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. Financial Management - Capital Markets - & Investments






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


3. 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






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






5. 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






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






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






8. 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






9. Total common equity / Common shares outstanding






10. 1 for the IRS - the other for reporting to investors






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


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






13. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






14. Finding the proper values of individual securities






15. 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






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






17. 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






18. Current assets - Current liabilities






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






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






21. Dividends paid to common shareholders / Common shares outstanding






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






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






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






25. 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


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






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






28. 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






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






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






31. Bears = pessimists - Bulls = optimists






32. 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






33. 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)






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






35. 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






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






37. 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






38. 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)






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






40. 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'






41. 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






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






43. An investor whose views determine the actual stock price






44. 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






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






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






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






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. 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






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