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Test your basic knowledge |
Finance Basics
Start Test
Study First
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. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Convertible Bonds
Amoritization
Dividends Per Share (DPS)
Operating Income /(EBIT)
2. Current assets - Current liabilities
Net Working Capital (NWC)
Expected Stock $
Free Cash Flow (FCF)
Partnership
3. 1 for the IRS - the other for reporting to investors
Expected Stock Price Formula
Sets of Financial Statements
Important Business Trends
Stockholders
4. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Stockholders' Equity
Business Ethics
Net Operating Profit After Taxes (NOPAT)
Bondholders
5. 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
True Valuation
Depreciation
S Corporation
Finance Department
6. Regulates the trading of stocks and bonds in public markets
Stockholders
Retained Earnings
Securities and Exchange Commission (SEC)
Portfolio Theory
7. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Finance Department
Important Business Trends
Negative FCF
Income Statement
8. What investors DO expect given the limited information they actually have
Legal Structures of Business Organizations
Perceived Valuation
Expected Stock Price Formula
Security Analysis
9. 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
Operating Income /(EBIT)
Annual Report
Bondholders
Security Analysis
10. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Convertible Bonds
Securities and Exchange Commission (SEC)
Free Cash Flow (FCF)
Stock Valuation
11. Categorized as current assets because are used & then replaced
Partnership
Income Statement
Net Operating Profit After Taxes (NOPAT)
Working Capital
12. 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
13. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Asset Valuation
Depreciation
Capital Markets
Amoritization
14. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Preferred Stock
Working Capital
Behavioral Finance
Security Analysis
15. 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
Stock Market
Sarbanes-Oxley Act
Partnership
Perceived Valuation
16. 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'
Asset Valuation
True Valuation
Net Operating Working Capital (NWOC)
Stockholders' Equity
17. 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
Limited Liability Corporation (LLC)
Shareholder Wealth Maximization
Hostile Takeover
Net Working Capital (NWC)
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
Federal Reserve System
Behavioral Finance
Hostile Takeover
Areas of Finance
19. 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
Behavioral Finance
Depreciation
Operating Income /(EBIT)
Expected % Gain of Stock Price
20. Regulates banks and controls the supply of money
Annual Report
Shareholder Wealth Maximization
Federal Reserve System
Important Business Trends
21. Financial Management - Capital Markets - & Investments
Asset Valuation
Partnership
Marginal Investor
Areas of Finance
22. 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
Important Business Trends
Market Analysis
Stock Valuation
3 Reasons to Form a Corporation
23. Net income / Common shares outstanding
Earnings Per Share (EPS)
Market Analysis
EBITDA
Investments
24. An investor whose views determine the actual stock price
Marginal Investor
Stock Valuation
Sole Proprietorships
Capital Markets
25. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
True Valuation
EBITDA
Behavioral Finance
Net Operating Profit After Taxes (NOPAT)
26. 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
Finance Department
Expected Stock Price Formula
Free Cash Flow (FCF)
3 Reasons to Form a Corporation
27. 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
Market Price
Net Operating Working Capital (NWOC)
Sole Proprietorships
Finance Department
28. The markets where interest rates - along with stock and bond prices are determined
Asset Valuation
Capital Markets
Federal Reserve System
Earnings Per Share (EPS)
29. 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
Asset Funding
Free Cash Flow (FCF)
Finance Department
Book Value Per Share (BPS)
30. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Net Operating Working Capital (NWOC)
Market Price
Earnings Per Share (EPS)
Free Cash Flow (FCF)
31. Receive more when the company does better - often in conflict with bondholders
Investments
Convertible Bonds
Areas of Finance
Stockholders
32. Sales revenues - operating costs (including depreciation & amoritizaton)
Operating Income /(EBIT)
Intrinsic Value
Statement of Stockholders' Equity
Expected Stock $
33. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
34. 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 Reasons to Form a Corporation
Market Analysis
Partnership
Amoritization
35. 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
Sole Proprietorships
Depreciation
True Valuation
Expected Stock Price Formula
36. 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
Limited Liability Partnership (LLP)
Amoritization
Retained Earnings
Expected Stock Price Formula
37. Bears = pessimists - Bulls = optimists
Stockholders' Equity
EBITDA
Operating Income /(EBIT)
Stock Market
38. The best way to structure portfolios or 'baskets' of stocks and bonds
Portfolio Theory
Market Analysis
Areas of Finance
Preferred Stock
39. Dividends paid to common shareholders / Common shares outstanding
Amoritization
Net Operating Working Capital (NOWC)
Dividends Per Share (DPS)
Stock Valuation
40. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Partnership
Sets of Financial Statements
Investments
Equilibrium
41. 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)
Retained Earnings
Securities and Exchange Commission (SEC)
Expected Stock $
Income Statement
42. Total common equity / Common shares outstanding
Legal Structures of Business Organizations
Book Value Per Share (BPS)
Marginal Investor
Stockholders' Equity
43. Finding the proper values of individual securities
Stockholders' Equity
Financial Management/Corporate Finance
Security Analysis
Working Capital
44. 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)
EBITDA
Net Working Capital (NWC)
Expected % Gain of Stock Price
Bondholders
45. 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
Market Price
Stock Valuation
Corporate Raider
Negative FCF
46. Receive fix payments regardless of how well the company does - often in conflict with stockholders
Formulas for Calculating Stockholders' Equity (SE)
Partnership
Financial Management/Corporate Finance
Bondholders
47. Accomplished through a combination of current liabilities - long-term debt - and common equity
Areas of Finance
Important Business Trends
Amoritization
Asset Funding
48. 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
Intrinsic Value
Expected Stock $
Balance Sheet
Perceived Valuation
49. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Book Value Per Share (BPS)
Equilibrium
Security Analysis
Shareholder Wealth Maximization
50. A company's attitude and conduct toward its employees - customers - community - and stockholders
Preferred Stock
Business Ethics
Finance Department
Financial Management/Corporate Finance