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






2. 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






3. 1 for the IRS - the other for reporting to investors






4. 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






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






6. An investor whose views determine the actual stock price






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






8. 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






9. Dividends paid to common shareholders / Common shares outstanding






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






11. 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)






12. Total common equity / Common shares outstanding






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






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






15. 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






16. 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






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






18. 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






19. 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






20. 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






21. Current assets - Current liabilities






22. 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






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






24. 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'






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






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






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






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






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






31. 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






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






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






34. 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






35. Financial Management - Capital Markets - & Investments






36. 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






37. 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






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. Net income / Common shares outstanding






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






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






42. 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






43. 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






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






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






46. Bears = pessimists - Bulls = optimists






47. 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






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






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






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