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. An investor whose views determine the actual stock price






2. 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'






3. Regulates banks and controls the supply of money






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






5. 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






6. Total common equity / Common shares outstanding






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






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






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






10. Finding the proper values of individual securities






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






12. 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






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






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. Acquisition of a company over the opposition of its management






16. 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






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






18. 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






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. 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






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






22. 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






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






24. 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






25. Current assets - Current liabilities






26. Financial Management - Capital Markets - & Investments






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






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






29. 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






30. 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






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






32. 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






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






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






35. 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






36. Dividends paid to common shareholders / Common shares outstanding






37. 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)






38. 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






39. 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






40. Net income / Common shares outstanding






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






42. 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






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


44. 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






45. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life






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






47. 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






48. 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






49. 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






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