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Chapter 8. Assessing a New Venture’s Financial Strength and Viability


Chapter 8. Assessing a New Venture’s Financial Strength and Viability
A.      Introduction to Financial Management
An Entrepreneur’s ability to pursue an opportunity and turn the opportuntity into a viable entrepreneurial firm.Entrepreneur and those managing established companies must be aware of how much money they have in the bank and if that amount is sufficient to satisfy their firm’s financial obligations.

B.      Financial Objectives of a Firm
Most entrepreneurial firms or stat ups have 4 main financial objectives:
1.       Profitability (ability to earn profit)
2.       Liquidity (ability to meet its short-term financial obligation)
3.       Efficiency (how productively a firm)
4.       Stability (strength and vigor of the firm)

C.      The Process of Financial Management
1.       Preparation of Historic Financial Statements (Income Statement, balance sheet, statement of cash flow)
2.       Preparation of forecasts (Income, Expenses, Capital Expenditures)
3.       Preparation of Pro Forma Financial Statements ( Pro forma income statement, pro forma balance sheet, pro forma statement of cash flows)
4.       Ongoing Analysis of Financial Results (Ratio analysis, Measuring results versus plans, Measuring results versus industry norms)

D.      Financial Statements
1.       Historical financial statements : Reflect past performance and are usually prepared on a quarterly and annual basis. Ex :  Income Statement, Balance Sheet, Statement of Cash Flows, Ratio Analysis
2.       Pro forma financial statements : Projections for future periods based on forecasts and are typically completed for two to three years in the future. Ex : Pro forma income statement, pro forma balance sheet, pro forma statement of cash flows, ratio analysis.



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