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


2. 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






3. 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






4. 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






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






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






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






8. 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






9. 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






10. 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






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






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






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






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






15. Dividends paid to common shareholders / Common shares outstanding






16. Investor psychology is examined in an effort to determine if stock prices have been bid up to unreasonable heights in a speculative bubble or driven down to unreasonable lows in a fit of irrational pessimism






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






18. Total common equity / Common shares outstanding






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. 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






21. Net income / Common shares outstanding






22. 1 for the IRS - the other for reporting to investors






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






24. 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






25. 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






26. 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






27. 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)






28. Regulates banks and controls the supply of money






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






30. 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






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






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


33. 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)






34. 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






35. 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






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






37. 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


38. Bears = pessimists - Bulls = optimists






39. 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






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






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






42. Finding the proper values of individual securities






43. 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






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






45. 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






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






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






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






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






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