BP Ch. 12.4 Financial Decision Making

Financial Decision Making

Business Principles

Chapter 12.4

Pages 305-308

This Quizizz Lesson follows BP Chapter 12.4 (pages 305-308). Please be sure to have your textbook available. Read the Sections BEFORE progressing to the slides in the Quizizz. Many of the slides are timed and if you have not READ the material/section in the textbook, you will NOT be able to answer the question(s) on the slides in the Quizizz. Follow directions carefully!

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Instructions

​Read the paragraph on page 305, "Important Financial Information", before proceeding to the next slide to answer the question. BE SURE TO READ CAREFULLY before moving forward...

When finished, move forward to answer the question on the next slide.

Drag and Drop

A company reports its assets, liabilities and ​ ​

Placeholder

on the ​

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and sales, ​

Placeholder

, and profits are reported on a company's ​

Placeholder

.

Drag these tiles and drop them in the correct blank above

owner's equity

balance sheet

expenses

income statement

​Read the paragraph on page 305-306, "Understanding Financial Ratios", and "Current Ratios" on page 306 before proceeding to the next slides.

BE SURE TO READ CAREFULLY before moving forward...

When finished, move forward to answer the questions.

Understanding Financial Performance Ratios

Financial Performance Ratios

Definition: comparisons of a company's financial elements that indicate how well the business is performing

Ex: Current Ratio Return on Equity Ratio

Debt to Equity Ratio Net Income

The current ratio compares the value of current assets with the amount of current liabilities. Put even more simply, the current ratio is a ratio of money immediately on hand to money immediately owed: the higher the ratio, the more liquid the company. (this tells you if the business can pay its debts)

The current ratio should be at least 1:1 for a healthy business. This means there are at least as many current assets as current liabilities.

Current Ratio

Multiple Choice

What is the minimum current ratio for a healthy business?

• 1:1

• 1:2

Multiple Choice

True or False. Current liabilities are all payments owed to creditors that must be made within one year.

• True

• False

Fill in the Blanks

Current

are those that the business could convert to cash within one year.

​Read the paragraph on page 306, "Debt to Equity Ratios", before proceeding to the next slides.

BE SURE TO READ CAREFULLY before moving forward...

When finished, move forward to answer the questions.

This ratio tells how much the business is relying on money borrowed from others that will have to be paid back (debt) rather than money provided by the owners. The higher the debt equity, the more risky a company’s financial position.

Most banks want to see a debt to equity ratio of about 1:1 but no higher than 2:1.

A larger debt-equity ratio means more of a company’s value (equity) is derived from long-term financial obligations that may or may not be paid off in the future.

Debt to Equity Ratio

Dropdown

What is the recommended debt to equity ratio that most banks want to see in a business: ​

Select answer

Drag and Drop

Too ​

Placeholder

debt means a company may not be using all of its resources effectively while too ​

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debt puts a business at risk in meeting obligations to lenders.

Drag these tiles and drop them in the correct blank above

little

much

Fill in the Blanks

At the end of the year, the financial statements of a small business showed the total liabilities = $786,050; net profit = $27,293; owner's equity = $326,927

Calculate the debt to equity ratio. Round to the nearest hundredth.

Fill in the Blanks

At the end of the year, the financial statements of a small business showed the total liabilities = $786,050; net profit = $27,293; owner's equity = $326,927

Calculate the return on equity ratio. Round to the nearest hundredth.

​Read the paragraph on page 306, "Return on Equity Ratios", before proceeding to the next slides.

BE SURE TO READ CAREFULLY before moving forward...

When finished, move forward to answer the questions.

The Return on Equity Ratio shows the rate of return the owners are getting on the money the invested in the company. (what percent of ownership returns as profits) In other words, a highly efficient company would have a very high return on equity: a little equity would produce a large income. On the other hand, the lower the return on equity, the less efficient the company. A low return on equity means that the company needs many resources (lots of equity) to produce even a modest return (i.e. income).

Return on Equity Ratio

Multiple Choice

The lower the return on equity, the more efficient the company.

• True

• False

Multiple Choice

The Return on Equity Ratio:

• compares the value of current assets with the amount of current liabilities

• tells how much the business is relying on debt rather than money provided by the owners

• shows the rate of return the owners are getting on the money the invested in the company

• shows how much profit is being made by each dollar of sale for the period being analyzed

​Read the paragraph on page 306, "Net Income Ratios", before proceeding to the next slides.

BE SURE TO READ CAREFULLY before moving forward...

When finished, move forward to answer the questions.

Net income Ratio shows how much profit is being made by each dollar of sales for a period of time.

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Net Income Ratio

Multiple Choice

What is the correct formula for net income ratio?

• sales/income

• profit/equity

• liabilities/equity

• assets/liabilities

​Read the section/paragraphs on page 306-308, "Making Financial Decisions", before proceeding to the next slides.

BE SURE TO READ CAREFULLY before moving forward...

When finished, move forward to answer the questions. *Reminder...slides are timed

Making Financial Decisions

Read Pages 307-308 (Making Financial Decisions) in your textbook carefully.

Answer the questions on the following slides.

Multiple Choice

What is the first step in financial decision making?

• preparing a budget

• operate the business

• make needed adjustments

• look for and examine discrepancies

Fill in the Blanks

Managers use the budget as a

to operate the business.

Multiple Choice

True or False. The final step in financial decision making is to make needed adjustments.

• True

• False

Multiple Choice

When will businesses prepare new budgets?

• all businesses prepare budgets 2x / month

• all businesses prepare budgets 1x / month

• yearly

• at the end of the period covered by the budget