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






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






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






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






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






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 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






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






9. 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






10. 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


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






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






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. 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






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






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






17. 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)






18. Regulates banks and controls the supply of money






19. 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






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






21. 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






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






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






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






25. Bears = pessimists - Bulls = optimists






26. 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






27. 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






28. 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






29. 1 for the IRS - the other for reporting to investors






30. Net income / Common shares outstanding






31. 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






32. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price






33. 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






34. 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






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






36. Total common equity / Common shares outstanding






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






38. Dividends paid to common shareholders / Common shares outstanding






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






40. Finding the proper values of individual securities






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


42. 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






43. 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






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






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






46. 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






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






48. Current assets - Current liabilities






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






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