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. 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






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






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






4. 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






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






6. 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






7. An investor whose views determine the actual stock price






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






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






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






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






12. 1 for the IRS - the other for reporting to investors






13. 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






14. 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






15. 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






16. Total common equity / Common shares outstanding






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






18. Bears = pessimists - Bulls = optimists






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






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






21. 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






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






23. Current assets - Current liabilities






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






25. 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






26. 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'






27. 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






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






29. Net income / Common shares outstanding






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






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






33. 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






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






35. 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






36. 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






37. 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






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






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






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






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






42. 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






43. Regulates banks and controls the supply of money






44. Finding the proper values of individual securities






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


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






47. Financial Management - Capital Markets - & Investments






48. 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






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


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