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






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






3. 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






4. 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






5. 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






6. Net income / Common shares outstanding






7. 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


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






9. 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






10. 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






11. 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






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


13. Bears = pessimists - Bulls = optimists






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






15. Dividends paid to common shareholders / Common shares outstanding






16. 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






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






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






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






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






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. 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






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






24. 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






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






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






27. 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






28. Financial Management - Capital Markets - & Investments






29. 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






30. An investor whose views determine the actual stock price






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






32. Regulates banks and controls the supply of money






33. 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'






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






35. 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






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






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






38. 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






39. 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






40. Current assets - Current liabilities






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






42. 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






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






44. A company's attitude and conduct toward its employees - customers - community - and stockholders






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






46. 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






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






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






49. Finding the proper values of individual securities






50. 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