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. 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






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






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






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






5. 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






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






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






8. Total common equity / Common shares outstanding






9. Current assets - Current liabilities






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






11. 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






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






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






14. 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)






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






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






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






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






19. 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


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






21. 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






22. 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






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






24. 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






25. 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'






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. 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






28. 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






29. 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






30. 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






31. 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






32. 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






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






34. Dividends paid to common shareholders / Common shares outstanding






35. Bears = pessimists - Bulls = optimists






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






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






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






39. Financial Management - Capital Markets - & Investments






40. 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)






41. Regulates banks and controls the supply of money






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






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






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






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






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


47. 1 for the IRS - the other for reporting to investors






48. 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






49. 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






50. 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