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. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






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






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






4. 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






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






6. 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






7. 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






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






9. 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






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






11. 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






12. Dividends paid to common shareholders / Common shares outstanding






13. 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






14. 1 for the IRS - the other for reporting to investors






15. 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






16. Bears = pessimists - Bulls = optimists






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






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






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






22. Financial Management - Capital Markets - & Investments






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






24. Finding the proper values of individual securities






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






26. 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






27. 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






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






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






30. 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






31. 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






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






33. 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'






34. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life






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






36. 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






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






38. 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


39. Total common equity / Common shares outstanding






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






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






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






43. 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






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


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






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






47. Net income / Common shares outstanding






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






49. 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






50. 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