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. Focuses on decisions relating to how much and what types of assets to acquire - how to raise the capital needed to purchase assets - and how to run the firm so as to maximize its value






2. 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






3. 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)






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






5. 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






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






7. 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'






8. 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






9. Total common equity / Common shares outstanding






10. 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






11. 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






12. 1 for the IRS - the other for reporting to investors






13. Finding the proper values of individual securities






14. 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






15. 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






16. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities


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






18. 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


19. 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)






20. Regulates banks and controls the supply of money






21. 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






22. Financial Management - Capital Markets - & Investments






23. 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






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






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






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






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






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






29. Sales revenues - operating costs (including depreciation & amoritizaton)






30. 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






31. The best way to structure portfolios or 'baskets' of stocks and bonds






32. 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






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






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






35. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination


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






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






38. 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






39. 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






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






41. Bears = pessimists - Bulls = optimists






42. Dividends paid to common shareholders / Common shares outstanding






43. An investor whose views determine the actual stock price






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






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






46. 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






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






48. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs






49. 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






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