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






3. 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






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






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






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






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






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






9. 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






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






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






12. 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






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






14. 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






15. Bears = pessimists - Bulls = optimists






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






18. 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






19. Current assets - Current liabilities






20. 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






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






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






23. Finding the proper values of individual securities






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






25. 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)






26. Net income / Common shares outstanding






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






28. 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






29. 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






30. 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






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






32. 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






33. 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






34. 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






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






36. Financial Management - Capital Markets - & Investments






37. 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






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






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






40. Dividends paid to common shareholders / Common shares outstanding






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






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






43. 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






44. 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






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






46. Total common equity / Common shares outstanding






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






48. Regulates banks and controls the supply of money






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

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50. 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'