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