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






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


3. 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






4. Current assets - Current liabilities






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






6. 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






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






8. 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






9. 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






10. Bears = pessimists - Bulls = optimists






11. 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






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






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






14. 1 for the IRS - the other for reporting to investors






15. 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






16. 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






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






18. Dividends paid to common shareholders / Common shares outstanding






19. Total common equity / Common shares outstanding






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






21. 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






22. 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)






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






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






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






26. Finding the proper values of individual securities






27. 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






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


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






30. 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






31. 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






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






33. 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






34. 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






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






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






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






38. Net income / Common shares outstanding






39. 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






40. 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






41. 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






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. Current assets - (Current liabilities - Notes payables)






44. 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






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






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






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






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






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






50. An investor whose views determine the actual stock price