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






2. Bears = pessimists - Bulls = optimists






3. 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






4. Current assets - Current liabilities






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






6. 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






7. 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






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






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






10. 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






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






12. Net income / Common shares outstanding






13. Dividends paid to common shareholders / Common shares outstanding






14. 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






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






16. Regulates banks and controls the supply of money






17. 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






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






19. 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






20. 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






21. 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)






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






23. 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






24. 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






25. Total common equity / Common shares outstanding






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






27. 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






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






29. An investor whose views determine the actual stock price






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






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


32. 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






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






34. 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






35. 1 for the IRS - the other for reporting to investors






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






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. 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






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






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






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






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






43. 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


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






46. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price






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


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






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






50. 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