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






2. 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






3. 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






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






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






6. Total common equity / Common shares outstanding






7. 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






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






9. Finding the proper values of individual securities






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






11. 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






12. 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






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






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






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


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






17. Financial Management - Capital Markets - & Investments






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






19. Net income / Common shares outstanding






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






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






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






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






24. 1 for the IRS - the other for reporting to investors






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






26. 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






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. 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)






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






30. 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'






31. An individual who targets a corporation for takeover because it is undervalued






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






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






34. 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






35. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination


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






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






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






39. Current assets - Current liabilities






40. 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


41. 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






42. 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






43. 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






44. 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






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






46. 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






47. Bears = pessimists - Bulls = optimists






48. 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






49. 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






50. 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