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. 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






2. Current assets - Current liabilities






3. Total common equity / Common shares outstanding






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






5. 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






6. 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






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






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. 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'






10. 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






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






12. 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






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






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






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






16. 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






17. 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


18. Regulates banks and controls the supply of money






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






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






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






22. 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






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






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






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






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






27. Bears = pessimists - Bulls = optimists






28. 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)






29. 1 for the IRS - the other for reporting to investors






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






31. 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






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






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






34. 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






35. 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






36. 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






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






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






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






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






43. 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)






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






45. 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






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






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






48. 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






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






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