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. Current assets - Current liabilities






2. 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






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






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






5. 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






6. 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






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


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






9. 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






10. 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






11. Total common equity / Common shares outstanding






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. Categorized as current assets because are used & then replaced






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. 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'






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






17. 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






18. 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






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






20. 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






21. 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






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






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


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






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






26. 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






27. Regulates banks and controls the supply of money






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






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






30. 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






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






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






33. 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






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






35. Financial Management - Capital Markets - & Investments






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






37. 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






38. Dividends paid to common shareholders / Common shares outstanding






39. 1 for the IRS - the other for reporting to investors






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






41. 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






42. 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






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






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






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






46. 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






47. Finding the proper values of individual securities






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






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






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