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. 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






3. 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






4. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






5. Finding the proper values of individual securities






6. 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






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






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






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






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






11. 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






12. 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






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


14. Total common equity / Common shares outstanding






15. 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






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


17. 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






18. 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






19. 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






20. 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






21. 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)






22. An investor whose views determine the actual stock price






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






24. Regulates banks and controls the supply of money






25. 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






26. Bears = pessimists - Bulls = optimists






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






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






29. 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






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






31. Net income / Common shares outstanding






32. 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


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






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






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






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






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






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






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






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. Current assets - (Current liabilities - Notes payable)






42. 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






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






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






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






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






47. 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






48. 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






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






50. 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)