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