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






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






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






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






5. 1 for the IRS - the other for reporting to investors






6. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






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






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






9. 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






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


11. Regulates banks and controls the supply of money






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






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






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






15. 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






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


17. 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'






18. 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






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






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






21. An investor whose views determine the actual stock price






22. 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






23. 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






24. Bears = pessimists - Bulls = optimists






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






26. 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






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






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






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






30. 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)






31. 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






32. Dividends paid to common shareholders / Common shares outstanding






33. 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






34. Net income / Common shares outstanding






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






36. 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






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






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






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






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






41. 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






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






43. 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






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






45. Financial Management - Capital Markets - & Investments






46. 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






47. 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






48. 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






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






50. Total common equity / Common shares outstanding