Test your basic knowledge |

Finance Basics

Subject : business-skills
Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) + Depreciation & Amoritization] - [Capital expenditures






2. Regulates the trading of stocks and bonds in public markets






3. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock






4. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis






5. Indicates a rapidly growing company (investing in new assets) which is ok as long as the company eventually utilizes the assets to become profitable and contribute to its FCF






6. Law passed by Congress that requires CEO's & CFO's to certify their firms financial statements are accurate and deal with the consequences if the statements are not accurate






7. An individual who targets a corporation for takeover because it is undervalued






8. 1) Limited liability reduces the risks borne by investors - the lower the risk - the higher the value. 2) Firm's value is dependent on its growth opportunities - less risk easier to attract investor - more money more growth opportunities. 3) Valu






9. Shows the amount of equity the stockholders had at the start of the year - the items that increased or decreased it and the equity at the end of the year


10. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock






11. Current assets - (Current liabilities - Notes payable)






12. The markets where interest rates - along with stock and bond prices are determined






13. How did sales perform and did it make a profit? A report summarizing a firm's revenues - expenses and profits during a reporting period (generally a quarter or a year)






14. New investments - raise funds through financing - repurchased debt or equity - or paid dividends. How much cash the firm started the year with - how much it ended up with and what it did to increase or decrease its cash. A report that shows how th






15. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)






16. Current assets - (Current liabilities - Notes payables)






17. An uninicorporated business owned by one individual. 3 advantages - Easy and inexpensive to form - subject to few government regulations - and subject to lower income taxes than corporations. 3 disadvantages - Unlimited personal liability for the bu






18. Total common equity / Common shares outstanding






19. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor






20. Accomplished through a combination of current liabilities - long-term debt - and common equity






21. Similar to an LLC but used for professional firms in the fields of accounting - law - and architecture. It has limited liability like corporations - but is taxed like partnerships.Investors have votes in proportion to their share of ownership






22. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)






23. What investors DO expect given the limited information they actually have






24. A company's attitude and conduct toward its employees - customers - community - and stockholders






25. What investors would expect if they had all of the information that existed about a company






26. Financial Management - Capital Markets - & Investments






27. Acquisition of a company over the opposition of its management






28. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)






29. Principal task is to evaluate proposed decisions and judge how they will affect the stock price and thus shareholder wealth. Success or lack thereof of projects can determine the stock prices






30. Net income / Common shares outstanding






31. Categorized as current assets because are used & then replaced






32. Current assets - Current liabilities






33. An unincorporated business owned by 2 or more persons. 3 advantages - Easy and inexpensive to form - subject to few government regulations - and subject to lower income taxes than corporations. 3 disadvantages - Unlimited personal liability for the






34. The primary goal for managers of publicly owned companies implies that decisions should be made to maximize the long-run value of the firm's common stock. Corporate social responsibility is not inconsistent with maximizing shareholder value






35. Receive more when the company does better - often in conflict with bondholders






36. Indicates how large a company is. What assets the company owns & who has claims on those assets as of a given date. Displayed in 2 columns with the assets (what the company owns) on the left side and the firms liabilities and equity on the right side






37. An investor whose views determine the actual stock price






38. For example - based on 50% probability of failure/success and current bond value of $1000 - a current stock price of $10 and projected new stock price of $2000 if successful






39. Issued annually by a corporation to its stockholders - containing basic financial statements as well as management's analysis of the firm's past operations and future prospects. Provides 4 basic reports - Balance Sheet - Income Statement - Stateme






40. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships






41. The value of any asset is the present value or the stream of cash flows that the asset provides to its owners over time. In general the valuation is different if it is the 'market value' or the 'book value'






42. Investor psychology is examined in an effort to determine if stock prices have been bid up to unreasonable heights in a speculative bubble or driven down to unreasonable lows in a fit of irrational pessimism






43. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases






44. Regulates banks and controls the supply of money






45. Cumulative total of all earnings kept by the company during its life - a claim against assets - they do not represent cash on the balance sheet






46. Bears = pessimists - Bulls = optimists






47. An estimate of a stock's 'true' value based on accurate risk adn return data - it can be estimated but not measured precisely - estimate by stock analysts - a long term concept - management should maximize this value not the market price






48. A special designation that allows small businesses that meet qualifications to be taxed as if they were a proprietorship or a partnership rather than a corporation - exempt from corporate tax - must have less than 100 stockholders to qualify






49. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life






50. Receive fix payments regardless of how well the company does - often in conflict with stockholders