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. Bears = pessimists - Bulls = optimists






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






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






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






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. 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)






7. 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






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






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






10. 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






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






12. 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






13. Financial Management - Capital Markets - & Investments






14. 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






15. Net income / Common shares outstanding






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






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


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






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






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






21. 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






22. 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






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






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






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






26. 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






27. Total common equity / Common shares outstanding






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






29. Finding the proper values of individual securities






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






31. Current assets - Current liabilities






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






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






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






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






36. 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






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






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. 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






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


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






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






43. 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






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






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






47. 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






48. 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






49. 1 for the IRS - the other for reporting to investors






50. 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'