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






2. 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






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






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






5. 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






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






7. Finding the proper values of individual securities






8. 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






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. Categorized as current assets because are used & then replaced






11. 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






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






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. 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






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. Current assets - Current liabilities






17. 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






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






19. 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






20. 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






21. 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)






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






23. Bears = pessimists - Bulls = optimists






24. 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






25. 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






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






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






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






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






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


31. 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






32. 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






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






34. Regulates banks and controls the supply of money






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






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






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






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






39. 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






40. 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






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






42. 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


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






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






45. 1 for the IRS - the other for reporting to investors






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






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






48. Net income / Common shares outstanding






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. An investor whose views determine the actual stock price