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. Current assets - Current liabilities






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






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






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






5. 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






6. 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)






7. An investor whose views determine the actual stock price






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






9. 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






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






11. 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


12. 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)






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


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






15. Dividends paid to common shareholders / Common shares outstanding






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






17. 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






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






19. 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'






20. 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






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






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






23. 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






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






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






26. 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






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






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






29. 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






30. 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






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






32. 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






33. Net income / Common shares outstanding






34. 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






35. 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






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






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






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






39. 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






40. 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






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






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






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






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






46. 1 for the IRS - the other for reporting to investors






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






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






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






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