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. Current assets - (Current liabilities - Notes payable)






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






3. 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






4. 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






5. 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'






6. 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






7. 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






8. 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)






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


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






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






12. Bears = pessimists - Bulls = optimists






13. Regulates banks and controls the supply of money






14. 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






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






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






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






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






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






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






21. 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






22. 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






23. Financial Management - Capital Markets - & Investments






24. 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






25. 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






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






27. 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






28. 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


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






30. Current assets - (Current liabilities - Notes payables)






31. 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






32. 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






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






34. Total common equity / Common shares outstanding






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






36. Net income / Common shares outstanding






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






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






39. 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)






40. 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






41. 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






42. Dividends paid to common shareholders / Common shares outstanding






43. 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






44. 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






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






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






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






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






50. 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