Financial Projections
What is the main purpose of financial projections in a business plan?
To show potential profitability and attract investors.
What is an operating budget?
Answer: A budget outlining expected expenses, including salaries, rent, utilities, and sales expenses.
What is the difference between profit and cash flow?
Answer: Profit is net income, while cash flow reflects actual cash inflows and outflows, including receivables and payables.
What does break-even mean in a business context?
Answer: When a business's total revenues equal total costs, resulting in neither profit nor loss.
Name the three key financial statements in a financial plan.
Answer: Income statement, balance sheet, and cash flow statement.
Which document summarizes projected sales, expenses, and net income?
Answer: Projected Income Statement.
Name a fixed expense listed for Pinoy Corporation.
Answer: Monthly rental of PHP 80,000.
What could affect cash flow even if a business is profitable?
Answer: Sales on credit and delayed payments.
What is the formula for break-even quantity (BEQ)?
Answer: BEQ = Total Fixed Costs / (Selling Price - Variable Cost per Unit).
What does the balance sheet summarize?
Answer: The business’s assets, liabilities, and shareholders' equity.
What tool can entrepreneurs use to create and adjust financial projections easily?
Answer: Microsoft Excel or other spreadsheet software.
What is the assumed salary per employee in Pinoy Corporation's budget?
Answer: PHP 15,000 per month.
What kind of transactions appear as accounts receivable or payable?
Answer: Sales on credit and purchases made on credit.
What was Pinoy Corporation’s break-even quantity?
Answer: 2,620 units.
How much initial investment did Pinoy Corporation’s owner make?
Answer: PHP 300,000.
What are the key elements included in a financial projection?
Answer: Projected sales, cost of goods sold, administrative expenses, cash inflows and outflows, assets, liabilities, and retained earnings.
Which expense is considered variable in the business’s cost structure?
Answer: Cost of goods sold, which is 40% of sales.
Why is cash flow projection important for a new business?
Answer: To anticipate cash needs and avoid liquidity issues.
How does increasing the selling price to PHP 1,200 affect the break-even quantity?
Answer: It lowers the break-even quantity.
What is considered a current asset?
Answer: Cash and other assets easily converted to cash within a year.
How can an entrepreneur make conservative financial projections?
Answer: By anticipating increases in expenses and being cautious about revenue assumptions.
How does a business adjust its budget if it anticipates higher utility costs?
Answer: By updating the budget in a spreadsheet to reflect the 10% increase.
What are two ways to cover shortfalls in cash flow?
Answer: Infusing fresh capital or obtaining loans.
What happens to the break-even point if variable costs increase?
Answer: The break-even point increases, meaning more units must be sold to cover costs.
What does shareholders' equity represent?
Answer: The excess of assets over liabilities, also known as the business’s net worth.