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. 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






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






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






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






5. Finding the proper values of individual securities






6. 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






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






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






9. Total common equity / Common shares outstanding






10. Net income / Common shares outstanding






11. 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






12. 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






13. 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






14. 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






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






16. 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






17. 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






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






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






20. 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'






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






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






23. An investor whose views determine the actual stock price






24. 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






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






26. 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






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






28. 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






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






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






31. 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






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. 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)






34. 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






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






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. Bears = pessimists - Bulls = optimists






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






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)






40. 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






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






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. Current assets - Current liabilities






44. Regulates banks and controls the supply of money






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






46. 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






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






48. 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






49. Dividends paid to common shareholders / Common shares outstanding






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