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. 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






2. 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






3. Bears = pessimists - Bulls = optimists






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


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






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






7. 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






8. Dividends paid to common shareholders / Common shares outstanding






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






10. Total common equity / Common shares outstanding






11. 1 for the IRS - the other for reporting to investors






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






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






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






15. 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






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






17. 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






18. 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






19. 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






20. 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






21. 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






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






23. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination


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






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






26. The best way to structure portfolios or 'baskets' of stocks and bonds






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






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






29. An investor whose views determine the actual stock price






30. Current assets - Current liabilities






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






32. 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






33. Net income / Common shares outstanding






34. 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






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






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






37. 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






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






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






40. 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






41. 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






42. Finding the proper values of individual securities






43. 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






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






45. 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






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






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






48. 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






49. Financial Management - Capital Markets - & Investments






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