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. 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






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






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






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






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






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






7. 1 for the IRS - the other for reporting to investors






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






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






10. 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






11. 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






12. Dividends paid to common shareholders / Common shares outstanding






13. Finding the proper values of individual securities






14. 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)






15. 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






16. 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






17. 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






18. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock






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






20. 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)






21. 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






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






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






24. 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






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






26. An investor whose views determine the actual stock price






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






28. 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






29. Net income / Common shares outstanding






30. Financial Management - Capital Markets - & Investments






31. Regulates the trading of stocks and bonds in public markets






32. 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






33. 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






34. 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






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






36. 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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37. 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






38. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases






39. 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






40. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor






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






42. Regulates banks and controls the supply of money






43. Receive more when the company does better - often in conflict with bondholders






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

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






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






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






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






49. 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'






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