9.1 Financing Your Business

Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 1. Net worth is the difference between items of value that you own and amounts you owe to others.

• True

• False

Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 2. To calculate your net worth, you should prepare a pro forma financial statement.

• True

• False

Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 3. Your company’s debt-to-equity ratio measures how much money a company can safely borrow over time.

• True

• False

Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 4. Equity capital does not include money invested by the owner of the business.

• True

• False

Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 5. Venture capitalists are usually interested in companies that have the potential of earning hundreds of millions of dollars within a few years.

• True

• False

Debt capital is money invested in a business in return for a share in the profits of the business.

• True

• False

A bank usually will loan a business up to 50 percent of the total value of its accounts receivable if it feels that that business’s customers are good credit risks.

• True

• False

Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 8. Banks require collateral for most unsecured loans.

• True

• False

Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 9. The Small Business Administration (SBA) does not make direct loans.

• True

• False

Before you can approach a lender or investor about financing your business, you must prepare all of the following except

• a personal cash flow statement

• a personal financial statement

• a pro forma balance sheet

• a pro forma income statement