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. 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'






2. 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






3. 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






4. 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






5. 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






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






7. 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






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






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






10. Finding the proper values of individual securities






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


12. Current assets - Current liabilities






13. 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






14. Dividends paid to common shareholders / Common shares outstanding






15. 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)






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






17. 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






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






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






20. 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






21. 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






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






23. An investor whose views determine the actual stock price






24. 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






25. 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






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






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






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






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






30. Total common equity / Common shares outstanding






31. 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






32. 1 for the IRS - the other for reporting to investors






33. Bears = pessimists - Bulls = optimists






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






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


36. 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






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






38. Regulates banks and controls the supply of money






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






40. 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






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






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






43. 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






44. 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)






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






46. 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






47. 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


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






49. 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






50. Financial Management - Capital Markets - & Investments