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






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






3. 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'






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






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






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






7. An investor whose views determine the actual stock price






8. 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






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






10. 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






11. 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)






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






13. 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






14. 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






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






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. 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






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






19. 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






20. 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






21. 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






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






23. 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






24. Financial Management - Capital Markets - & Investments






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






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






27. 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






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






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






30. 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






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






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






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






35. Bears = pessimists - Bulls = optimists






36. 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






37. Dividends paid to common shareholders / Common shares outstanding






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






39. 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






40. 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






41. Regulates banks and controls the supply of money






42. 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






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






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






45. Net income / Common shares outstanding






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






47. 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

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48. 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






49. 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






50. 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)







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