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 individual who targets a corporation for takeover because it is undervalued






2. 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






3. An investor whose views determine the actual stock price






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






5. 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






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






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






8. 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






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






10. 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






11. 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






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 Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






13. Dividends paid to common shareholders / Common shares outstanding






14. Total common equity / Common shares outstanding






15. 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)






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






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






18. 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






19. 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






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






21. 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






22. 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'






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






24. Finding the proper values of individual securities






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






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






27. 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






28. 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






29. 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






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






31. 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

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






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






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






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

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36. 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






37. Net income / Common shares outstanding






38. 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






39. 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






40. Regulates banks and controls the supply of money






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






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






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






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






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






46. Financial Management - Capital Markets - & Investments






47. 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






48. 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






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






50. 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