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 individual who targets a corporation for takeover because it is undervalued






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






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






4. 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






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






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






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






8. 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






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






10. Finding the proper values of individual securities






11. 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






12. 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






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






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






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


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






17. 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






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






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






20. Bears = pessimists - Bulls = optimists






21. Regulates banks and controls the supply of money






22. Total common equity / Common shares outstanding






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






24. 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






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






26. 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






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






28. 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






29. 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






30. 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






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






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


33. 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'






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






35. 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






36. Financial Management - Capital Markets - & Investments






37. 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






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






39. 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


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






41. 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






42. Net income / Common shares outstanding






43. An investor whose views determine the actual stock price






44. Dividends paid to common shareholders / Common shares outstanding






45. Current assets - Current liabilities






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






47. 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)






48. 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






49. 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






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