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. 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






2. 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






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






5. 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






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






7. 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






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






9. An investor whose views determine the actual stock price






10. Bears = pessimists - Bulls = optimists






11. 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






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






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. 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






15. Net income / Common shares outstanding






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






17. Financial Management - Capital Markets - & Investments






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






19. 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


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


21. 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






22. 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






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






24. Total common equity / Common shares outstanding






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






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






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






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. Categorized as current assets because are used & then replaced






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






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






32. Regulates banks and controls the supply of money






33. 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






34. 1 for the IRS - the other for reporting to investors






35. 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






36. Finding the proper values of individual securities






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






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


39. 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






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






41. Current assets - Current liabilities






42. 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






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






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






45. 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






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






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






48. Dividends paid to common shareholders / Common shares outstanding






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






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