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. 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






2. 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






3. 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






4. 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






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






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






7. 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






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






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






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






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






12. 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






13. 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






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






15. 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






16. Current assets - Current liabilities






17. 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






18. 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






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






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






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


22. 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






23. 1 for the IRS - the other for reporting to investors






24. Dividends paid to common shareholders / Common shares outstanding






25. 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'






26. 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






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






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






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


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






31. 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


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






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






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






35. 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






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






37. Financial Management - Capital Markets - & Investments






38. Bears = pessimists - Bulls = optimists






39. Regulates banks and controls the supply of money






40. 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)






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






42. 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






43. 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






44. An investor whose views determine the actual stock price






45. Total common equity / Common shares outstanding






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






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






48. 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






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






50. 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