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