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Test your basic knowledge |
Finance Basics
Start Test
Study First
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. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Equilibrium
Bondholders
Expected Stock Price Formula
Preferred Stock
2. Bears = pessimists - Bulls = optimists
Perceived Valuation
Stock Market
Stock Valuation
True Valuation
3. 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
S Corporation
Perceived Valuation
Areas of Finance
Limited Liability Partnership (LLP)
4. Current assets - Current liabilities
Book Value Per Share (BPS)
Depreciation
Federal Reserve System
Net Working Capital (NWC)
5. 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
Hostile Takeover
EBITDA
Expected Stock Price Formula
Shareholder Wealth Maximization
6. 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
Shareholder Wealth Maximization
Partnership
Stockholders
Asset Valuation
7. 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
Equilibrium
Corporate Raider
Statement of Stockholders' Equity
3 Reasons to Form a Corporation
8. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Expected Stock $
Book Value Per Share (BPS)
Perceived Valuation
True Valuation
9. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Income Statement
Investments
Net Operating Working Capital (NOWC)
Dividends Per Share (DPS)
10. 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
Balance Sheet
Business Ethics
Stock Valuation
Market Price
11. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Amoritization
Market Price
Security Analysis
Negative FCF
12. Net income / Common shares outstanding
Stock Valuation
Bondholders
Earnings Per Share (EPS)
Convertible Bonds
13. Dividends paid to common shareholders / Common shares outstanding
Retained Earnings
Market Price
Dividends Per Share (DPS)
Book Value Per Share (BPS)
14. 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
Depreciation
Free Cash Flow (FCF)
Operating Income /(EBIT)
S Corporation
15. What investors would expect if they had all of the information that existed about a company
Dividends Per Share (DPS)
Perceived Valuation
Net Operating Profit After Taxes (NOPAT)
True Valuation
16. Regulates banks and controls the supply of money
Stock Market
Stockholders' Equity
Expected % Gain of Stock Price
Federal Reserve System
17. 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
Operating Income /(EBIT)
Statement of Stockholders' Equity
Amoritization
Negative FCF
18. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
S Corporation
Legal Structures of Business Organizations
Earnings Per Share (EPS)
Bondholders
19. 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
Statement of Cash Flows
Corporation or C Corporation
Stockholders
Negative FCF
20. 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
Amoritization
Sets of Financial Statements
Net Operating Working Capital (NWOC)
21. Expected % Gain of Stock Price = Increase of stock $ less original stock $ ($1 - 000 - $10) divided by original stock price (/ $10 x 100%) (100% is a constant)
Shareholder Wealth Maximization
Amoritization
Expected % Gain of Stock Price
Negative FCF
22. What investors DO expect given the limited information they actually have
Expected Stock $
Net Working Capital (NWC)
Perceived Valuation
Stock Market
23. 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
Limited Liability Partnership (LLP)
Financial Management/Corporate Finance
Behavioral Finance
Perceived Valuation
24. 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
Business Ethics
Areas of Finance
Annual Report
Net Operating Working Capital (NWOC)
25. Total common equity / Common shares outstanding
Stockholders
Investments
Book Value Per Share (BPS)
Limited Liability Partnership (LLP)
26. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Convertible Bonds
Net Working Capital (NWC)
Stockholders' Equity
Intrinsic Value
27. 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
S Corporation
Sole Proprietorships
Stockholders' Equity
Statement of Stockholders' Equity
28. Regulates the trading of stocks and bonds in public markets
Important Business Trends
Securities and Exchange Commission (SEC)
Legal Structures of Business Organizations
Sole Proprietorships
29. An investor whose views determine the actual stock price
Partnership
Sarbanes-Oxley Act
Marginal Investor
Stockholders
30. Receive more when the company does better - often in conflict with bondholders
Preferred Stock
Stockholders
Dividends Per Share (DPS)
Sole Proprietorships
31. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
32. 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
Free Cash Flow (FCF)
Convertible Bonds
Retained Earnings
Intrinsic Value
33. Accomplished through a combination of current liabilities - long-term debt - and common equity
Stock Market
Asset Funding
Equilibrium
Shareholder Wealth Maximization
34. 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
Security Analysis
Partnership
Financial Management/Corporate Finance
Retained Earnings
35. 1 for the IRS - the other for reporting to investors
Book Value Per Share (BPS)
Sets of Financial Statements
Formulas for Calculating Stockholders' Equity (SE)
Asset Funding
36. Categorized as current assets because are used & then replaced
Finance Department
Federal Reserve System
Working Capital
Preferred Stock
37. The issue of whether stock and bond markets at any given time are 'too high' or 'too low' or 'about right' - Behavioral Finance is a tool often used to aid in this analysis
Market Price
Marginal Investor
Market Analysis
Expected Stock Price Formula
38. 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
3 Reasons to Form a Corporation
Limited Liability Corporation (LLC)
Corporation or C Corporation
Expected Stock Price Formula
39. Acquisition of a company over the opposition of its management
Hostile Takeover
Working Capital
Areas of Finance
Free Cash Flow (FCF)
40. Current assets - (Current liabilities - Notes payables)
Working Capital
Sole Proprietorships
Net Operating Working Capital (NOWC)
Corporation or C Corporation
41. An individual who targets a corporation for takeover because it is undervalued
Dividends Per Share (DPS)
Capital Markets
Corporate Raider
Hostile Takeover
42. The best way to structure portfolios or 'baskets' of stocks and bonds
Asset Valuation
Sole Proprietorships
Portfolio Theory
Securities and Exchange Commission (SEC)
43. 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
44. 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
Annual Report
Legal Structures of Business Organizations
EBITDA
Shareholder Wealth Maximization
45. Sales revenues - operating costs (including depreciation & amoritizaton)
Behavioral Finance
Finance Department
Sole Proprietorships
Operating Income /(EBIT)
46. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Asset Valuation
Stock Valuation
Financial Management/Corporate Finance
Business Ethics
47. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
48. The markets where interest rates - along with stock and bond prices are determined
Dividends Per Share (DPS)
Expected Stock Price Formula
Capital Markets
EBITDA
49. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
True Valuation
Market Price
Free Cash Flow (FCF)
Expected Stock Price Formula
50. 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
Net Operating Profit After Taxes (NOPAT)
Equilibrium
Expected % Gain of Stock Price
Sarbanes-Oxley Act