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