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






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


3. 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






4. 1 for the IRS - the other for reporting to investors






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






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






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


8. 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


9. Financial Management - Capital Markets - & Investments






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






11. 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






12. 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






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






14. 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






15. Dividends paid to common shareholders / Common shares outstanding






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






17. Finding the proper values of individual securities






18. 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






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






20. 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






21. 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)






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






23. 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)






24. 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






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






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






27. 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






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






29. 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






30. 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






31. 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






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






33. 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






34. Bears = pessimists - Bulls = optimists






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






36. Regulates banks and controls the supply of money






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






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






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






40. Total common equity / Common shares outstanding






41. 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






42. 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






43. 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'






44. Current assets - Current liabilities






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






46. Net income / Common shares outstanding






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






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






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






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