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


2. 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






3. 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






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






5. 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






6. Current assets - Current liabilities






7. Financial Management - Capital Markets - & Investments






8. 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






9. 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






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






11. 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






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






13. 1 for the IRS - the other for reporting to investors






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






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






16. Total common equity / Common shares outstanding






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






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






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






20. 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






21. Net income / Common shares outstanding






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






23. Finding the proper values of individual securities






24. 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






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






26. 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






27. 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






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






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






30. 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






31. 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






32. 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






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






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






35. 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






36. 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)






37. 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






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






39. 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)






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






41. 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






42. 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


43. 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






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






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






46. 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'






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






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






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






50. Dividends paid to common shareholders / Common shares outstanding






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