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






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


3. 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






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






5. 1 for the IRS - the other for reporting to investors






6. An investor whose views determine the actual stock price






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






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






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






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






11. 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






12. Regulates banks and controls the supply of money






13. 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






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






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






16. Finding the proper values of individual securities






17. 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






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






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






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






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






22. 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






23. 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






24. 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






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






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






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






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






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






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






31. 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






32. 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






33. 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






34. 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






35. Total common equity / Common shares outstanding






36. 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






37. 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






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


39. 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






40. Financial Management - Capital Markets - & Investments






41. Net income / Common shares outstanding






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






43. 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






44. 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






45. 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






46. Current assets - Current liabilities






47. 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)






48. 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


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






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