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. Acquisition of a company over the opposition of its management






2. 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






3. 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






4. Current assets - Current liabilities






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






6. 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)






7. 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


8. 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'






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






10. Net income / Common shares outstanding






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






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






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






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






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






16. Finding the proper values of individual securities






17. 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






18. 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






19. 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






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


21. 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






22. 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






23. 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






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






25. 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






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






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






29. 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






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






31. 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






32. 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






33. Regulates banks and controls the supply of money






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






35. 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






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


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






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






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






40. Financial Management - Capital Markets - & Investments






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






42. 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






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






44. 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






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. 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






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






48. 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






49. An investor whose views determine the actual stock price






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