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Test your basic knowledge |
Finance Basics
Start Test
Study First
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. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Working Capital
Net Operating Working Capital (NOWC)
Preferred Stock
Stockholders
2. 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
Amoritization
True Valuation
Depreciation
Annual Report
3. 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
Expected Stock $
Sets of Financial Statements
Partnership
EBITDA
4. Bears = pessimists - Bulls = optimists
Amoritization
Asset Funding
Intrinsic Value
Stock Market
5. The best way to structure portfolios or 'baskets' of stocks and bonds
Portfolio Theory
Federal Reserve System
Legal Structures of Business Organizations
Working Capital
6. Categorized as current assets because are used & then replaced
Investments
Limited Liability Partnership (LLP)
Working Capital
Earnings Per Share (EPS)
7. A company's attitude and conduct toward its employees - customers - community - and stockholders
Net Operating Working Capital (NOWC)
Shareholder Wealth Maximization
Business Ethics
True Valuation
8. 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
Dividends Per Share (DPS)
Depreciation
Behavioral Finance
Balance Sheet
9. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Amoritization
Intrinsic Value
Working Capital
Net Working Capital (NWC)
10. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Investments
Net Working Capital (NWC)
Stock Market
Legal Structures of Business Organizations
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
Portfolio Theory
Amoritization
Areas of Finance
Shareholder Wealth Maximization
12. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Net Operating Profit After Taxes (NOPAT)
Areas of Finance
Sets of Financial Statements
Limited Liability Corporation (LLC)
13. 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
Sarbanes-Oxley Act
S Corporation
Securities and Exchange Commission (SEC)
Earnings Per Share (EPS)
14. 1 for the IRS - the other for reporting to investors
Marginal Investor
Finance Department
Sets of Financial Statements
Market Price
15. Acquisition of a company over the opposition of its management
Statement of Stockholders' Equity
Hostile Takeover
Limited Liability Partnership (LLP)
Sarbanes-Oxley Act
16. Sales revenues - operating costs (including depreciation & amoritizaton)
Net Operating Working Capital (NWOC)
Operating Income /(EBIT)
3 Reasons to Form a Corporation
Stockholders
17. 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
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18. Finding the proper values of individual securities
Operating Income /(EBIT)
Equilibrium
Investments
Security Analysis
19. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Expected Stock $
Stockholders
Corporation or C Corporation
Capital Markets
20. Current assets - (Current liabilities - Notes payables)
Sets of Financial Statements
Book Value Per Share (BPS)
Net Operating Working Capital (NOWC)
Free Cash Flow (FCF)
21. 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
Security Analysis
Balance Sheet
Stock Market
S Corporation
22. 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
Shareholder Wealth Maximization
Expected % Gain of Stock Price
Areas of Finance
Free Cash Flow (FCF)
23. 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
Operating Income /(EBIT)
Behavioral Finance
Finance Department
True Valuation
24. What investors DO expect given the limited information they actually have
Perceived Valuation
Stockholders' Equity
Legal Structures of Business Organizations
Investments
25. 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
Expected % Gain of Stock Price
Stockholders
Limited Liability Corporation (LLC)
Annual Report
26. Financial Management - Capital Markets - & Investments
Areas of Finance
Securities and Exchange Commission (SEC)
Dividends Per Share (DPS)
Expected Stock Price Formula
27. Net income / Common shares outstanding
Corporate Raider
Statement of Cash Flows
Stock Valuation
Earnings Per Share (EPS)
28. An individual who targets a corporation for takeover because it is undervalued
Expected % Gain of Stock Price
Corporate Raider
Retained Earnings
Book Value Per Share (BPS)
29. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Corporation or C Corporation
Legal Structures of Business Organizations
Investments
Working Capital
30. Receive fix payments regardless of how well the company does - often in conflict with stockholders
Book Value Per Share (BPS)
Preferred Stock
Stockholders
Bondholders
31. Total common equity / Common shares outstanding
Book Value Per Share (BPS)
Retained Earnings
EBITDA
Perceived Valuation
32. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Capital Markets
3 Reasons to Form a Corporation
Formulas for Calculating Stockholders' Equity (SE)
Market Price
33. 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
3 Reasons to Form a Corporation
Statement of Cash Flows
Retained Earnings
Shareholder Wealth Maximization
34. 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
Securities and Exchange Commission (SEC)
Retained Earnings
Federal Reserve System
S Corporation
35. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Preferred Stock
Equilibrium
Net Working Capital (NWC)
Statement of Cash Flows
36. 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
Statement of Cash Flows
Market Price
Expected Stock $
Important Business Trends
37. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Convertible Bonds
Annual Report
Expected Stock $
Stockholders' Equity
38. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
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39. 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
Sole Proprietorships
Intrinsic Value
Market Analysis
Operating Income /(EBIT)
40. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Important Business Trends
Net Operating Working Capital (NWOC)
True Valuation
Stockholders' Equity
41. Regulates banks and controls the supply of money
Federal Reserve System
Stockholders' Equity
Net Operating Working Capital (NOWC)
Areas of Finance
42. 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
Limited Liability Corporation (LLC)
Shareholder Wealth Maximization
Federal Reserve System
Marginal Investor
43. An investor whose views determine the actual stock price
Asset Funding
Asset Valuation
Statement of Cash Flows
Marginal Investor
44. 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
3 Reasons to Form a Corporation
Security Analysis
Limited Liability Partnership (LLP)
Behavioral Finance
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)
Bondholders
Sarbanes-Oxley Act
Legal Structures of Business Organizations
Expected % Gain of Stock Price
46. 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
S Corporation
Expected Stock Price Formula
Net Operating Working Capital (NOWC)
Earnings Per Share (EPS)
47. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
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48. Accomplished through a combination of current liabilities - long-term debt - and common equity
Formulas for Calculating Stockholders' Equity (SE)
Asset Funding
Market Price
Intrinsic Value
49. 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'
Formulas for Calculating Stockholders' Equity (SE)
Asset Funding
Asset Valuation
Sarbanes-Oxley Act
50. Current assets - Current liabilities
Important Business Trends
Asset Valuation
Net Working Capital (NWC)
Net Operating Profit After Taxes (NOPAT)