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