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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. Dividends paid to common shareholders / Common shares outstanding






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






3. Total common equity / Common shares outstanding






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






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






6. 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






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






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






9. 1 for the IRS - the other for reporting to investors






10. 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)






11. 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






12. Current assets - Current liabilities






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






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






16. 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


17. 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






18. 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






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






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






21. Regulates banks and controls the supply of money






22. Bears = pessimists - Bulls = optimists






23. 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






24. 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






25. 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






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






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






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. 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






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






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


34. 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






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






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






37. An investor whose views determine the actual stock price






38. 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






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






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






41. Finding the proper values of individual securities






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






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






44. Net income / Common shares outstanding






45. Financial Management - Capital Markets - & Investments






46. 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






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






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






49. 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






50. 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






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