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






2. 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






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






4. Net income / Common shares outstanding






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






6. 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






7. 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






8. 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






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






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






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






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






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






14. 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)






15. 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






16. 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






17. 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






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






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






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






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






22. 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






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






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






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






26. 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






27. 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






28. 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






29. Dividends paid to common shareholders / Common shares outstanding






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






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


32. 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






33. 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






34. 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


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






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






37. An investor whose views determine the actual stock price






38. Current assets - Current liabilities






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






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






41. 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






42. 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






43. Bears = pessimists - Bulls = optimists






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






45. 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






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






47. Finding the proper values of individual securities






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






49. 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






50. 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