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. Total common equity / 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. Finding the proper values of individual securities






4. Net income / Common shares outstanding






5. 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






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






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






8. Bears = pessimists - Bulls = optimists






9. 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)






10. Regulates banks and controls the supply of money






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






12. 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)






13. 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






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






16. 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






17. 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


18. Financial Management - Capital Markets - & Investments






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






20. 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






21. 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






22. 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






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






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






25. 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






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






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






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






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






30. 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'






31. Current assets - Current liabilities






32. 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






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






34. 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






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






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






37. Dividends paid to common shareholders / Common shares outstanding






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






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






41. 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






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






43. 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






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






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






46. 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






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


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






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






50. 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