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. 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'






2. 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






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






4. Regulates banks and controls the supply of money






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






6. 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






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






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






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






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






11. Net income / Common shares outstanding






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






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






14. 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






15. 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






16. 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






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






18. Dividends paid to common shareholders / Common shares outstanding






19. Financial Management - Capital Markets - & Investments






20. 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






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


22. 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






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






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






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






26. 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






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. Current assets - (Current liabilities - Notes payable)






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






30. 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






31. 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






32. 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


33. Current assets - Current liabilities






34. 1 for the IRS - the other for reporting to investors






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






36. 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






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






38. An investor whose views determine the actual stock price






39. Finding the proper values of individual securities






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






41. Bears = pessimists - Bulls = optimists






42. 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)






43. 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






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






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






46. 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






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






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






49. 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






50. 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