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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. The markets where interest rates - along with stock and bond prices are determined
Capital Markets
Asset Funding
Statement of Cash Flows
Hostile Takeover
2. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Expected Stock $
EBITDA
Preferred Stock
Expected Stock Price Formula
3. Finding the proper values of individual securities
Security Analysis
Corporate Raider
Bondholders
Areas of Finance
4. 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
Market Analysis
Areas of Finance
Working Capital
Annual Report
5. The primary goal for managers of publicly owned companies implies that decisions should be made to maximize the long-run value of the firm's common stock. Corporate social responsibility is not inconsistent with maximizing shareholder value
Corporate Raider
Shareholder Wealth Maximization
Financial Management/Corporate Finance
Legal Structures of Business Organizations
6. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Convertible Bonds
EBITDA
Behavioral Finance
Dividends Per Share (DPS)
7. 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
Limited Liability Corporation (LLC)
Behavioral Finance
Intrinsic Value
Security Analysis
8. Current assets - (Current liabilities - Notes payable)
Net Operating Working Capital (NWOC)
Financial Management/Corporate Finance
Limited Liability Partnership (LLP)
Stockholders
9. The best way to structure portfolios or 'baskets' of stocks and bonds
Income Statement
Annual Report
Portfolio Theory
Business Ethics
10. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Stockholders
Convertible Bonds
Securities and Exchange Commission (SEC)
Amoritization
11. 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'
Amoritization
Stockholders' Equity
Convertible Bonds
Asset Valuation
12. 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
Shareholder Wealth Maximization
Preferred Stock
Convertible Bonds
Limited Liability Partnership (LLP)
13. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Corporate Raider
Important Business Trends
Earnings Per Share (EPS)
Stock Market
14. 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
Depreciation
Shareholder Wealth Maximization
S Corporation
Capital Markets
15. 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
16. 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
Sets of Financial Statements
Expected Stock Price Formula
Net Working Capital (NWC)
Negative FCF
17. 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)
Net Operating Profit After Taxes (NOPAT)
Corporation or C Corporation
EBITDA
Income Statement
18. 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
Finance Department
Capital Markets
Sole Proprietorships
Depreciation
19. Accomplished through a combination of current liabilities - long-term debt - and common equity
True Valuation
Convertible Bonds
Book Value Per Share (BPS)
Asset Funding
20. 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
Expected Stock Price Formula
Statement of Stockholders' Equity
Income Statement
21. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Preferred Stock
Annual Report
Net Operating Working Capital (NOWC)
Partnership
22. 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
Partnership
Balance Sheet
Convertible Bonds
Stock Valuation
23. 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
Balance Sheet
Finance Department
3 Reasons to Form a Corporation
Sole Proprietorships
24. Total common equity / Common shares outstanding
Finance Department
Investments
Legal Structures of Business Organizations
Book Value Per Share (BPS)
25. Financial Management - Capital Markets - & Investments
Areas of Finance
Expected Stock $
Securities and Exchange Commission (SEC)
Intrinsic Value
26. 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)
Earnings Per Share (EPS)
Partnership
Expected % Gain of Stock Price
Statement of Stockholders' Equity
27. Bears = pessimists - Bulls = optimists
3 Reasons to Form a Corporation
Formulas for Calculating Stockholders' Equity (SE)
Finance Department
Stock Market
28. Receive more when the company does better - often in conflict with bondholders
Perceived Valuation
Balance Sheet
Stockholders
Expected % Gain of Stock Price
29. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Asset Valuation
Sets of Financial Statements
EBITDA
Market Price
30. Regulates the trading of stocks and bonds in public markets
Retained Earnings
Securities and Exchange Commission (SEC)
Business Ethics
Asset Valuation
31. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Earnings Per Share (EPS)
Sets of Financial Statements
Stock Valuation
Bondholders
32. Sales revenues - operating costs (including depreciation & amoritizaton)
Expected Stock $
Corporation or C Corporation
Operating Income /(EBIT)
Negative FCF
33. 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
Net Working Capital (NWC)
Finance Department
Areas of Finance
Annual Report
34. Regulates banks and controls the supply of money
Depreciation
Federal Reserve System
Marginal Investor
Asset Valuation
35. Dividends paid to common shareholders / Common shares outstanding
Dividends Per Share (DPS)
Stock Valuation
Sole Proprietorships
Market Price
36. 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)
Corporate Raider
Hostile Takeover
Income Statement
37. Receive fix payments regardless of how well the company does - often in conflict with stockholders
Depreciation
Free Cash Flow (FCF)
Bondholders
Market Price
38. 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
Market Analysis
Intrinsic Value
Retained Earnings
Capital Markets
39. 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
Corporation or C Corporation
Formulas for Calculating Stockholders' Equity (SE)
Preferred Stock
Statement of Cash Flows
40. 1 for the IRS - the other for reporting to investors
Sets of Financial Statements
Asset Valuation
Earnings Per Share (EPS)
Shareholder Wealth Maximization
41. 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
Asset Funding
Business Ethics
Finance Department
Free Cash Flow (FCF)
42. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Investments
Bondholders
Market Analysis
Capital Markets
43. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Equilibrium
Legal Structures of Business Organizations
Finance Department
Operating Income /(EBIT)
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
Expected % Gain of Stock Price
S Corporation
Book Value Per Share (BPS)
Retained Earnings
45. Current assets - (Current liabilities - Notes payables)
Convertible Bonds
Behavioral Finance
Net Operating Working Capital (NOWC)
Income Statement
46. 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
Net Operating Working Capital (NWOC)
Behavioral Finance
3 Reasons to Form a Corporation
Free Cash Flow (FCF)
47. 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
Sarbanes-Oxley Act
Sole Proprietorships
Expected % Gain of Stock Price
Book Value Per Share (BPS)
48. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Retained Earnings
Federal Reserve System
Preferred Stock
Equilibrium
49. What investors DO expect given the limited information they actually have
Finance Department
True Valuation
Perceived Valuation
Earnings Per Share (EPS)
50. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Legal Structures of Business Organizations
Free Cash Flow (FCF)
Net Operating Profit After Taxes (NOPAT)
EBITDA
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