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. Acquisition of a company over the opposition of its management






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

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






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






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






6. 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






7. 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






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






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

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10. 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






11. 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






12. Current assets - Current liabilities






13. 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






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






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






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






17. Total common equity / Common shares outstanding






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






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






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






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. Categorized as current assets because are used & then replaced






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. Regulates the trading of stocks and bonds in public markets






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






26. 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






27. 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






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






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






30. 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






31. 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






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






33. Regulates banks and controls the supply of money






34. 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






35. 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'






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






37. An investor whose views determine the actual stock price






38. 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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39. 1 for the IRS - the other for reporting to investors






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






41. 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






42. Bears = pessimists - Bulls = optimists






43. 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






44. 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






45. 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






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






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






48. 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






49. Dividends paid to common shareholders / Common shares outstanding






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