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. 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






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






3. 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






4. 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






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






6. An investor whose views determine the actual stock price






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






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






9. 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






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






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






12. 1 for the IRS - the other for reporting to investors






13. Net income / Common shares outstanding






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






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


17. 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






18. 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






19. Total common equity / Common shares outstanding






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






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






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






23. 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






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






25. 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






26. 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






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






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






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






30. Financial Management - Capital Markets - & Investments






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






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






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






34. 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






35. 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






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






37. 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






38. 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)






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






40. 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






41. Current assets - Current liabilities






42. 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


43. 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






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






45. Regulates banks and controls the supply of money






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






47. Finding the proper values of individual securities






48. 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






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






50. 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