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






2. 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






3. 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






4. 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)






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






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






7. Finding the proper values of individual securities






8. 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






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


10. 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






11. 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






12. 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






13. 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






14. 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)






15. 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






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






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






18. 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






19. 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






20. 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






21. Dividends paid to common shareholders / Common shares outstanding






22. 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






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


24. Net income / Common shares outstanding






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






26. 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






27. Regulates banks and controls the supply of money






28. 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






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. 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'






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






33. 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


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






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






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






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






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






39. Total common equity / Common shares outstanding






40. 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






41. 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






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






43. Bears = pessimists - Bulls = optimists






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






45. 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






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






47. An investor whose views determine the actual stock price






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






49. Current assets - Current liabilities






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