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


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






3. An investor whose views determine the actual stock price






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






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






6. 1 for the IRS - the other for reporting to investors






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






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






9. 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






10. Financial Management - Capital Markets - & Investments






11. 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






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






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






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






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






19. Finding the proper values of individual securities






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






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






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






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






24. 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






25. 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






26. 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






27. 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






28. 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






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






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






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






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






33. 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






34. 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)






35. 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






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. 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






38. 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'






39. Net income / Common shares outstanding






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






41. 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


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






43. Bears = pessimists - Bulls = optimists






44. 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






45. 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






46. 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






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






48. 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






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






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