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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 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






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






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






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






5. Finding the proper values of individual securities






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


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






8. 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






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






11. 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






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






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






14. 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






15. 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






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






17. 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






18. 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






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






20. Dividends paid to common shareholders / Common shares outstanding






21. 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






22. 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






23. 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






24. 1 for the IRS - the other for reporting to investors






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






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. Current assets - (Current liabilities - Notes payable)






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


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






30. 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






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






32. 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'






33. Financial Management - Capital Markets - & Investments






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






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






36. 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






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






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






39. 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






40. Net income / Common shares outstanding






41. 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






42. Current assets - Current liabilities






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. 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)






45. 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






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






47. 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






48. Total common equity / Common shares outstanding






49. 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






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






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