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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. What investors DO expect given the limited information they actually have
Legal Structures of Business Organizations
Perceived Valuation
Formulas for Calculating Stockholders' Equity (SE)
Net Operating Working Capital (NOWC)
2. 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
Investments
Limited Liability Partnership (LLP)
Annual Report
Stock Valuation
3. Acquisition of a company over the opposition of its management
Hostile Takeover
Market Analysis
Free Cash Flow (FCF)
Behavioral Finance
4. 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
S Corporation
Investments
Finance Department
Corporate Raider
5. Current assets - (Current liabilities - Notes payables)
Important Business Trends
Negative FCF
Operating Income /(EBIT)
Net Operating Working Capital (NOWC)
6. 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
Limited Liability Corporation (LLC)
Important Business Trends
Expected Stock Price Formula
True Valuation
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'
Asset Valuation
Corporation or C Corporation
Statement of Cash Flows
Securities and Exchange Commission (SEC)
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
Limited Liability Corporation (LLC)
Federal Reserve System
Net Working Capital (NWC)
Net Operating Working Capital (NOWC)
9. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Legal Structures of Business Organizations
Asset Valuation
Investments
Net Operating Profit After Taxes (NOPAT)
10. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Marginal Investor
Expected % Gain of Stock Price
Free Cash Flow (FCF)
Equilibrium
11. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Portfolio Theory
Expected Stock $
Annual Report
Legal Structures of Business Organizations
12. 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
Security Analysis
Areas of Finance
S Corporation
Balance Sheet
13. 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
S Corporation
Intrinsic Value
Operating Income /(EBIT)
3 Reasons to Form a Corporation
14. 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
Formulas for Calculating Stockholders' Equity (SE)
Balance Sheet
Corporation or C Corporation
15. The markets where interest rates - along with stock and bond prices are determined
Capital Markets
Book Value Per Share (BPS)
Partnership
Retained Earnings
16. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Important Business Trends
Free Cash Flow (FCF)
Convertible Bonds
Expected Stock Price Formula
17. 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
Stock Valuation
EBITDA
Depreciation
Corporation or C Corporation
18. Bears = pessimists - Bulls = optimists
Balance Sheet
Stock Market
Formulas for Calculating Stockholders' Equity (SE)
Limited Liability Partnership (LLP)
19. Finding the proper values of individual securities
Intrinsic Value
Asset Funding
Book Value Per Share (BPS)
Security Analysis
20. 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
Limited Liability Corporation (LLC)
S Corporation
Book Value Per Share (BPS)
Market Analysis
21. 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
Behavioral Finance
EBITDA
Equilibrium
Federal Reserve System
22. 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
23. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Perceived Valuation
Corporation or C Corporation
Expected Stock $
Stock Market
24. 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
Net Working Capital (NWC)
Shareholder Wealth Maximization
Book Value Per Share (BPS)
Security Analysis
25. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Securities and Exchange Commission (SEC)
Net Operating Working Capital (NOWC)
Stock Valuation
Free Cash Flow (FCF)
26. 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
Investments
Bondholders
Annual Report
Sarbanes-Oxley Act
27. Dividends paid to common shareholders / Common shares outstanding
Dividends Per Share (DPS)
Legal Structures of Business Organizations
Areas of Finance
3 Reasons to Form a Corporation
28. 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
EBITDA
Partnership
Expected Stock $
Preferred Stock
29. An investor whose views determine the actual stock price
Marginal Investor
Formulas for Calculating Stockholders' Equity (SE)
Book Value Per Share (BPS)
Finance Department
30. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Bondholders
Negative FCF
Investments
True Valuation
31. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Preferred Stock
Amoritization
Expected Stock $
Negative FCF
32. 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
Stockholders
Stock Valuation
Limited Liability Partnership (LLP)
Retained Earnings
33. Regulates banks and controls the supply of money
Federal Reserve System
EBITDA
Marginal Investor
Investments
34. 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
Stock Market
Limited Liability Partnership (LLP)
Stock Valuation
Areas of Finance
35. Financial Management - Capital Markets - & Investments
Corporation or C Corporation
Limited Liability Corporation (LLC)
Areas of Finance
True Valuation
36. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Negative FCF
3 Reasons to Form a Corporation
Amoritization
Operating Income /(EBIT)
37. 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
Dividends Per Share (DPS)
Legal Structures of Business Organizations
Net Operating Working Capital (NWOC)
3 Reasons to Form a Corporation
38. What investors would expect if they had all of the information that existed about a company
Convertible Bonds
Working Capital
True Valuation
Corporate Raider
39. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
40. 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)
Statement of Cash Flows
Dividends Per Share (DPS)
Expected % Gain of Stock Price
Depreciation
41. Receive more when the company does better - often in conflict with bondholders
Behavioral Finance
Stockholders
Net Operating Working Capital (NWOC)
Investments
42. Current assets - Current liabilities
Market Price
Intrinsic Value
Net Working Capital (NWC)
EBITDA
43. 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
Financial Management/Corporate Finance
Sets of Financial Statements
Stockholders
Formulas for Calculating Stockholders' Equity (SE)
44. A company's attitude and conduct toward its employees - customers - community - and stockholders
Business Ethics
Market Analysis
Expected Stock Price Formula
Net Working Capital (NWC)
45. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
46. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
Investments
EBITDA
Bondholders
Sarbanes-Oxley Act
47. 1 for the IRS - the other for reporting to investors
Portfolio Theory
Sets of Financial Statements
Dividends Per Share (DPS)
Areas of Finance
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
Net Operating Profit After Taxes (NOPAT)
Finance Department
Statement of Cash Flows
Net Operating Working Capital (NOWC)
49. Receive fix payments regardless of how well the company does - often in conflict with stockholders
EBITDA
Stockholders
Financial Management/Corporate Finance
Bondholders
50. Current assets - (Current liabilities - Notes payable)
Net Operating Working Capital (NWOC)
Areas of Finance
Net Operating Profit After Taxes (NOPAT)
Perceived Valuation
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