Finance in SRM Midterm vocab
The risk that an asset would present if only that single asset were held
Stand alone risk
The measure of variability in a distribution of numbers, denoted ø
Standard deviation (SD)
A report that tracks cash in and cash out of an organization and provides data as to whether a company has sufficient cash on hand to meet its debts and obligations
Statement of Cash Flow
Meeting todays needs without compromising future generations ability to meet their own needs
Sustainability
The bond that has elements of both a fixed rate bond and variable rate bond
Synthetic fixed rate bond
The method accountants have historically used to track revenues and expenses and to create accounts to be entered on balance sheets and income statements
T-accounts
The cost of borrowing money
interest
A measure of a firm's ability to pay the interest on its debt, sometimes called the times interest earned ratio
interest coverage ratio
The risk of a decrease in the value of a security due to an increase in the interest rate
interest rate risk
The rate of interest on a riskless security if inflation were not expected; the rate of interest on a short-term US Treasury bill in an inflation free environment
real risk free rate
The value of money after inflation is taken into account, often referred to as purchasing power
real value
A risk related to declining interest rates, primarily affecting short term bills; the risk measures loss of income that would occur if the interest rate on a bond has fallen at the time the funds are reinvested
reinvestment rate risk
The contribution of a single stock to the riskiness of a diversified portfolio
relevant risk
The profit that an investor would require from a particular investment, whether in stocks or bonds, in order to consider it worth purchasing, given the riskiness of the investment
required rate of return
Interest that is calculated only on principle
simple interest
Funding provided by federal, state, or municipal sources, including land use, tax abatements, direct financing, state and municipal appropriations and infrastructure improvement
Government financing
The market value of all final goods and services produced within the borders of a county, state, country, or other region in a year
Gross domestic product (GDP)
The market value of a nation's output of sport-related goods and services in a given year. This includes the value added to the economy by the sport industry, as well as the gross product originating from the sport industry
Gross domestic sport product (GDSP)
The weighted average of the expected returns of a set of assets
expected return on a portfolio
A 12 month period over which a company budgets money
fiscal year
The worth of an asset at a certain date in the future, determined by calculating the change in value of money when an interest rate is applied over the intervening period of time
future value (FV)
The yearly, monthly, or daily changes in the purchasing power of money
time value of money
Money owed by a company's customers
Account receivable
An accounting method that recognizes income when it is earned and expenses when they are incurred, rather than when money is exchanged
Accrual basis accounting
Another name for quick ratio, a measure of a company's ability to meet its current liabilities with its current assets, not including inventory
Acid-test ratio
what a company owns, including items such as cash, inventory, and accounts receivable
Assets
A form of long term debt that acts like short term debt, in which interest rates are reset through actions typically held no more than 35 days apart
Auction rate bond
A snapshot of the financial condition of an organization at a specific point in time
Balance Sheet
A method of analysis of the relationship between risk and rate of return, built on the notion that a stocks required rate of return is equal to the risk free rate of return plus a risk premium, with the risk reflecting the portfolios diversification
Capital Asset Pricing Model (CAPM)
Markets for intermediate or long-term debt, as well as corporate stock
Capital markets
An accounting method that recognizes transactions when money is either received or paid out
Cash basis accounting
Earnings that are paid directly to a league and then distributed to member organizations
Central Revenues
A measure of the stand alone risk of an investment
Coefficient of variation (CV)
Debts that may or may not occur
Contingent Liabilities
funds flowing out of an organization as costs of doing business
Expenses
A measure of how closely the returns of an asset move relative to the returns of another asset held in a portfolio
Correlation coefficient
Those costs that are directly attributed to the production of goods or products, including raw materials and labor costs
Cost of goods Sold (COGS)
The degree to which two variables change together; in finance, it helps us find assets that move differently from those already held in a portfolio
Covariance
An increase to a liability or equity account, entered on right side of ledger
Credits
liabilities due within one year
Current Liabilities
A formula that measures a company's ability to meets its current liabilities with its current assets
Current Ratio
A standard set of guidelines and procedures for financial reporting
Generally Accepted Accounting Principles (GAAP)
An increase to an asset or expense account, entered on the left side of a ledger
Debits
A measure of an organization's leverage, sometimes referred to as the debt-to-assets ratio
Debt Ratio
A method of raising capital in which an organization borrows money that must be repaid over a period of time, usually with interest
Debt financing
Premium added to the nominal interest rate to account for the risk that the borrower might default
Default risk premium(DRP)
Salary whose payment is delayed under contractual terms; also known as deferred salary
Deferred Compensation
The portion of a stock's risk that can be removed through a well-diversified portfolio
Diversifiable risk
A useful measure of income or profit
Earnings before interest and taxes (EBIT)
A cycle consisting of four stages: growth, peak, recession, and recovery. Typically lasting for just under six years
Economic cycle
An extreme recession, lasting two or more years
Economic depression
The part of the economic cycle when the economy is increasing in real terms (faster than the rate of inflation)
Economic growth
Financing in which an organization exchanges a share or portion of ownership for money
Equity financing
the science of fund management, includes application of concepts from accounting, economics, and statistics
Finance
A sector within firms that is concerned with the acquisition and use of fund to meet the goal of wealth maximization Gift financing- Charitable donations, either cash or in-kind, made to an organization
Financial management
A statement of a company's income over a specified period of time, typically issued on an annual or quarterly basis. Also called a statement of earnings or profit and loss statement
Income Statement
the devaluation of money over time
Inflation
the portion of an investment's return that compensates the investor for loss of purchasing power over time, calculated by determining the expected average inflation rate over the life of the security
Inflation premium (IP)
security choices made by individual and institutional investors as they build portfolios
Investments
The financial obligations or debts owed by an organization to others
Liabilities
The ease and speed with which an asset can be converted to cash
Liquidity
A league financed fund from which franchises can borrow at relatively low cost
Loan pool
Team earnings from home ticket sales, local television and radio, advertising and sponsorship, shared within the league
Local revenues
A benchmark interest rate based on the average interest rate that banks in the London interbank market pay to borrow unsecured funds from one another
London Interbank Offered Rate (LIBOR)
Liabilities due after one year
Long-term liabilities
An estimate of the value of a company according to the stock market
Market Value
The portion of a stocks risk that cannot be eliminated through diversified portfolio; it is measured by the degree to which the stock moves with the market
Market risk
A premium added to the interest rate of a security that accounts for interest rate risk
Maturity risk premium (MRP)
Markets for highly liquid, short-term securities
Money markets
An ownership model in which individuals pool their resources to purchase a franchise and incorporate as a partnership, LLC, or the like. The most common model of team ownership
Multiple owners/private investment syndicate model
An ownership model in which a franchise is governed by a board of directors who are elected by shareholder vote. The board of directors appoints the teams senior management. With the exception of the Green Bay Packers, this model is not currently used in the United States
Multiple owners/publicly traded corporation model
A measure of the effectiveness and efficiency of a company's operations
Net Profit Margin ratio
The interest rate actually charged for a given marketable security, consisting of the real risk free rate of interest plus multiple risk premiums. These include risk premiums based on the risk of time and the level of risk, which reflect the riskiness of the security itself, and premiums reflecting inflation and liquidity. Also called the quoted interest rate
Nominal interest rate
The face value of money
Nominal value
A classifications system used by the US Census Bureau to measure and track economic activity in the United States. The sport industry is not classified as a distinct industry and is scattered across at least 12 different NAICS-defined industries Retained Earnings- A portion of earnings that a firm saves in order to finance operations or acquire assets
North American Industry Classification System (NAICS)
An estimate of the ownership value of a company. Also called shareholder's equity or stockholder's equity
Owner's equity
The current value of a payment that will be received or paid in the future, computed by applying a discount rate that measures risk and uncertainty
Present value (PV)
An estimate of how much money investors will pay for each dollar of a company's earnings, used widely to measure corporate performance and value
Price to earnings ratio
A measure of a company's ability to meet its current liabilities with its current assets, not including inventory
Quick Ratio
A league structure in which owners purchase shares in the league rather than in an individual franchise
Single-entity structure
A measure of the rate of return a company's owners or shareholders are receiving on their investment
Return on equity ratio
Income generated from business activities, such as the sale of goods or services
Revenues
An 1890 law that forbids contracts or other actions among businesses that would restrict competition
Sherman Antitrust Act
An ownership model in which one individual owns the firm
Single owner/private investor model
A measure of how efficiently a company is utilizing its assets to make money
Total asset turnover ratio
maximizing the overall value of the firm. This is the goal or outcome of financial management for most organizations.
Wealth maximization
The result of a calculation based on the prices of roughly 80,000 goods and services in more than 200 categories reflecting the current lifestyle of the typical American consumer, intended to reflect the overall change in real prices during a period
consumer price index (CPI)
A series of equal payments or receipts made at regular intervals
annuity
A measurement of the volatility of a stock compared to market return, reflecting the degree to which the stock increases or decreases with an increase or decrease in the overall market
beta coefficient
Interest that is calculated on both the principle investment and the interest generated by that investment
compound interest
The failure of an organization to fulfill its obligations toward a loan, often because it ceases operations or enters bankruptcy
default
1) A measure of risk or uncertainty used in present value calculations 2) The rate charged by the Federal Reserve on loans made to member banks 3) The rate of return required to justify an investment
discount rate
The return on an investment measured by subtracting the amount invested from the amount received
dollar return
A method of recording financial transactions where each transaction is entered or recorded twice, once on the debit side and once on the credit
double-entry bookkeeping
The sum of each possible outcomes (return) on an investment multiplied bu the outcomes probability
expected rate of return
A measure of how often a company sells and replaces inventory over a specified period of time, typically a year
inventory turnover ratio
A measure of the likelihood of low or negative future returns
investment risk
A comparative evaluation of risk, determined by comparing the risk of one asset or firm to that of another. Some firms or assets have a lower degree of risk and some have a higher degree of risk
level of risk
How a company chooses to finance its operation with debt versus equity. A company that relies extensively on borrowing money is considered to be heavily leveraged. Such a company faces greater risk of financial problems than one not so reliant on debt.
leverage
A premium added to the interest rate of a security that cannot be converted to cash in a short amount of time at a reasonable price. Also called the marketability premium
liquidity premium (LP)
The gain or loss of an investment over a period of time
rate of return
The real risk free rate of interest plus an inflation premium
nominal risk-free rate
An annuity that has no scheduled ending
perpetuity
A combination of financial assets held by an investor
portfolio
A list of all possible outcomes of an investment in terms of expected rates of returns, with a probability assigned to each outcome
probability distribution
The sharing of revenues among teams in a league to support weaker franchises and maintain the competitive balance in the league
revenue sharing
A measure of the chance that some unfavorable event will occur
risk
A quality that investors tend to display; when presented with two alternatives for investment with the same expected rate of return, most investors will select the investment with the lower risk
risk averse
The interest paid on risk free investments that pay a guaranteed return, such as US treasury bills
risk free rate
The fact that risk increases as the length of time funds are invested increases
risk of time
The difference between the rate of return for a risky investment and the risk free rate
risk premium
A formula for evaluating the risk and return merits of an investment
security market line (SML)
The amount of fluctuation that occurs in a series of similar investment returns and the degree to which the returns deviate from the average. More volatility translates into greater risk.
volatility