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






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






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






4. 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






5. 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






6. 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






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






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






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






10. Finding the proper values of individual securities






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






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






13. Dividends paid to common shareholders / Common shares outstanding






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






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






16. 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)






17. 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'






18. 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






19. 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






20. 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






21. 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)






22. 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






23. Financial Management - Capital Markets - & Investments






24. 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






25. 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






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






27. Bears = pessimists - Bulls = optimists






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






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






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






31. 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






32. 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






33. 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






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






35. 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






36. Net income / Common shares outstanding






37. 1 for the IRS - the other for reporting to investors






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






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






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






41. 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






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






43. 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






44. Total common equity / Common shares outstanding






45. Current assets - Current liabilities






46. 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






47. 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






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

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






50. 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