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. Current assets - (Current liabilities - Notes payables)






2. Finding the proper values of individual securities






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






4. 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






5. Current assets - Current liabilities






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






7. 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






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






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






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






11. 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






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






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






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






15. An investor whose views determine the actual stock price






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


17. 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






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






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






20. 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






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






22. 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






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






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






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






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






27. 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






28. Net income / Common shares outstanding






29. 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






30. Bears = pessimists - Bulls = optimists






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






32. 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






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






34. 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






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






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






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






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


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. Regulates banks and controls the supply of money






42. 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






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






44. 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






45. 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)






46. 1 for the IRS - the other for reporting to investors






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






48. Financial Management - Capital Markets - & Investments






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






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