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






2. Expected % Gain of Stock Price = Increase of stock $ less original stock $ ($1 - 000 - $10) divided by original stock price (/ $10 x 100%) (100% is a constant)






3. Financial Management - Capital Markets - & Investments






4. Dividends paid to common shareholders / Common shares outstanding






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






6. 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






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






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






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






10. Current assets - Current liabilities






11. 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






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






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






14. 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'






15. Total common equity / Common shares outstanding






16. 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






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






18. 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






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






20. 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






21. 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






22. Bears = pessimists - Bulls = optimists






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






25. 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






26. 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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27. 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






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






29. 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






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






31. 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






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






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






34. 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






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






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






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






38. 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






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






40. An investor whose views determine the actual stock price






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






42. 1 for the IRS - the other for reporting to investors






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






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






45. 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






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

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47. 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






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






49. 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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50. 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