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






2. 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






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






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






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






6. Bears = pessimists - Bulls = optimists






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






8. 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






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


10. Financial Management - Capital Markets - & Investments






11. 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






12. 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






13. 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






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






15. Finding the proper values of individual securities






16. Dividends paid to common shareholders / Common shares outstanding






17. 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)






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






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






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






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






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






23. 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






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






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. Net income / Common shares outstanding






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






28. 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






29. 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






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






31. 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






32. 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






33. 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






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






35. 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






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






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






38. An investor whose views determine the actual stock price






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






40. 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






41. 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






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






43. 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






44. 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






45. 1 for the IRS - the other for reporting to investors






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






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






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


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






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