Test your basic knowledge |

Finance Basics

Subject : business-skills
Instructions:
  • Answer 50 questions in 30 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. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)






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






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






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






5. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination


6. 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






7. Net income / Common shares outstanding






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






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






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






13. Finding the proper values of individual securities






14. 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






15. 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






16. Regulates banks and controls the supply of money






17. 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






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






19. 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






20. Current assets - Current liabilities






21. 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






22. 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






23. 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






24. 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






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






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






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






28. 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)






29. Dividends paid to common shareholders / Common shares outstanding






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






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






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. 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






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






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






36. An investor whose views determine the actual stock price






37. 1 for the IRS - the other for reporting to investors






38. 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






39. 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'






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






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






42. 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






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






44. 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






45. 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


46. 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






47. 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






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


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






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