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. 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






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






3. 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






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






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






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






7. 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






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






9. 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






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






11. 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






12. 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






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






14. 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






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






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






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






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






19. Bears = pessimists - Bulls = optimists






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






21. 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'






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






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






24. 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






25. Finding the proper values of individual securities






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






27. 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






28. 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)






29. Dividends paid to common shareholders / Common shares outstanding






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






31. 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






32. 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






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






34. 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






35. 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






36. 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






37. 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






38. 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






39. Net income / Common shares outstanding






40. Financial Management - Capital Markets - & Investments






41. Current assets - Current liabilities






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






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






44. Total common equity / Common shares outstanding






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






46. An investor whose views determine the actual stock price






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






48. 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






49. 1 for the IRS - the other for reporting to investors






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