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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. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
2. 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
Securities and Exchange Commission (SEC)
Important Business Trends
Sarbanes-Oxley Act
Shareholder Wealth Maximization
3. 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
Free Cash Flow (FCF)
Sole Proprietorships
3 Reasons to Form a Corporation
Investments
4. Accomplished through a combination of current liabilities - long-term debt - and common equity
Income Statement
Capital Markets
Asset Funding
Equilibrium
5. 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
Behavioral Finance
Preferred Stock
Earnings Per Share (EPS)
Legal Structures of Business Organizations
6. Current assets - Current liabilities
Stock Valuation
Net Working Capital (NWC)
Capital Markets
Sarbanes-Oxley Act
7. Financial Management - Capital Markets - & Investments
Formulas for Calculating Stockholders' Equity (SE)
True Valuation
Areas of Finance
Important Business Trends
8. 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
Negative FCF
Behavioral Finance
Net Operating Profit After Taxes (NOPAT)
Bondholders
9. 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
Partnership
Formulas for Calculating Stockholders' Equity (SE)
Limited Liability Partnership (LLP)
Corporation or C Corporation
10. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
S Corporation
Stock Valuation
Asset Valuation
Behavioral Finance
11. 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
Operating Income /(EBIT)
Depreciation
Shareholder Wealth Maximization
Hostile Takeover
12. Sales revenues - operating costs (including depreciation & amoritizaton)
Statement of Stockholders' Equity
Perceived Valuation
Equilibrium
Operating Income /(EBIT)
13. 1 for the IRS - the other for reporting to investors
Market Price
Balance Sheet
Investments
Sets of Financial Statements
14. 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)
Asset Funding
Negative FCF
Net Operating Working Capital (NWOC)
15. The markets where interest rates - along with stock and bond prices are determined
Portfolio Theory
Limited Liability Partnership (LLP)
EBITDA
Capital Markets
16. Total common equity / Common shares outstanding
Hostile Takeover
Convertible Bonds
Book Value Per Share (BPS)
Sole Proprietorships
17. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Market Analysis
Investments
Earnings Per Share (EPS)
Income Statement
18. Acquisition of a company over the opposition of its management
Behavioral Finance
Hostile Takeover
Balance Sheet
Sets of Financial Statements
19. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Security Analysis
Stock Market
Preferred Stock
Capital Markets
20. 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
Net Operating Profit After Taxes (NOPAT)
Earnings Per Share (EPS)
Financial Management/Corporate Finance
Sarbanes-Oxley Act
21. Net income / Common shares outstanding
Book Value Per Share (BPS)
Marginal Investor
Shareholder Wealth Maximization
Earnings Per Share (EPS)
22. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Stockholders' Equity
Preferred Stock
Corporation or C Corporation
Market Price
23. Finding the proper values of individual securities
Security Analysis
Sets of Financial Statements
Expected % Gain of Stock Price
Portfolio Theory
24. 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
Limited Liability Partnership (LLP)
Expected Stock Price Formula
Net Operating Working Capital (NWOC)
Free Cash Flow (FCF)
25. What investors DO expect given the limited information they actually have
Hostile Takeover
Perceived Valuation
Stockholders
Preferred Stock
26. 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
Convertible Bonds
Limited Liability Corporation (LLC)
True Valuation
Partnership
27. 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
Stockholders' Equity
Capital Markets
Asset Funding
Market Analysis
28. What investors would expect if they had all of the information that existed about a company
Stock Market
True Valuation
Sarbanes-Oxley Act
Net Operating Working Capital (NWOC)
29. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
EBITDA
Partnership
Legal Structures of Business Organizations
Business Ethics
30. 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
Retained Earnings
Portfolio Theory
Expected Stock Price Formula
Balance Sheet
31. 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
Areas of Finance
Intrinsic Value
Dividends Per Share (DPS)
Limited Liability Corporation (LLC)
32. 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
Bondholders
EBITDA
Limited Liability Corporation (LLC)
Financial Management/Corporate Finance
33. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Statement of Cash Flows
Amoritization
Depreciation
Corporation or C Corporation
34. Current assets - (Current liabilities - Notes payable)
Net Operating Working Capital (NWOC)
Negative FCF
Operating Income /(EBIT)
Shareholder Wealth Maximization
35. 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
Convertible Bonds
Sole Proprietorships
Formulas for Calculating Stockholders' Equity (SE)
Net Operating Working Capital (NOWC)
36. 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)
Earnings Per Share (EPS)
Asset Valuation
Income Statement
Legal Structures of Business Organizations
37. 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
Bondholders
Federal Reserve System
Amoritization
Limited Liability Partnership (LLP)
38. A company's attitude and conduct toward its employees - customers - community - and stockholders
Amoritization
Statement of Cash Flows
Statement of Stockholders' Equity
Business Ethics
39. 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)
Expected % Gain of Stock Price
Book Value Per Share (BPS)
Capital Markets
Finance Department
40. Regulates the trading of stocks and bonds in public markets
Capital Markets
3 Reasons to Form a Corporation
Net Operating Working Capital (NWOC)
Securities and Exchange Commission (SEC)
41. 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
Partnership
Annual Report
S Corporation
Book Value Per Share (BPS)
42. 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
43. 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
Annual Report
Depreciation
Business Ethics
Investments
44. Receive fix payments regardless of how well the company does - often in conflict with stockholders
Formulas for Calculating Stockholders' Equity (SE)
Bondholders
Hostile Takeover
Dividends Per Share (DPS)
45. Receive more when the company does better - often in conflict with bondholders
Stockholders
Formulas for Calculating Stockholders' Equity (SE)
Statement of Stockholders' Equity
Capital Markets
46. 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'
Limited Liability Corporation (LLC)
Areas of Finance
Securities and Exchange Commission (SEC)
Asset Valuation
47. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
EBITDA
Net Operating Working Capital (NWOC)
Finance Department
Depreciation
48. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Behavioral Finance
Equilibrium
Marginal Investor
Security Analysis
49. An individual who targets a corporation for takeover because it is undervalued
Corporate Raider
Sarbanes-Oxley Act
Behavioral Finance
Finance Department
50. Dividends paid to common shareholders / Common shares outstanding
Negative FCF
Portfolio Theory
Depreciation
Dividends Per Share (DPS)
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