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. 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






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






4. 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






5. 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






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






7. 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)






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






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






10. 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






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






12. Net income / Common shares outstanding






13. 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






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






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






16. 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)






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






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


19. Finding the proper values of individual securities






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






21. 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






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






23. 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






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






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






26. Total common equity / Common shares outstanding






27. 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






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






29. 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






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






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






32. Financial Management - Capital Markets - & Investments






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






34. Regulates banks and controls the supply of money






35. 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






36. 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






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






38. 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






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






40. 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


41. 1 for the IRS - the other for reporting to investors






42. An investor whose views determine the actual stock price






43. 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






44. 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






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






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


47. 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






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






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






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