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Test your basic knowledge |
Finance Basics
Start Test
Study First
Subject
:
business-skills
Instructions:
Answer 50 questions in 30 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. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Stockholders' Equity
Important Business Trends
Book Value Per Share (BPS)
Federal Reserve System
2. Sales revenues - operating costs (including depreciation & amoritizaton)
Expected Stock Price Formula
Retained Earnings
Operating Income /(EBIT)
S Corporation
3. Regulates the trading of stocks and bonds in public markets
Stock Market
Securities and Exchange Commission (SEC)
Expected Stock Price Formula
Net Working Capital (NWC)
4. What investors DO expect given the limited information they actually have
Stockholders
Expected Stock Price Formula
Legal Structures of Business Organizations
Perceived Valuation
5. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
6. 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
Amoritization
Net Operating Working Capital (NWOC)
Annual Report
Expected % Gain of Stock Price
7. Net income / Common shares outstanding
Earnings Per Share (EPS)
Net Operating Profit After Taxes (NOPAT)
Equilibrium
Working Capital
8. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Balance Sheet
Preferred Stock
True Valuation
Equilibrium
9. 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
Stockholders' Equity
Important Business Trends
Hostile Takeover
Limited Liability Corporation (LLC)
10. 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
Perceived Valuation
Portfolio Theory
Operating Income /(EBIT)
Market Analysis
11. Current assets - (Current liabilities - Notes payables)
Federal Reserve System
Shareholder Wealth Maximization
Important Business Trends
Net Operating Working Capital (NOWC)
12. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Sarbanes-Oxley Act
Expected Stock $
Asset Funding
Shareholder Wealth Maximization
13. Finding the proper values of individual securities
Statement of Stockholders' Equity
Convertible Bonds
Security Analysis
Net Working Capital (NWC)
14. 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
Limited Liability Corporation (LLC)
Sole Proprietorships
Expected Stock $
Partnership
15. 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
Areas of Finance
Net Working Capital (NWC)
Financial Management/Corporate Finance
3 Reasons to Form a Corporation
16. Regulates banks and controls the supply of money
Financial Management/Corporate Finance
Federal Reserve System
3 Reasons to Form a Corporation
True Valuation
17. 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
Market Analysis
Formulas for Calculating Stockholders' Equity (SE)
Shareholder Wealth Maximization
Annual Report
18. The markets where interest rates - along with stock and bond prices are determined
Areas of Finance
Convertible Bonds
Capital Markets
Statement of Stockholders' Equity
19. 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
Amoritization
Investments
EBITDA
Intrinsic Value
20. Current assets - Current liabilities
Business Ethics
Investments
Net Working Capital (NWC)
Statement of Stockholders' Equity
21. 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
Financial Management/Corporate Finance
Expected Stock Price Formula
Corporate Raider
Book Value Per Share (BPS)
22. 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
Hostile Takeover
Partnership
Sole Proprietorships
Depreciation
23. 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
Net Working Capital (NWC)
Working Capital
Sarbanes-Oxley Act
Convertible Bonds
24. 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
Sarbanes-Oxley Act
Retained Earnings
Shareholder Wealth Maximization
Bondholders
25. Receive fix payments regardless of how well the company does - often in conflict with stockholders
EBITDA
Areas of Finance
Preferred Stock
Bondholders
26. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Bondholders
Hostile Takeover
Shareholder Wealth Maximization
Preferred Stock
27. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Negative FCF
Expected Stock Price Formula
Legal Structures of Business Organizations
Capital Markets
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)
Income Statement
Sets of Financial Statements
Finance Department
Balance Sheet
29. Dividends paid to common shareholders / Common shares outstanding
Expected Stock $
Statement of Stockholders' Equity
Sole Proprietorships
Dividends Per Share (DPS)
30. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Investments
Stockholders' Equity
Negative FCF
Important Business Trends
31. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Partnership
Dividends Per Share (DPS)
Market Price
Earnings Per Share (EPS)
32. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Expected Stock Price Formula
Annual Report
Amoritization
Statement of Stockholders' Equity
33. 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
Formulas for Calculating Stockholders' Equity (SE)
Free Cash Flow (FCF)
True Valuation
Behavioral Finance
34. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Working Capital
Stockholders' Equity
Convertible Bonds
Income Statement
35. Receive more when the company does better - often in conflict with bondholders
Statement of Cash Flows
Operating Income /(EBIT)
Stockholders
Limited Liability Partnership (LLP)
36. An investor whose views determine the actual stock price
3 Reasons to Form a Corporation
Statement of Stockholders' Equity
Marginal Investor
Formulas for Calculating Stockholders' Equity (SE)
37. 1 for the IRS - the other for reporting to investors
Security Analysis
Sets of Financial Statements
Legal Structures of Business Organizations
S Corporation
38. 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
Business Ethics
Balance Sheet
Corporate Raider
S Corporation
39. 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'
Limited Liability Corporation (LLC)
Asset Valuation
Net Operating Working Capital (NOWC)
Shareholder Wealth Maximization
40. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
Equilibrium
Behavioral Finance
EBITDA
Net Operating Working Capital (NWOC)
41. An individual who targets a corporation for takeover because it is undervalued
Net Operating Profit After Taxes (NOPAT)
Net Working Capital (NWC)
Corporate Raider
Expected Stock $
42. 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
Net Operating Profit After Taxes (NOPAT)
Marginal Investor
Corporation or C Corporation
43. Accomplished through a combination of current liabilities - long-term debt - and common equity
Legal Structures of Business Organizations
Intrinsic Value
Limited Liability Corporation (LLC)
Asset Funding
44. 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
Security Analysis
Sole Proprietorships
True Valuation
45. 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
46. 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
Security Analysis
3 Reasons to Form a Corporation
S Corporation
47. 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
S Corporation
Hostile Takeover
Net Operating Working Capital (NOWC)
Financial Management/Corporate Finance
48. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
49. A company's attitude and conduct toward its employees - customers - community - and stockholders
True Valuation
Dividends Per Share (DPS)
Business Ethics
Stockholders
50. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Statement of Cash Flows
Areas of Finance
Net Operating Profit After Taxes (NOPAT)
Intrinsic Value