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Test your basic knowledge |
Finance Basics
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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. A relatively new type of organization that is a hybrid between a partnership and a corporation. It has limited liability like corporations - but is taxed like partnerships. Investors have votes in proportion to their share of ownership
Partnership
Limited Liability Corporation (LLC)
Federal Reserve System
Portfolio Theory
2. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Statement of Stockholders' Equity
Stockholders
Corporate Raider
Market Price
3. 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
Hostile Takeover
Intrinsic Value
Asset Funding
Income Statement
4. An individual who targets a corporation for takeover because it is undervalued
Net Operating Working Capital (NOWC)
Corporate Raider
Perceived Valuation
Shareholder Wealth Maximization
5. Sales revenues - operating costs (including depreciation & amoritizaton)
Market Analysis
Operating Income /(EBIT)
True Valuation
Portfolio Theory
6. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Operating Income /(EBIT)
True Valuation
Expected Stock $
Corporation or C Corporation
7. 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
Net Operating Working Capital (NWOC)
Retained Earnings
Partnership
Free Cash Flow (FCF)
8. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
9. Financial Management - Capital Markets - & Investments
Finance Department
Areas of Finance
Security Analysis
Earnings Per Share (EPS)
10. Accomplished through a combination of current liabilities - long-term debt - and common equity
Hostile Takeover
Areas of Finance
Asset Funding
Free Cash Flow (FCF)
11. Net income / Common shares outstanding
Stock Valuation
Investments
Earnings Per Share (EPS)
Market Price
12. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
13. 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
14. Current assets - (Current liabilities - Notes payables)
Perceived Valuation
Expected Stock Price Formula
Federal Reserve System
Net Operating Working Capital (NOWC)
15. 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
Marginal Investor
Free Cash Flow (FCF)
Earnings Per Share (EPS)
Statement of Cash Flows
16. Receive fix payments regardless of how well the company does - often in conflict with stockholders
3 Reasons to Form a Corporation
Important Business Trends
Capital Markets
Bondholders
17. 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
Expected Stock Price Formula
Expected Stock $
Legal Structures of Business Organizations
S Corporation
18. Finding the proper values of individual securities
Expected Stock $
Security Analysis
Preferred Stock
Statement of Cash Flows
19. Categorized as current assets because are used & then replaced
Working Capital
Expected Stock $
Formulas for Calculating Stockholders' Equity (SE)
Depreciation
20. 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'
Asset Valuation
Perceived Valuation
Limited Liability Corporation (LLC)
Expected % Gain of Stock Price
21. 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
Annual Report
Equilibrium
Sole Proprietorships
Income Statement
22. 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
Statement of Cash Flows
Intrinsic Value
Balance Sheet
3 Reasons to Form a Corporation
23. Acquisition of a company over the opposition of its management
Limited Liability Partnership (LLP)
Financial Management/Corporate Finance
Hostile Takeover
Behavioral Finance
24. 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)
Income Statement
Limited Liability Corporation (LLC)
Financial Management/Corporate Finance
Statement of Cash Flows
25. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Dividends Per Share (DPS)
True Valuation
Federal Reserve System
Legal Structures of Business Organizations
26. 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
Finance Department
Negative FCF
Statement of Cash Flows
Operating Income /(EBIT)
27. Bears = pessimists - Bulls = optimists
Sole Proprietorships
Stock Market
Convertible Bonds
Limited Liability Partnership (LLP)
28. What investors would expect if they had all of the information that existed about a company
Intrinsic Value
Sarbanes-Oxley Act
True Valuation
Equilibrium
29. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
EBITDA
Net Working Capital (NWC)
Bondholders
Investments
30. 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
Market Analysis
EBITDA
Sarbanes-Oxley Act
Important Business Trends
31. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Book Value Per Share (BPS)
Net Operating Profit After Taxes (NOPAT)
True Valuation
Negative FCF
32. Receive more when the company does better - often in conflict with bondholders
Stockholders
Income Statement
Corporate Raider
Retained Earnings
33. What investors DO expect given the limited information they actually have
Perceived Valuation
Net Working Capital (NWC)
Operating Income /(EBIT)
Asset Valuation
34. Charge used to reflect the cost of long term assets used up in the production process over their useful life (not a cash outlay). Accelerated generally used for the IRS and straight line for investors
Legal Structures of Business Organizations
Depreciation
Financial Management/Corporate Finance
Market Price
35. 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
Limited Liability Corporation (LLC)
Business Ethics
Behavioral Finance
Formulas for Calculating Stockholders' Equity (SE)
36. Current assets - (Current liabilities - Notes payable)
Bondholders
Limited Liability Corporation (LLC)
Net Operating Profit After Taxes (NOPAT)
Net Operating Working Capital (NWOC)
37. 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
Negative FCF
Asset Valuation
Retained Earnings
Shareholder Wealth Maximization
38. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Expected Stock $
Market Price
Stock Valuation
Net Working Capital (NWC)
39. A legal entity created by a state - separate and distinct from its owners and managers - having unlimited life - easy transferability of ownership an limited liability. Major drawback is double taxation - earnings are taxed and dividends paid out
Stockholders' Equity
Corporation or C Corporation
Income Statement
Hostile Takeover
40. 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
Marginal Investor
Amoritization
Partnership
Financial Management/Corporate Finance
41. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Depreciation
Important Business Trends
Annual Report
Bondholders
42. 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
Legal Structures of Business Organizations
Capital Markets
Limited Liability Partnership (LLP)
Preferred Stock
43. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Preferred Stock
Financial Management/Corporate Finance
Net Working Capital (NWC)
Depreciation
44. 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
Investments
3 Reasons to Form a Corporation
Portfolio Theory
Net Operating Profit After Taxes (NOPAT)
45. 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
Free Cash Flow (FCF)
Security Analysis
Annual Report
Formulas for Calculating Stockholders' Equity (SE)
46. Regulates the trading of stocks and bonds in public markets
Securities and Exchange Commission (SEC)
Free Cash Flow (FCF)
Statement of Stockholders' Equity
Statement of Cash Flows
47. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
EBITDA
Perceived Valuation
Free Cash Flow (FCF)
Convertible Bonds
48. 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
Asset Valuation
Statement of Cash Flows
Expected Stock $
Statement of Stockholders' Equity
49. Current assets - Current liabilities
Net Working Capital (NWC)
S Corporation
Expected % Gain of Stock Price
Preferred Stock
50. Dividends paid to common shareholders / Common shares outstanding
Net Operating Profit After Taxes (NOPAT)
Dividends Per Share (DPS)
Earnings Per Share (EPS)
Balance Sheet
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