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Test your basic knowledge |
Finance Basics
Start Test
Study First
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. Regulates the trading of stocks and bonds in public markets
Asset Funding
Market Analysis
Limited Liability Corporation (LLC)
Securities and Exchange Commission (SEC)
2. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Dividends Per Share (DPS)
Equilibrium
Income Statement
Portfolio Theory
3. 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
Stock Valuation
Behavioral Finance
Operating Income /(EBIT)
Formulas for Calculating Stockholders' Equity (SE)
4. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Legal Structures of Business Organizations
Finance Department
Statement of Cash Flows
Earnings Per Share (EPS)
5. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Limited Liability Partnership (LLP)
Stock Market
Convertible Bonds
Net Operating Working Capital (NWOC)
6. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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
Bondholders
Free Cash Flow (FCF)
Sole Proprietorships
Legal Structures of Business Organizations
7. Net income / Common shares outstanding
Earnings Per Share (EPS)
True Valuation
Statement of Stockholders' Equity
Formulas for Calculating Stockholders' Equity (SE)
8. 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
Amoritization
Expected Stock Price Formula
Book Value Per Share (BPS)
EBITDA
9. 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
Market Analysis
Shareholder Wealth Maximization
Earnings Per Share (EPS)
Income Statement
10. 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
Expected % Gain of Stock Price
Balance Sheet
Sole Proprietorships
Partnership
11. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
Depreciation
EBITDA
Corporate Raider
Statement of Cash Flows
12. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Stockholders' Equity
Book Value Per Share (BPS)
Expected Stock $
Hostile Takeover
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
Annual Report
Statement of Cash Flows
Important Business Trends
S Corporation
14. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Asset Valuation
Book Value Per Share (BPS)
Limited Liability Partnership (LLP)
Amoritization
15. Financial Management - Capital Markets - & Investments
Portfolio Theory
Book Value Per Share (BPS)
Areas of Finance
Asset Funding
16. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Investments
Corporate Raider
Business Ethics
Net Operating Working Capital (NOWC)
17. 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
Limited Liability Corporation (LLC)
Corporate Raider
Marginal Investor
Earnings Per Share (EPS)
18. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Investments
Market Price
Working Capital
Earnings Per Share (EPS)
19. Accomplished through a combination of current liabilities - long-term debt - and common equity
Asset Funding
Marginal Investor
Perceived Valuation
Stockholders' Equity
20. Total common equity / Common shares outstanding
Portfolio Theory
Expected % Gain of Stock Price
True Valuation
Book Value Per Share (BPS)
21. Bears = pessimists - Bulls = optimists
Amoritization
Stock Market
Important Business Trends
Areas of Finance
22. Finding the proper values of individual securities
Corporation or C Corporation
Net Operating Profit After Taxes (NOPAT)
Security Analysis
Federal Reserve System
23. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
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24. A company's attitude and conduct toward its employees - customers - community - and stockholders
Business Ethics
Limited Liability Corporation (LLC)
Shareholder Wealth Maximization
Expected % Gain of Stock Price
25. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
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26. 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)
True Valuation
Shareholder Wealth Maximization
Expected % Gain of Stock Price
Market Analysis
27. 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
Sarbanes-Oxley Act
Intrinsic Value
Income Statement
Net Operating Working Capital (NOWC)
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
Depreciation
Perceived Valuation
3 Reasons to Form a Corporation
Limited Liability Partnership (LLP)
29. 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
Shareholder Wealth Maximization
Finance Department
Earnings Per Share (EPS)
Limited Liability Partnership (LLP)
30. 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
Balance Sheet
Stockholders
Convertible Bonds
Important Business Trends
31. 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
Statement of Cash Flows
Capital Markets
Retained Earnings
Limited Liability Corporation (LLC)
32. Current assets - (Current liabilities - Notes payable)
Net Operating Working Capital (NWOC)
Market Analysis
Financial Management/Corporate Finance
Business Ethics
33. 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
Securities and Exchange Commission (SEC)
Partnership
Amoritization
Capital Markets
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
Operating Income /(EBIT)
S Corporation
Sole Proprietorships
Convertible Bonds
35. 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
Marginal Investor
Depreciation
Corporation or C Corporation
Hostile Takeover
36. The best way to structure portfolios or 'baskets' of stocks and bonds
Portfolio Theory
Sets of Financial Statements
Net Operating Working Capital (NOWC)
Retained Earnings
37. 1 for the IRS - the other for reporting to investors
Corporation or C Corporation
Bondholders
Retained Earnings
Sets of Financial Statements
38. 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
S Corporation
Securities and Exchange Commission (SEC)
Portfolio Theory
Limited Liability Partnership (LLP)
39. 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'
Asset Valuation
Retained Earnings
Bondholders
Market Price
40. Dividends paid to common shareholders / Common shares outstanding
Amoritization
Stock Market
Dividends Per Share (DPS)
Annual Report
41. 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
Dividends Per Share (DPS)
Market Analysis
3 Reasons to Form a Corporation
Areas of Finance
42. 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
Sarbanes-Oxley Act
Corporation or C Corporation
Security Analysis
Important Business Trends
43. An investor whose views determine the actual stock price
Finance Department
Marginal Investor
Securities and Exchange Commission (SEC)
Investments
44. Categorized as current assets because are used & then replaced
Sole Proprietorships
Working Capital
Corporation or C Corporation
Sets of Financial Statements
45. Current assets - (Current liabilities - Notes payables)
Net Operating Working Capital (NOWC)
Capital Markets
Stock Market
Formulas for Calculating Stockholders' Equity (SE)
46. 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
Securities and Exchange Commission (SEC)
Statement of Cash Flows
Income Statement
Negative FCF
47. Receive more when the company does better - often in conflict with bondholders
Stockholders
Operating Income /(EBIT)
Expected % Gain of Stock Price
3 Reasons to Form a Corporation
48. 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
Intrinsic Value
EBITDA
Convertible Bonds
Business Ethics
49. 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
Federal Reserve System
Free Cash Flow (FCF)
Expected Stock $
Retained Earnings
50. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Important Business Trends
Depreciation
Securities and Exchange Commission (SEC)
Areas of Finance