Question

Question 1 In the context of cash flow statements and budgets, for a new entrepreneurial firm, what is a benefit of separating cash inflows on a cash flow statement into as many categories as possible?

a

It aids in analyzing the actual revenue sources for the firm.

b

It reduces the firm's taxable income on paper.

c

It identifies weaknesses in the firm's supply chains.

d It reduces the firm's vulnerability to undesirable market conditions.

Question 2 A _____ describes estimates by a small business owner of what the balance sheets and income statements will look like in the future.

a		pro forma
	b	balance sheet
	c	current asset
		d cash flow

Question 3. The _____ ratio examines the ability of a firm to return an overall profit compared to the amount of assets that has been invested into the effort.

a		return on debt
	b	return on profit
	c	return on assets
	d	return on equity

Answer 1

1)a. It aids in analyzing the actual revenue sources for the firm. Reason :- Cash flow statement shows the actual inflow and outflow of cash. It helps in recognising the sources of the cash inflow.

2)a. Pro forma. Reason :- Pro forma financial statements are projections for future periods based on forecasts.

3)c. Return on assets. Reason :- return on asset ratio examines the ability of the firm to return an overall profit compared to the amount of asset that the firm has invested. Return on assets ration is calculated as follows : - Operating profit divided by total asset.