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


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






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






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






6. Bears = pessimists - Bulls = optimists






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






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






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






10. 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)






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






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






13. 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






14. 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






15. 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






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






17. 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)






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






19. 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






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






21. Current assets - Current liabilities






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






23. Finding the proper values of individual securities






24. 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






25. 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






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






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






28. 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






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






30. 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


31. Regulates banks and controls the supply of money






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


33. 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






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






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






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






38. Net income / Common shares outstanding






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






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. Total common equity / Common shares outstanding






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






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






44. 1 for the IRS - the other for reporting to investors






45. 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






46. 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






47. 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






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






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






50. 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