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. 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)






2. Dividends paid to common shareholders / Common shares outstanding






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






4. Finding the proper values of individual securities






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






6. Current assets - Current liabilities






7. 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






8. Bears = pessimists - Bulls = optimists






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






10. 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






11. 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






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






13. 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






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






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


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






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






18. 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






19. 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






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






22. 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






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






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






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






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






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






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






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






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






31. Net income / Common shares outstanding






32. 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






33. 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






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






35. 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






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






37. 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






38. 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






39. 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






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






41. An investor whose views determine the actual stock price






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






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






44. 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)






45. 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






46. Total common equity / Common shares outstanding






47. 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






48. 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






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






50. Regulates banks and controls the supply of money