Business Plan Financial Projections 1

Question 1

What does a pro forma income statement show in a business plan?

Accepted Answer

Projected revenues, expenses, and net income

Answer

A pro forma income statement shows projected revenues, expenses, and net income over a future period.

Question 2

Which financial statement tracks the flow of cash in and out of a business?

Accepted Answer

Cash flow statement

Answer

The cash flow statement tracks cash inflows and outflows, showing liquidity over time.

Question 3

What is a break-even analysis used for in a business plan?

Accepted Answer

To determine when revenue equals total costs

Answer

Break-even analysis determines the sales volume at which total revenue equals total costs and the business neither profits nor loses.

Question 4

What does 'burn rate' mean in financial projections?

Accepted Answer

The rate at which a startup spends its capital

Answer

Burn rate refers to how quickly a startup spends its available capital before becoming profitable.

Question 5

Which ratio measures a company's ability to meet short-term obligations?

Accepted Answer

Current ratio

Answer

The current ratio (current assets divided by current liabilities) measures a company's ability to cover short-term obligations.

Business Plan Practice Test