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. 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






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






3. 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)






4. 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






5. Dividends paid to common shareholders / Common shares outstanding






6. Bears = pessimists - Bulls = optimists






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






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






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






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






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






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






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






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

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






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






17. Current assets - Current liabilities






18. 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






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






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






21. 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






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






23. 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






24. 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)






25. An investor whose views determine the actual stock price






26. 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






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






28. 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






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






30. 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






31. 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






32. Net income / Common shares outstanding






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






34. 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






35. 1 for the IRS - the other for reporting to investors






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






37. 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






38. Financial Management - Capital Markets - & Investments






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






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






42. Finding the proper values of individual securities






43. 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






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






45. 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






46. 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






47. 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






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






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






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