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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. Acquisition of a company over the opposition of its management
Hostile Takeover
Expected Stock Price Formula
Preferred Stock
Depreciation
2. 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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3. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Asset Valuation
Market Price
Stock Valuation
Finance Department
4. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Operating Income /(EBIT)
Convertible Bonds
Important Business Trends
Business Ethics
5. Receive more when the company does better - often in conflict with bondholders
Market Price
Stockholders
Hostile Takeover
Investments
6. 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
Marginal Investor
Behavioral Finance
Securities and Exchange Commission (SEC)
Balance Sheet
7. 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
S Corporation
Market Analysis
True Valuation
Expected Stock $
8. The markets where interest rates - along with stock and bond prices are determined
Business Ethics
Expected Stock Price Formula
Free Cash Flow (FCF)
Capital Markets
9. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
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10. 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
Working Capital
Statement of Stockholders' Equity
Market Analysis
Partnership
11. 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
Income Statement
Free Cash Flow (FCF)
Negative FCF
3 Reasons to Form a Corporation
12. Current assets - Current liabilities
Important Business Trends
Market Price
Operating Income /(EBIT)
Net Working Capital (NWC)
13. 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
Stockholders' Equity
Perceived Valuation
Statement of Cash Flows
Market Analysis
14. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Preferred Stock
Security Analysis
Investments
Intrinsic Value
15. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Working Capital
Expected % Gain of Stock Price
Market Price
S Corporation
16. The best way to structure portfolios or 'baskets' of stocks and bonds
Formulas for Calculating Stockholders' Equity (SE)
Portfolio Theory
Sarbanes-Oxley Act
Finance Department
17. Total common equity / Common shares outstanding
Financial Management/Corporate Finance
Book Value Per Share (BPS)
Asset Funding
Capital Markets
18. Receive fix payments regardless of how well the company does - often in conflict with stockholders
Annual Report
Market Analysis
Security Analysis
Bondholders
19. A company's attitude and conduct toward its employees - customers - community - and stockholders
Market Price
Shareholder Wealth Maximization
Operating Income /(EBIT)
Business Ethics
20. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
Income Statement
Stockholders' Equity
Financial Management/Corporate Finance
EBITDA
21. 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
Corporation or C Corporation
Operating Income /(EBIT)
Free Cash Flow (FCF)
Statement of Cash Flows
22. Categorized as current assets because are used & then replaced
Important Business Trends
Expected % Gain of Stock Price
Working Capital
3 Reasons to Form a Corporation
23. 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
Behavioral Finance
Areas of Finance
Financial Management/Corporate Finance
Annual Report
24. Regulates the trading of stocks and bonds in public markets
Intrinsic Value
Sarbanes-Oxley Act
Securities and Exchange Commission (SEC)
Dividends Per Share (DPS)
25. Accomplished through a combination of current liabilities - long-term debt - and common equity
Amoritization
Security Analysis
Sets of Financial Statements
Asset Funding
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
Annual Report
Market Analysis
Business Ethics
Balance Sheet
27. 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
Net Operating Working Capital (NWOC)
3 Reasons to Form a Corporation
Depreciation
Income Statement
28. Sales revenues - operating costs (including depreciation & amoritizaton)
Net Working Capital (NWC)
Areas of Finance
Stock Market
Operating Income /(EBIT)
29. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Stock Market
Legal Structures of Business Organizations
Expected % Gain of Stock Price
Bondholders
30. 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)
Retained Earnings
Finance Department
Business Ethics
31. 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
Finance Department
S Corporation
Equilibrium
Amoritization
32. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Expected Stock $
Market Analysis
Legal Structures of Business Organizations
EBITDA
33. Regulates banks and controls the supply of money
Net Operating Working Capital (NWOC)
Federal Reserve System
Statement of Stockholders' Equity
Earnings Per Share (EPS)
34. 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
Amoritization
Limited Liability Corporation (LLC)
Retained Earnings
35. 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'
Corporation or C Corporation
Book Value Per Share (BPS)
Investments
Asset Valuation
36. What investors DO expect given the limited information they actually have
Perceived Valuation
S Corporation
Free Cash Flow (FCF)
Finance Department
37. An investor whose views determine the actual stock price
Formulas for Calculating Stockholders' Equity (SE)
Finance Department
Expected Stock $
Marginal Investor
38. 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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39. 1 for the IRS - the other for reporting to investors
Balance Sheet
Sets of Financial Statements
Net Operating Profit After Taxes (NOPAT)
Limited Liability Corporation (LLC)
40. 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)
Retained Earnings
Dividends Per Share (DPS)
Marginal Investor
41. 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
Asset Valuation
Intrinsic Value
Market Price
Net Operating Working Capital (NWOC)
42. Bears = pessimists - Bulls = optimists
Marginal Investor
Balance Sheet
Stock Market
Financial Management/Corporate Finance
43. 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
Depreciation
Sets of Financial Statements
Sarbanes-Oxley Act
Limited Liability Partnership (LLP)
44. 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
Hostile Takeover
Retained Earnings
Financial Management/Corporate Finance
EBITDA
45. 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
Negative FCF
Sole Proprietorships
Capital Markets
EBITDA
46. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Financial Management/Corporate Finance
Net Operating Working Capital (NWOC)
Stock Market
Convertible Bonds
47. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Equilibrium
Annual Report
Portfolio Theory
Important Business Trends
48. 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
Securities and Exchange Commission (SEC)
Federal Reserve System
Shareholder Wealth Maximization
Corporation or C Corporation
49. Dividends paid to common shareholders / Common shares outstanding
Negative FCF
Dividends Per Share (DPS)
Perceived Valuation
Stock Valuation
50. Current assets - (Current liabilities - Notes payables)
Business Ethics
Net Operating Working Capital (NOWC)
Stock Valuation
Partnership