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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. 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






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


3. 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






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






5. 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






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






7. Dividends paid to common shareholders / Common shares outstanding






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






9. Financial Management - Capital Markets - & Investments






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






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






12. 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






13. 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






14. 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






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






16. 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)






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






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






19. 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






20. 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)






21. 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






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






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






24. 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'






25. 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






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






27. 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






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






29. 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






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. Net income / Common shares outstanding






32. Total common equity / Common shares outstanding






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






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






35. 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






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






37. Regulates banks and controls the supply of money






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






39. Bears = pessimists - Bulls = optimists






40. 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






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






42. An investor whose views determine the actual stock price






43. 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






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






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






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






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


48. Finding the proper values of individual securities






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






50. 1 for the IRS - the other for reporting to investors






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