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






2. 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






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






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 Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






6. 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)






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


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






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






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






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






13. 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






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






15. 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






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






17. Dividends paid to common shareholders / Common shares outstanding






18. 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'






19. 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






20. 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)






21. 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






22. 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






23. Regulates banks and controls the supply of money






24. Current assets - Current liabilities






25. Financial Management - Capital Markets - & Investments






26. 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






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






28. 1 for the IRS - the other for reporting to investors






29. 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






30. 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






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






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






33. 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






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






35. 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






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






37. 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






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






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






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






41. 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






42. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases






43. Bears = pessimists - Bulls = optimists






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






45. 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


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






47. Finding the proper values of individual securities






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






49. 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






50. An investor whose views determine the actual stock price