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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. Bears = pessimists - Bulls = optimists
Operating Income /(EBIT)
Annual Report
Finance Department
Stock Market
2. Current assets - (Current liabilities - Notes payables)
Operating Income /(EBIT)
Net Operating Working Capital (NOWC)
Legal Structures of Business Organizations
Stockholders' Equity
3. Sales revenues - operating costs (including depreciation & amoritizaton)
Net Operating Working Capital (NWOC)
Important Business Trends
Operating Income /(EBIT)
Depreciation
4. 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'
Earnings Per Share (EPS)
Expected Stock Price Formula
Portfolio Theory
Asset Valuation
5. 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
Limited Liability Partnership (LLP)
Expected Stock Price Formula
Annual Report
Market Analysis
6. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Net Operating Working Capital (NWOC)
Financial Management/Corporate Finance
Operating Income /(EBIT)
Convertible Bonds
7. 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
Behavioral Finance
Market Analysis
Sarbanes-Oxley Act
S Corporation
8. 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
Perceived Valuation
Balance Sheet
Free Cash Flow (FCF)
Net Working Capital (NWC)
9. 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)
Asset Valuation
Expected % Gain of Stock Price
Net Working Capital (NWC)
Security Analysis
10. An investor whose views determine the actual stock price
Marginal Investor
Net Operating Profit After Taxes (NOPAT)
Preferred Stock
Legal Structures of Business Organizations
11. 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)
Income Statement
Perceived Valuation
Market Analysis
Business Ethics
12. Acquisition of a company over the opposition of its management
Hostile Takeover
Finance Department
Sarbanes-Oxley Act
Corporate Raider
13. 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
Annual Report
Business Ethics
3 Reasons to Form a Corporation
Sarbanes-Oxley Act
14. 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
Corporate Raider
Portfolio Theory
Stockholders' Equity
Depreciation
15. Current assets - Current liabilities
EBITDA
Market Analysis
Net Working Capital (NWC)
Security Analysis
16. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
17. An individual who targets a corporation for takeover because it is undervalued
Security Analysis
Business Ethics
Corporate Raider
Sole Proprietorships
18. Total common equity / Common shares outstanding
Equilibrium
Book Value Per Share (BPS)
Finance Department
Federal Reserve System
19. Dividends paid to common shareholders / Common shares outstanding
Corporate Raider
Net Operating Working Capital (NWOC)
Dividends Per Share (DPS)
Investments
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
Statement of Cash Flows
Income Statement
Stockholders' Equity
Limited Liability Corporation (LLC)
21. 1 for the IRS - the other for reporting to investors
Retained Earnings
Market Price
Sets of Financial Statements
Stockholders' Equity
22. 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
Stockholders' Equity
Market Price
Annual Report
Net Operating Profit After Taxes (NOPAT)
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
Sarbanes-Oxley Act
Bondholders
Expected Stock $
Operating Income /(EBIT)
24. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Bondholders
Net Operating Profit After Taxes (NOPAT)
Market Price
Investments
25. 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
Market Analysis
Dividends Per Share (DPS)
Expected Stock $
Expected % Gain of Stock Price
26. What investors DO expect given the limited information they actually have
Finance Department
Expected Stock $
Perceived Valuation
Depreciation
27. 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
Dividends Per Share (DPS)
Free Cash Flow (FCF)
EBITDA
Hostile Takeover
28. 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
29. 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
Bondholders
Amoritization
Partnership
Shareholder Wealth Maximization
30. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Expected Stock Price Formula
Corporation or C Corporation
Preferred Stock
Net Operating Working Capital (NWOC)
31. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Net Operating Profit After Taxes (NOPAT)
Dividends Per Share (DPS)
Financial Management/Corporate Finance
True Valuation
32. What investors would expect if they had all of the information that existed about a company
Asset Funding
Free Cash Flow (FCF)
Portfolio Theory
True Valuation
33. Current assets - (Current liabilities - Notes payable)
Finance Department
Sarbanes-Oxley Act
True Valuation
Net Operating Working Capital (NWOC)
34. 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
Statement of Cash Flows
Perceived Valuation
Depreciation
Finance Department
35. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Asset Valuation
Expected Stock $
Corporation or C Corporation
Sarbanes-Oxley Act
36. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Dividends Per Share (DPS)
Annual Report
Legal Structures of Business Organizations
Convertible Bonds
37. 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
Net Operating Working Capital (NWOC)
Intrinsic Value
Financial Management/Corporate Finance
Sole Proprietorships
38. 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
Limited Liability Partnership (LLP)
Net Operating Working Capital (NWOC)
Asset Funding
Amoritization
39. Categorized as current assets because are used & then replaced
Expected Stock Price Formula
Sets of Financial Statements
Book Value Per Share (BPS)
Working Capital
40. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Amoritization
Shareholder Wealth Maximization
Sets of Financial Statements
Marginal Investor
41. Regulates the trading of stocks and bonds in public markets
Earnings Per Share (EPS)
Securities and Exchange Commission (SEC)
Net Operating Working Capital (NOWC)
Formulas for Calculating Stockholders' Equity (SE)
42. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Bondholders
Balance Sheet
Partnership
Important Business Trends
43. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock
Stock Market
Legal Structures of Business Organizations
Operating Income /(EBIT)
Equilibrium
44. Receive more when the company does better - often in conflict with bondholders
Net Operating Profit After Taxes (NOPAT)
Behavioral Finance
Stockholders
Expected % Gain of Stock Price
45. 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
Statement of Stockholders' Equity
Sole Proprietorships
Marginal Investor
Security Analysis
46. Net income / Common shares outstanding
Behavioral Finance
Working Capital
Earnings Per Share (EPS)
Net Working Capital (NWC)
47. Accomplished through a combination of current liabilities - long-term debt - and common equity
Dividends Per Share (DPS)
Asset Funding
Depreciation
Investments
48. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Investments
Hostile Takeover
Corporation or C Corporation
Legal Structures of Business Organizations
49. 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
Net Operating Profit After Taxes (NOPAT)
Convertible Bonds
Limited Liability Corporation (LLC)
Stock Market
50. 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
Net Operating Working Capital (NWOC)
Limited Liability Partnership (LLP)
Shareholder Wealth Maximization
Financial Management/Corporate Finance