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Test your basic knowledge |
Finance Basics
Start Test
Study First
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. Finding the proper values of individual securities
Corporation or C Corporation
Stock Valuation
Asset Valuation
Security Analysis
2. An individual who targets a corporation for takeover because it is undervalued
Expected Stock $
Portfolio Theory
Corporate Raider
Important Business Trends
3. Current assets - Current liabilities
Finance Department
Convertible Bonds
Net Working Capital (NWC)
Earnings Per Share (EPS)
4. Regulates the trading of stocks and bonds in public markets
Securities and Exchange Commission (SEC)
Areas of Finance
Earnings Per Share (EPS)
Stockholders
5. The best way to structure portfolios or 'baskets' of stocks and bonds
Net Operating Working Capital (NOWC)
Earnings Per Share (EPS)
Security Analysis
Portfolio Theory
6. 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
Net Operating Working Capital (NOWC)
Partnership
Market Analysis
Balance Sheet
7. Bears = pessimists - Bulls = optimists
Expected % Gain of Stock Price
Equilibrium
Legal Structures of Business Organizations
Stock Market
8. What investors DO expect given the limited information they actually have
Stock Market
Perceived Valuation
Behavioral Finance
Net Operating Profit After Taxes (NOPAT)
9. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Areas of Finance
Convertible Bonds
Security Analysis
Free Cash Flow (FCF)
10. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Equilibrium
S Corporation
Bondholders
Negative FCF
11. 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
Retained Earnings
Depreciation
Expected % Gain of Stock Price
Behavioral Finance
12. 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
Balance Sheet
Security Analysis
Shareholder Wealth Maximization
Finance Department
13. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Net Operating Working Capital (NOWC)
Net Operating Working Capital (NWOC)
Market Price
Federal Reserve System
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
Sets of Financial Statements
Stock Market
Annual Report
Sole Proprietorships
15. 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
Operating Income /(EBIT)
Financial Management/Corporate Finance
Market Price
S Corporation
16. Financial Management - Capital Markets - & Investments
True Valuation
Marginal Investor
Investments
Areas of Finance
17. Accomplished through a combination of current liabilities - long-term debt - and common equity
Sole Proprietorships
Asset Valuation
Asset Funding
Marginal Investor
18. 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
Investments
Net Operating Working Capital (NWOC)
Free Cash Flow (FCF)
Market Analysis
19. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
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20. 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
Amoritization
Securities and Exchange Commission (SEC)
Financial Management/Corporate Finance
Retained Earnings
21. 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
Portfolio Theory
Formulas for Calculating Stockholders' Equity (SE)
Partnership
Retained Earnings
22. Current assets - (Current liabilities - Notes payables)
True Valuation
Net Working Capital (NWC)
Expected Stock Price Formula
Net Operating Working Capital (NOWC)
23. An investor whose views determine the actual stock price
Net Working Capital (NWC)
Equilibrium
Marginal Investor
Stockholders
24. The markets where interest rates - along with stock and bond prices are determined
Balance Sheet
Capital Markets
Formulas for Calculating Stockholders' Equity (SE)
Sets of Financial Statements
25. 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
Annual Report
Marginal Investor
Investments
Corporation or C Corporation
26. 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
Expected Stock Price Formula
Dividends Per Share (DPS)
Negative FCF
Bondholders
27. 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
Legal Structures of Business Organizations
Limited Liability Partnership (LLP)
Partnership
Areas of Finance
28. 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
Asset Valuation
Limited Liability Corporation (LLC)
3 Reasons to Form a Corporation
Stockholders
29. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Stockholders
Stock Valuation
Stockholders' Equity
Limited Liability Corporation (LLC)
30. 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)
Portfolio Theory
Income Statement
Asset Funding
Security Analysis
31. Receive more when the company does better - often in conflict with bondholders
Stockholders
Amoritization
Statement of Cash Flows
Sole Proprietorships
32. 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
Free Cash Flow (FCF)
Dividends Per Share (DPS)
Working Capital
Statement of Stockholders' Equity
33. 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'
Bondholders
Working Capital
Depreciation
Asset Valuation
34. 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
Amoritization
Earnings Per Share (EPS)
Partnership
Intrinsic Value
35. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Dividends Per Share (DPS)
Convertible Bonds
Preferred Stock
Equilibrium
36. Categorized as current assets because are used & then replaced
Income Statement
Working Capital
EBITDA
Stock Market
37. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Formulas for Calculating Stockholders' Equity (SE)
Net Operating Profit After Taxes (NOPAT)
Retained Earnings
Stockholders' Equity
38. Acquisition of a company over the opposition of its management
Hostile Takeover
Negative FCF
Income Statement
Sarbanes-Oxley Act
39. A company's attitude and conduct toward its employees - customers - community - and stockholders
Important Business Trends
Stock Market
Business Ethics
Capital Markets
40. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Retained Earnings
Financial Management/Corporate Finance
True Valuation
Important Business Trends
41. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs
Corporate Raider
EBITDA
Net Operating Working Capital (NOWC)
Annual Report
42. 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
Shareholder Wealth Maximization
Limited Liability Partnership (LLP)
Bondholders
Market Analysis
43. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Capital Markets
Expected Stock $
S Corporation
Operating Income /(EBIT)
44. 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
Sarbanes-Oxley Act
Asset Valuation
Amoritization
3 Reasons to Form a Corporation
45. Receive fix payments regardless of how well the company does - often in conflict with stockholders
Asset Valuation
Bondholders
Marginal Investor
Equilibrium
46. 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
Finance Department
Income Statement
Formulas for Calculating Stockholders' Equity (SE)
Net Working Capital (NWC)
47. Net income / Common shares outstanding
Limited Liability Corporation (LLC)
Earnings Per Share (EPS)
Statement of Cash Flows
Asset Valuation
48. What investors would expect if they had all of the information that existed about a company
Annual Report
True Valuation
Preferred Stock
Bondholders
49. Current assets - (Current liabilities - Notes payable)
Net Operating Working Capital (NWOC)
Marginal Investor
Investments
Corporation or C Corporation
50. 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
Depreciation
Stock Market
Areas of Finance
Statement of Cash Flows