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






2. 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






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






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






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






6. 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






7. 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






8. 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






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






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






11. Dividends paid to common shareholders / Common shares outstanding






12. 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'






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


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






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. Regulates the trading of stocks and bonds in public markets






17. 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






18. Financial Management - Capital Markets - & Investments






19. 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






20. 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






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






22. 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


23. 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






24. Net income / Common shares outstanding






25. Finding the proper values of individual securities






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






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


28. 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






29. Regulates banks and controls the supply of money






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






31. 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






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






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






34. 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






35. Bears = pessimists - Bulls = optimists






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






37. 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






38. 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






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






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






41. Current assets - Current liabilities






42. 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






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






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






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






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






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






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






49. Total common equity / Common shares outstanding






50. 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