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. 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






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






3. Bears = pessimists - Bulls = optimists






4. 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






5. 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






6. 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






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






8. 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'






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






10. 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






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


12. 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






13. 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






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






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






16. 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






17. Financial Management - Capital Markets - & Investments






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






19. 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






20. Regulates banks and controls the supply of money






21. An investor whose views determine the actual stock price






22. 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






23. 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






24. Total common equity / Common shares outstanding






25. 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






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






27. Current assets - Current liabilities






28. 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






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






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


31. 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






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






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






34. 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






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






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






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






38. Dividends paid to common shareholders / Common shares outstanding






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






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






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






42. Finding the proper values of individual securities






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






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






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






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






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






49. 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






50. 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