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. 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






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






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






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






5. Net income / Common shares outstanding






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






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






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






9. 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






10. 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






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






12. Current assets - Current liabilities






13. 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






14. 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






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






16. Total common equity / Common shares outstanding






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






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






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. 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






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


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






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






24. An investor whose views determine the actual stock price






25. 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






26. 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






27. Financial Management - Capital Markets - & Investments






28. 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






29. 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






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. Dividends paid to common shareholders / Common shares outstanding






32. 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






33. 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






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






35. Bears = pessimists - Bulls = optimists






36. Finding the proper values of individual securities






37. 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






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






39. 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






40. 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






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






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






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


44. 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






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






46. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis






47. 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)






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






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






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