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






2. 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






3. Current assets - Current liabilities






4. 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






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. 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






7. 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






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






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






10. 1 for the IRS - the other for reporting to investors






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


12. 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






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






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






15. 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






16. Dividends paid to common shareholders / Common shares outstanding






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






18. Regulates banks and controls the supply of money






19. 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






20. 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






21. Finding the proper values of individual securities






22. 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






23. 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






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






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






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






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






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






29. 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






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






31. 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






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






33. 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






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






35. 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






36. 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






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






38. 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)






39. Bears = pessimists - Bulls = optimists






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






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






42. Total common equity / Common shares outstanding






43. An investor whose views determine the actual stock price






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






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






46. 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)






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






48. 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






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






50. 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