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