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






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






3. 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






4. Dividends paid to common shareholders / Common shares outstanding






5. 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






6. 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






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






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






9. 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






10. Finding the proper values of individual securities






11. 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






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






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






14. Regulates banks and controls the supply of money






15. 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)






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






17. 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






18. 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






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


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






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






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






23. 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'






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






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






26. 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






27. 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






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






29. 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)






30. Financial Management - Capital Markets - & Investments






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. Total common equity / Common shares outstanding






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






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






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






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






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


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






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






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






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






42. 1 for the IRS - the other for reporting to investors






43. Bears = pessimists - Bulls = optimists






44. 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






45. An investor whose views determine the actual stock price






46. 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






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






48. 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






49. 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






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