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






3. 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






4. 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






5. 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






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 Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






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






8. Bears = pessimists - Bulls = optimists






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






10. 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






11. 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)






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






13. 1 for the IRS - the other for reporting to investors






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






15. 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






16. Total common equity / Common shares outstanding






17. 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






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


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






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






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






22. Current assets - Current liabilities






23. Net income / Common shares outstanding






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






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






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






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






28. 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'






29. An investor whose views determine the actual stock price






30. 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






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






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






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






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






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






36. 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






37. Finding the proper values of individual securities






38. 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






39. 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






40. 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






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. 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






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






44. 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






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






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






47. 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






48. 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






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 banks and controls the supply of money