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. 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






2. 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






3. Dividends paid to common shareholders / Common shares outstanding






4. 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






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






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






7. Bears = pessimists - Bulls = optimists






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






9. Net income / Common shares outstanding






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






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






12. 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






13. 1 for the IRS - the other for reporting to investors






14. 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






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






16. 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






17. 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'






18. 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

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






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






21. Financial Management - Capital Markets - & Investments






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






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






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. 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)






26. 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






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

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






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






30. 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)






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






32. 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






33. 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






34. 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






35. 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






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

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






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






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






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






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. 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






43. Total common equity / Common shares outstanding






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






45. 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






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






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






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






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






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