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. 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






2. 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






3. 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






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






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






6. 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






7. 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






8. Finding the proper values of individual securities






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


10. 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






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






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






13. 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






14. 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






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


16. Current assets - Current liabilities






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






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






19. 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






20. 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






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






22. An investor whose views determine the actual stock price






23. 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






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






25. 1 for the IRS - the other for reporting to investors






26. 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






27. 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'






28. Net income / Common shares outstanding






29. 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


30. 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)






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






32. 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






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






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






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






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






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






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






39. 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






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






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






42. Bears = pessimists - Bulls = optimists






43. Total common equity / Common shares outstanding






44. 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






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






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






47. 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)






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






49. Dividends paid to common shareholders / Common shares outstanding






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