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






2. 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






3. Finding the proper values of individual securities






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


5. Bears = pessimists - Bulls = optimists






6. 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






7. 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






8. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






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






10. 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






11. 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






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






13. 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






14. 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






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






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






17. Current assets - Current liabilities






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






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






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






21. Net income / Common shares outstanding






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






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






24. Dividends paid to common shareholders / Common shares outstanding






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






26. 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






27. 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)






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






29. 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






30. An investor whose views determine the actual stock price






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






33. 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


34. 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






35. 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)






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






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


38. 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






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






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






41. 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






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






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






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






45. 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'






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






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






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






49. Regulates banks and controls the supply of money






50. Total common equity / Common shares outstanding