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. 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






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






3. An uninicorporated business owned by one individual. 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 bu






4. Net income / Common shares outstanding






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






6. 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'






7. Regulates banks and controls the supply of money






8. 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






9. 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)






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






11. 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






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






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






14. 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






15. 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






16. 1 for the IRS - the other for reporting to investors






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






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


19. 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






20. 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






21. Dividends paid to common shareholders / Common shares outstanding






22. 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)






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






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






25. 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






26. 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






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






28. Total common equity / Common shares outstanding






29. 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






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






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






32. Current assets - Current liabilities






33. 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






34. 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






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


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






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






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






39. Bears = pessimists - Bulls = optimists






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






41. 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






42. 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






43. 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


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






45. 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






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






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






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






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






50. Financial Management - Capital Markets - & Investments