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






2. 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)






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






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






5. 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






6. 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


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






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






9. 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'






10. 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






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






12. 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






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






14. Regulates banks and controls the supply of money






15. Finding the proper values of individual securities






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






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






18. Current assets - Current liabilities






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






20. 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






21. An investor whose views determine the actual stock price






22. 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






23. 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






24. 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






25. Total common equity / Common shares outstanding






26. 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






27. 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






28. 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






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






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






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






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






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






34. Dividends paid to common shareholders / Common shares outstanding






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






36. 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






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






38. 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






39. 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






40. Bears = pessimists - Bulls = optimists






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






42. 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






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






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. Net income / Common shares outstanding






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






47. 1 for the IRS - the other for reporting to investors






48. 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






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






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