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. Dividends paid to common shareholders / Common shares outstanding






2. 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






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






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






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






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 Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






7. Total common equity / Common shares outstanding






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






9. Regulates banks and controls the supply of money






10. Financial Management - Capital Markets - & Investments






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






12. 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






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






14. 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






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


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






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






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






19. 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






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






21. 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






22. 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






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






24. 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






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






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






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






30. 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






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






32. 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'






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






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. 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






36. An investor whose views determine the actual stock price






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






38. 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






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






40. 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






41. 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






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






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






44. Net income / Common shares outstanding






45. 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






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






47. 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






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






49. 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


50. Current assets - Current liabilities