Financial Planning Basics
This process translates a venture’s goals and strategy into measurable financial expectations.
What is financial planning?
These tools evaluate operating efficiency, liquidity, leverage, and overall performance.
What are financial ratios?
This term describes the amount of cash a venture spends over a given period.
What is cash burn?
This ratio compares total debt to owners’ equity.
What is the debt-to-equity ratio?
This ratio measures the percentage of revenue remaining after cost of goods sold.
What is gross margin?
One main purpose of financial planning is to anticipate this future need for a growing venture.
What is financing (or funding)?
This type of analysis examines financial performance over time.
What is trend analysis?
Cash burn measured on a monthly basis is known as this.
What is the cash burn rate?
Higher leverage ratios generally indicate higher financial _____.
What is risk?
This efficiency ratio measures how effectively assets generate sales.
What is total asset turnover?
Financial plans help entrepreneurs identify these before they become serious threats to survival.
What are financial problems?
Comparing a venture’s ratios to other firms at the same point in time is known as this.
What is cross-sectional analysis?
This occurs when cash burn exceeds cash build.
What is net cash burn?
This ratio measures a venture’s ability to pay interest using earnings before interest and taxes.
What is the interest coverage ratio?
Early-stage ventures may have low or negative profitability ratios because they are focused on this.
What is growth?
This key insight explains why financial plans do not need to be perfectly accurate.
What are the decision-making tools to understand risk and trade-offs?
This analysis compares a venture’s performance against industry averages.
What is industry comparables analysis?
This formula measures a venture’s short-term financial cushion: Current Assets minus Current Liabilities.
What is net working capital?
This ratio includes both interest payments and principal repayments when evaluating debt obligations.
What is the fixed-charges coverage ratio?
This market value ratio measures how much investors are willing to pay for each dollar of earnings.
What is the price-to-earnings (P/E) ratio?
Financial planning is especially important for entrepreneurs because they often face this combination.
What are uncertainty and limited resources?
This is a major limitation of ratio analysis for early-stage ventures.
What is limited or unstable financial data?
Sustained negative net cash burn without access to this threatens venture survival.
What is financing (or external capital)?
Lenders focus heavily on this ratio because principal can often be refinanced if interest is paid.
What is interest coverage?
Market value ratios are less useful for private ventures because they lack this.
What is market pricing (or public market data)?