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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. 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
EBITDA
Important Business Trends
S Corporation
Amoritization
2. An individual who targets a corporation for takeover because it is undervalued
Federal Reserve System
Corporate Raider
Net Working Capital (NWC)
Partnership
3. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)
Important Business Trends
Financial Management/Corporate Finance
Convertible Bonds
Net Operating Profit After Taxes (NOPAT)
4. 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)
Negative FCF
Expected % Gain of Stock Price
Partnership
Stockholders' Equity
5. 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
Depreciation
Marginal Investor
Shareholder Wealth Maximization
Finance Department
6. Current assets - (Current liabilities - Notes payable)
Net Operating Working Capital (NWOC)
Corporate Raider
Marginal Investor
Working Capital
7. Receive fix payments regardless of how well the company does - often in conflict with stockholders
Asset Valuation
Bondholders
Sets of Financial Statements
Stockholders
8. 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
Dividends Per Share (DPS)
Securities and Exchange Commission (SEC)
Expected Stock Price Formula
Market Analysis
9. 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
Legal Structures of Business Organizations
Stockholders
3 Reasons to Form a Corporation
Bondholders
10. 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
Formulas for Calculating Stockholders' Equity (SE)
Partnership
Stock Valuation
11. Dividends paid to common shareholders / Common shares outstanding
Dividends Per Share (DPS)
Intrinsic Value
Federal Reserve System
Sole Proprietorships
12. Current assets - Current liabilities
Net Working Capital (NWC)
Portfolio Theory
Federal Reserve System
Expected % Gain of Stock Price
13. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination
14. 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
Balance Sheet
Market Analysis
Intrinsic Value
Security Analysis
15. Acquisition of a company over the opposition of its management
Hostile Takeover
Business Ethics
Behavioral Finance
Statement of Cash Flows
16. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities
17. Sales revenues - operating costs (including depreciation & amoritizaton)
Operating Income /(EBIT)
Federal Reserve System
Business Ethics
Securities and Exchange Commission (SEC)
18. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock
Financial Management/Corporate Finance
Convertible Bonds
Sarbanes-Oxley Act
Perceived Valuation
19. Categorized as current assets because are used & then replaced
Annual Report
Working Capital
Earnings Per Share (EPS)
3 Reasons to Form a Corporation
20. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships
Sole Proprietorships
Legal Structures of Business Organizations
Sets of Financial Statements
Expected Stock Price Formula
21. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis
Shareholder Wealth Maximization
Formulas for Calculating Stockholders' Equity (SE)
Expected Stock $
Investments
22. What investors DO expect given the limited information they actually have
Perceived Valuation
Asset Valuation
Net Operating Profit After Taxes (NOPAT)
Working Capital
23. 1 for the IRS - the other for reporting to investors
Finance Department
Working Capital
Areas of Finance
Sets of Financial Statements
24. Current assets - (Current liabilities - Notes payables)
Behavioral Finance
Net Operating Working Capital (NOWC)
Limited Liability Corporation (LLC)
Dividends Per Share (DPS)
25. Regulates banks and controls the supply of money
Bondholders
Federal Reserve System
Negative FCF
Behavioral Finance
26. 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
Expected % Gain of Stock Price
Behavioral Finance
Legal Structures of Business Organizations
Corporation or C Corporation
27. Total common equity / Common shares outstanding
Areas of Finance
Market Analysis
Book Value Per Share (BPS)
Limited Liability Corporation (LLC)
28. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases
Legal Structures of Business Organizations
Preferred Stock
Equilibrium
EBITDA
29. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life
Sole Proprietorships
Earnings Per Share (EPS)
Stockholders
Amoritization
30. An investor whose views determine the actual stock price
Sole Proprietorships
Marginal Investor
Stockholders' Equity
Corporation or C Corporation
31. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)
Balance Sheet
Legal Structures of Business Organizations
Portfolio Theory
Expected Stock $
32. 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'
Working Capital
Perceived Valuation
Statement of Cash Flows
Asset Valuation
33. Bears = pessimists - Bulls = optimists
Dividends Per Share (DPS)
Market Price
Stock Market
Retained Earnings
34. 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
Stockholders' Equity
Net Operating Working Capital (NWOC)
Marginal Investor
35. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)
Expected Stock Price Formula
Important Business Trends
Expected Stock $
Income Statement
36. 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
Intrinsic Value
True Valuation
Dividends Per Share (DPS)
Behavioral Finance
37. 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
Expected Stock $
Free Cash Flow (FCF)
Working Capital
Intrinsic Value
38. Financial Management - Capital Markets - & Investments
Formulas for Calculating Stockholders' Equity (SE)
Expected Stock $
Portfolio Theory
Areas of Finance
39. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price
Legal Structures of Business Organizations
EBITDA
Areas of Finance
Stock Valuation
40. What investors would expect if they had all of the information that existed about a company
Expected % Gain of Stock Price
True Valuation
Annual Report
3 Reasons to Form a Corporation
41. 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
Financial Management/Corporate Finance
Annual Report
Sarbanes-Oxley Act
Expected % Gain of Stock Price
42. Receive more when the company does better - often in conflict with bondholders
Finance Department
Income Statement
Stockholders
Sets of Financial Statements
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
Operating Income /(EBIT)
Convertible Bonds
Free Cash Flow (FCF)
Negative FCF
44. Accomplished through a combination of current liabilities - long-term debt - and common equity
Security Analysis
3 Reasons to Form a Corporation
Asset Funding
Legal Structures of Business Organizations
45. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor
Stockholders' Equity
Market Price
Amoritization
Sole Proprietorships
46. 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
Annual Report
Expected % Gain of Stock Price
Capital Markets
Intrinsic Value
47. 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
Limited Liability Corporation (LLC)
Sole Proprietorships
Convertible Bonds
Marginal Investor
48. 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
Balance Sheet
Statement of Stockholders' Equity
Sets of Financial Statements
Stockholders' Equity
49. 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)
Free Cash Flow (FCF)
Income Statement
Book Value Per Share (BPS)
Expected % Gain of Stock Price
50. Net income / Common shares outstanding
Annual Report
EBITDA
Earnings Per Share (EPS)
Balance Sheet
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