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Test your basic knowledge |
Finance Basics
Start Test
Study First
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. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Shareholder Wealth Maximization
Amoritization
Operating Income /(EBIT)
Retained Earnings
2. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Stockholders' Equity
Equilibrium
Market Price
Limited Liability Corporation (LLC)
3. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
Legal Structures of Business Organizations
EBITDA
Shareholder Wealth Maximization
Corporate Raider
4. 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
Preferred Stock
Market Price
Portfolio Theory
Financial Management/Corporate Finance
5. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
3 Reasons to Form a Corporation
Legal Structures of Business Organizations
Important Business Trends
Equilibrium
6. 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
Preferred Stock
Depreciation
Expected Stock Price Formula
Net Operating Working Capital (NOWC)
7. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Asset Valuation
Net Operating Profit After Taxes (NOPAT)
Corporation or C Corporation
Balance Sheet
8. Dividends paid to common shareholders / Common shares outstanding
Dividends Per Share (DPS)
Stock Market
Behavioral Finance
Amoritization
9. 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
Intrinsic Value
Bondholders
Important Business Trends
Stockholders' Equity
10. Accomplished through a combination of current liabilities - long-term debt - and common equity
Amoritization
Net Operating Working Capital (NWOC)
Asset Funding
Income Statement
11. 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'
Book Value Per Share (BPS)
Working Capital
Partnership
Asset Valuation
12. Current assets - Current liabilities
Net Working Capital (NWC)
Equilibrium
Securities and Exchange Commission (SEC)
Statement of Stockholders' Equity
13. What investors DO expect given the limited information they actually have
Corporation or C Corporation
Perceived Valuation
Expected Stock $
Statement of Stockholders' Equity
14. Regulates banks and controls the supply of money
S Corporation
Dividends Per Share (DPS)
Areas of Finance
Federal Reserve System
15. 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
3 Reasons to Form a Corporation
Convertible Bonds
Market Price
EBITDA
16. 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
Market Analysis
Net Working Capital (NWC)
Securities and Exchange Commission (SEC)
Sarbanes-Oxley Act
17. 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
Expected Stock Price Formula
Operating Income /(EBIT)
Sole Proprietorships
Legal Structures of Business Organizations
18. A company's attitude and conduct toward its employees - customers - community - and stockholders
Stock Valuation
Investments
Important Business Trends
Business Ethics
19. 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
Business Ethics
S Corporation
Statement of Cash Flows
Amoritization
20. 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)
Expected % Gain of Stock Price
Hostile Takeover
Sole Proprietorships
Stock Market
21. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
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22. 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
Statement of Stockholders' Equity
Business Ethics
Balance Sheet
Free Cash Flow (FCF)
23. 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
Working Capital
Net Operating Profit After Taxes (NOPAT)
Asset Valuation
Negative FCF
24. 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
True Valuation
3 Reasons to Form a Corporation
Stockholders
Balance Sheet
25. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Expected Stock $
Corporation or C Corporation
Working Capital
Areas of Finance
26. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Stock Valuation
Retained Earnings
Preferred Stock
Intrinsic Value
27. Current assets - (Current liabilities - Notes payable)
Dividends Per Share (DPS)
Corporation or C Corporation
Shareholder Wealth Maximization
Net Operating Working Capital (NWOC)
28. 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
Limited Liability Partnership (LLP)
Finance Department
True Valuation
Security Analysis
29. 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
Annual Report
Marginal Investor
Intrinsic Value
Net Working Capital (NWC)
30. Receive more when the company does better - often in conflict with bondholders
Behavioral Finance
Stockholders
Hostile Takeover
Free Cash Flow (FCF)
31. 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
S Corporation
Expected Stock Price Formula
Financial Management/Corporate Finance
Corporation or C Corporation
32. An individual who targets a corporation for takeover because it is undervalued
Corporate Raider
Net Operating Profit After Taxes (NOPAT)
Sole Proprietorships
3 Reasons to Form a Corporation
33. 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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34. Finding the proper values of individual securities
Federal Reserve System
Negative FCF
Security Analysis
S Corporation
35. Acquisition of a company over the opposition of its management
Hostile Takeover
Asset Valuation
Market Analysis
Net Operating Profit After Taxes (NOPAT)
36. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Asset Funding
Sarbanes-Oxley Act
S Corporation
Stock Valuation
37. The markets where interest rates - along with stock and bond prices are determined
Capital Markets
Security Analysis
Sets of Financial Statements
Legal Structures of Business Organizations
38. 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
Corporation or C Corporation
Important Business Trends
Sole Proprietorships
Statement of Cash Flows
39. 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
Corporation or C Corporation
Legal Structures of Business Organizations
Shareholder Wealth Maximization
Limited Liability Partnership (LLP)
40. 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
Retained Earnings
Dividends Per Share (DPS)
Depreciation
Partnership
41. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Income Statement
S Corporation
Convertible Bonds
Important Business Trends
42. 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
Retained Earnings
Partnership
Balance Sheet
Stock Market
43. Regulates the trading of stocks and bonds in public markets
Shareholder Wealth Maximization
Securities and Exchange Commission (SEC)
Behavioral Finance
Working Capital
44. The best way to structure portfolios or 'baskets' of stocks and bonds
Income Statement
Depreciation
Book Value Per Share (BPS)
Portfolio Theory
45. Total common equity / Common shares outstanding
Corporate Raider
Working Capital
Book Value Per Share (BPS)
Formulas for Calculating Stockholders' Equity (SE)
46. 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)
Financial Management/Corporate Finance
Income Statement
Corporation or C Corporation
Earnings Per Share (EPS)
47. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Investments
Formulas for Calculating Stockholders' Equity (SE)
Stock Market
Balance Sheet
48. Current assets - (Current liabilities - Notes payables)
Net Operating Working Capital (NOWC)
Stockholders
Income Statement
Formulas for Calculating Stockholders' Equity (SE)
49. Financial Management - Capital Markets - & Investments
Corporation or C Corporation
Security Analysis
Areas of Finance
Income Statement
50. 1 for the IRS - the other for reporting to investors
Net Working Capital (NWC)
Stockholders
Intrinsic Value
Sets of Financial Statements