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. 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






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






3. 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)






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






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


6. 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






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






8. Current assets - Current liabilities






9. Bears = pessimists - Bulls = optimists






10. 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






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






12. Finding the proper values of individual securities






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






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






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






16. 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






17. 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






18. 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






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






20. 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






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






22. 1 for the IRS - the other for reporting to investors






23. 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'






24. 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






25. 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






26. 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


27. Regulates banks and controls the supply of money






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






29. Dividends paid to common shareholders / Common shares outstanding






30. 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






31. 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






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






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






34. 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






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






36. Net income / Common shares outstanding






37. 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






38. 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






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






40. 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






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






42. 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






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






44. 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






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






46. Financial Management - Capital Markets - & Investments






47. Total common equity / Common shares outstanding






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






49. 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






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