each unit that is sold above and beyond the break even quantity, and also the amount the company will lose for each unit of production by which it falls short of the breakeven point 


Term
How do you calculate contribution margin? 

Definition
CM= sales  variable costs 


Term
how do you calculate the total quantity when the desired profit is with break even analysis? 

Definition
Total quantity= FC + Desired Profit/ P  VC 


Term
How do you calculate the BE$ when desired profit is with break even analysis 

Definition
BE$= FC + Desired Profit/ CMratio 


Term

Definition
uses those items that have a fixed cost to magnify the return to a company. Fixed costs can be related to company operations or related to the cost of financing. 


Term
True or False: Interest expenses paid on the amount of debt incurred is the fixed cost of financing. 

Definition


Term
True or False: A firm is heavily financially leveraged if the fixed costs of financing are low. 

Definition
False, it is heavily financially leveraged if the fixed costs of financing are high 


Term
Degree of operating leverage (DOL) 

Definition
is the percentage change in operating income divided by the percentage change in sales. DOL= % change in operating income/ % change in sales 


Term
Degree of financial leverage 

Definition
is the percentage change in earnings per share divided by the percentage change in operating income. DFL= % change in earnings per share/ % change in operating income 


Term

Definition
for a business occurs when the liabilities of the firm exceed the assets and the business does not have sufficient cash flow to make payments to creditors 


Term
There are essentially three types of bankruptcy? 

Definition
1) Chapter 11 bankruptcy occurs when a business seeks court protection while it develops a reorganization plan
2) Chapter 13 bankruptcy reserved for individuals and sole proprietorships and is similar to, but much simpler than, Chapter 11
3) Chapter 7 bankruptcy requires liquidation of all assets of the business, and payment to creditors. 


Term
Bankruptcy Abuse, Prevention, and Consumer Protection Act. 

Definition
Signed into law by President Bush on April 20, 2005. Took effect October 17, 2005. Makes it much more difficult for individuals and business to declare chapter 7 bankruptcy. Establishes a means test to determine if an individual filing Chapter 7 is abusing the system. Imposes federal guidelines for using the homestead exemption 


Term

Definition
is a quantifiable estimate of future demand 


Term

Definition
in business is the process of estimating the future demand for our products and services; for the financial manager also requires estimates of future interest rates. 


Term
1) Determine the type of model to be used
2) Determine the forecast horizon
3) Select one or more forecasting models
4) evaluate the models
5) apply the chosen model
6) montior and control the model 

Definition
What is the Forecasting process? (6 steps) 


Term
1) Judgemental Models which use qualitative methods
2) Time series models which use quantitative methods
3) Causal models which use causeandeffect methods 

Definition
3 Types of Forecasting Models 


Term
pro forma financial statement 

Definition
is a projected statement based on the forecast 


Term
1) Pro forma income statement
2) pro forma cash budget
3) pro forma balance sheet 

Definition
3 basic pro forma statements are: 


Term
Percentage of Sales Method 

Definition
is based on the fact that assets and liabilities historically vary with sales. 


Term
The greater the amount of financial leverage, the more debt you have to service. If there is a business reversal, or operating profit decreases due to unforeseen operating expenses, the business may not have enough income to pay its creditors. The failure to pay creditors results in a condition of bankruptcy. 

Definition
How is financial leverage related to bankruptcy? 


Term
Fixed costs are the costs of running abusiness that do not relate to the volume of production or sales. These costs must be paid every time period, even if there is no production in sales. Contribution margin is sales income per unit minus variable cost per unit, and may be expressed as either a fixed dollar amount or as a percentage of the sales dollar. Break even is that dollar amount of sales, or number of units produced and sold, which is the point where total cost (fixed plus variable) equals total revenue 

Definition
What is the relationship among fixed costs, contribution margin, and the breakeven point? 


Term
They are all of the costs associated with producing or procuring a product or service sold by a firm. Therefore any change in resource costs such as raw material, shipping, production labor, or energy may affect variable costs 

Definition
What are some factors that affect variable costs? 


Term
1) Determine the value of the variables in the breakeven formula
2) Determine the time period that must be used in breakeven analysis
3) Convert all fixed costs to the break even time period.
4) Use the breakeven formula to determine the number of units that must be produced during the time period. If you exceed break even you will be able to make a profit. 

Definition
What are the basic steps that you must take to determine if you are able to make a profit? 

