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 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






2. 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'






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






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






5. 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






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






7. 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


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






9. 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






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






11. Finding the proper values of individual securities






12. 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






13. 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)






14. 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)






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






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






17. 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






18. 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






19. 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






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






21. 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






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. An investor whose views determine the actual stock price






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






25. Total common equity / Common shares outstanding






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






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






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






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






30. 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






31. Bears = pessimists - Bulls = optimists






32. 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






33. 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






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. Net income / Common shares outstanding






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






37. 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






38. Dividends paid to common shareholders / Common shares outstanding






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






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






41. Regulates banks and controls the supply of money






42. 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






43. Current assets - Current liabilities






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






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






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






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


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






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






50. Financial Management - Capital Markets - & Investments