exam 1 :rsa 519

Single Entity Structure

a league structure in which owners *purchase shares in the league rather than in an individual franchise*

Distributed Club Ownership Model

a league structure under which individual owners rather than the league office own and control teams.

loan pool

a league-financed fund from which franchises can borrow at relatively low cost

probability distribution

a list of all possible outcomes of an investment in terms of expected rates of return, with a probability assigned to each outcome

Interest Coverage Ratio

a measure of a firm's ability to pay the interest on its debt. sometimes called the times interest earned ratio

Debt Ratio

a measure of an organization's leverage, sometimes referred to as the debt-to-assets ratio

correlation coefficient

a measure of how closely the returns of an asset move relative to the returns of another asset held in a portfolio

Total Asset Turnover Ratio

a measure of how efficiently a company is utilizing its assets to make money

Inventory Turnover Ratio

a measure of how often a company sells and replaces its inventory over a specified period of time, typically a year

Net Profit Margin ratio

a measure of the effectiveness and efficiency of a company's operations

Return on Equity Ratio (ROE)

a measure of the rate of return a company's owners or shareholders are receiving on their investment

coefficient of variation

a measure of the stand-alone risk of an investment

Capital Asset Pricing Model (CAPM)

a method of analysis of the relationship between risk and rate of return, built on the notion that a stock's required rate of return is equal to the risk-free rate of return plus a risk premium, with the risk reflecting the portfolio's diversification

debt financing

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

a method of raising capital in which an organization borrows money that must be repaid over a period of time, usually with interest -*sos*

double-entry bookkeeping

a method of recording financial transactions where each transaction is entered or recorded twice, once on the debit side of the accounting records and once on the credit side - *SOS*

retained earnings financing

a portion of earnings that a firm saves in order to finance operations or acquire assets - reinvestment of prior saved earnings -*sos*

maturity risk premium

a premium added to the interest rate of a security that accounts for interest rate risk

Liquidity premium

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

T accounts

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 debt and obligations

Statement of Cash Flows

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 debt and obligations Three sections: •Operating activities •Investing •Financing - *SOS* universal

annuity

a series of equal payments or receipts made at regular intervals

Generally Accepted Accounting Principles (GAAP)

a standard set of guidelines and procedures for financial reporting

Earnings before interest and taxes (EBIT)

a useful measure of income or profit

simple interest

interest that is calculated only on principal

retained earnings

reinvestment of prior investments *** - *SOS*

equity financing

financing in which an organization exchanges a share or portion of ownership for money -*sos*

Government Financing

funding provided by federal, state, or municipal sources, including land use, tax abatements, direct financing, state and municipal appropriations, and infrastructure improvements -*sos*

leverage

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

Order of Liquidity

how soon an asset is expected to be turned into cash or used

market value

The estimated total value of a company according to the stock market

risk of time

The fact that risk increases as the length of time funds are invested increases.

investment risk

A measure of the likelihood of low or negative future returns.

debits

increase assets and decrease liabilities

revenue sharing

the sharing of revenues among teams in a league to support weaker franchises and maintain the competitive balance in the league

macroeconomics

the study of forces that affect numerous or even all sectors of the overall economy

Microeconomics

the study of issues, such as supply, demand, and pricing, that occur at the firm level

real value

the value of money after inflation is taken into account; often referred to as purchasing power

Future Value

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 - *SOS*

Time Value of Money (TVM)

the yearly, monthly, or daily changed in the purchasing power of money - *SOS*

Cost of Goods Sold (COGS)

those costs that are directly attributable to the production of goods or products, including raw materials and labor costs

discount rate

(1) a *measure of risk or uncertainty* used in present value calculations; also called capitalization rate. (2) the rate charged the Federal Reserve on loans made to member banks (3) the rate of return required to justify an investment - *used in present value* - *higher rate=higher risk* - *SOS*

Acid Test Ratio/ Quick ratio

(Current Assets - Inventory) / Current Liabilities a measure of a company's ability to meet its current liabilities with its current assets, not including inventory

1. Money and capital markets (very liquid, good for debt) 2. Investments ( 3. Financial management (decisions made for wealth maximization)

3 Sectors of finance (MIC) - diff btwn the 3?? - *SOS*

BS: what a company owns and what they owe at a certain point IS: How much money they made in a year SofCF: cash going in and out during period of time - universal regardless of profession - Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time. Cash flow statements show the exchange of money between a company and the outside world also over a period of time.

3 financial statements - purpose and what they show - diff btwn the 3, might have to write this out so be ready... give 1 sen for each!~! - *SOS*

1. single owner, private sydicate (mark cuban) 2. multiple owner, private syndicate (the reds, popular) 3. multiple owner, public (packers, rare) - some owners more concerned w/ celebrity status - some more with championship - some more with making money - the most popular: multiple owners/ private investor model

3 sport franchise ownership models and *philosophies*, - most popular?? - *SOS*

•Current economic cycle •Television revenues •Relationship between team and real estate holdings •Sustainability •Impact of politics on sport governance

5 financial factors affecting sport (EC, TV, SUS, GOV, real estate) - *SOS*

1. gift 2. debt 3. equity 4. government 5. retained earnings

5 methods of financing ** - *SOS*

1. gift 2. equity 3. gov 4. debt 5. retained earnings

5 types of financing (GEG,DRe) DREGG - *SOS*

synthetic fixed-rate bonds

A bond that has elements of both a fixed-rate bond and a variable-rate bond. Play/Pause VideoMute/Unmute Video ADVERTISEMENT

North American Industry Classification System (NAICS)

A classification system used by the U.S. 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

Income Statement

A financial statement showing the revenue and expenses for a fiscal period. 12 months - also a statement of earnings - revenues and expenses, quarterly or annual - *SOS* universal

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date. *ALE* - a snapshot of the financial condition of an organization at a specific point in time •Assets and liabilities are listed in order of liquidity Owner's equity is often an estimate - *SOS* universal

Security Market Line (SML)

A formula for evaluating the risk and return merits of an investment.

risk averse

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.

Financial Management

A sector within firms that is concerned with the acquisition and use of funds to meet the goal of wealth maximization

Contingent Liabilities

Debts that may or may not occur

Equities

Financial rights to the assets of a business - like stocks

Sherman Antitrust Act

First federal action *against monopolies* - *restricts competition!*

How is inflation calculated?

Inflation is calculated by determining the rate at which the average price level of particular goods and services increases over a period of time in an economy. - *Consumer Price Index calculates it!!!* - *SOS*

Money markets - are great for your emergency fund due to their liquidity and stability.

Markets for highly liquid, short-term securities - SHORT TERM GOES W CAPITAL MARKET

wealth maximization

Maximizing the overall value of the firm. This is the goal or outcome of financial management for most organizations

multiple owners/private investment syndicate model

Out of the three models which one is the most common? - *SOS*

Deferred Compensation - *SOS*

Plan that provides income to employees at some future time as compensation for work performed now. -Salary whose payment is delayed under contractual terms; pay later for work now, bobby banilla day= gets paid 1 million until he's 80. - *SOS*

reinvestment rate risk

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.

Volatility

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.

relavent risk

The contribution of a single stock to the riskiness of a diversified portfolio.

interest

The cost of borrowing money.

risk premium

The difference between the rate of return for a risk investment and the risk-free rate.

rate of return

The gain or loss of an investment over a period of time. - *SOS*

risk free rate

The interest paid on risk-free investments that pay a guaranteed return, such as U.S. Treasury bills.

diversifiable risk

The portion of a stocks's risk that can be removed through a well-diversified portfolio.

real risk-free rate

The rate of interest on a riskless security if inflation were not expected; the rate of interest on a shortterm U.S. bill in an inflation-free environment

interest rate risk

The risk of a decrease in the value of a security due to an increase in interest rates.

stand-alone risk

The risk that an asset would present if only that single asset were held.

finance

The science of fund management, applying concepts from accounting, economics, and statistics

expected rate of return

The sum of each possible outcome (return) on an investment multiplied by the outcome's probability.

expected return on a portfolio

The weighed average of the expected returns of a set of assets.

fiscal year

a 12-month period over which a company budgets its money

London Interbank Offered Rate (LIBOR)

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

portfolio

a combination of financial assets help by an investor

level of 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

Economic Cycle

a cycle consisting of four stages --growth, peak, recession, and recovery--and typically lasting for just under six years - *SOS*

auction-rate bond

a form of long-term debt that acts like short-term debt, in which interest rates are reset through auctions typically help no more than 35 days apart

Accrual Basis Accounting

an accounting method that recognizes income when it is earned and expenses when they are incurred, rather than when the money is exchanged

Cash Basis Accounting

an accounting method that recognizes transactions when money is either received or paid out

Perpituity

an annuity that has no scheduled ending. Also, "in perpetuity": without an ending date - gives us the present value of money?

Economic Depression

an extreme recession, lasting two of more years

credits

an increase to a lability or equity account, entered on the right-hand side of a ledger

Single owner/private investor model

an ownership model in which *one individual owns the firm* ( like mark cuban owning the mavs)

multiple owners/ publicly traded corporation model (like all of green bay Wisconsin owning the packers) - owned by many and public, very rare that teams owned by public so not common

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 team's senior management. with the exception of the Green Bay Packers, this model is not currently used in the United States

multiple owners/*private investment syndicate model* - owned by many but private, popular - st louis cardnials or THE REDS! owned by private businesses

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* - *most common* - *SOS*

Gift Financing

charitable donation, either cash or in-kind, made to an organization -*sos*

- In the money market, only short-term liquid financial instruments are exchanged. Whereas, in the capital market, only long term securities are dealt with. - ROI is low in money market - ROI is high in capital market bc risk is higher bc its long term

compare 3 finances - money markets and capital markets (short term and then long term) - financial mgt. (wealth max) - investments *** - *SOS*

Current Ratio

current assets - current liabilities measures a companys ability to meet its current liabilities with its current assets

Annuities are investments that make payments for a set duration of time. Perpetuities are investments that make payments indefinitely - think annuity is annual so just good for a year

diff btwn annuity and perpituity.

simple: only calculated on the principle investment compound: both the principle and the interest generated, big money$$

diff btwn simple interest and compound interest - *SOS*

the value of money after inflation is taken into account; often referred to as purchasing power; nominal is face value.... so real is after inflation

diff btwn •Real value vs. nominal value????

central revenues

earnings that are paid directly to a league and then distributed to member organizations - *SOS*

long-term liabilities

liabilities due after one year

Current Liabilities

liabilities due within one year

Price to Earnings Ratio (P/E)

market price per share/earnings per share - 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

Capital Markets

markets for intermediate or long-term debt, as well as corporate stock - LONG TERM GOES W MONEY MARKETS

Sustainability

meeting today's needs without compromising future generations' ability to meet their own needs •Venue construction and usage •Overbuilding of publicly financed arenas - *SOS*

Sustainability

meeting today's needs without compromising the ability of future generations to meet their own needs***** - *SOS*

Accounts Receivable

money owed to a company by its customers

Default Risk Premium (DRP)

premium added to the nominal interest rate to account for the risk that the borrower might default

investments

security choices made by individual and institutional investors as they build portfolios

local revenues

team earnings from home ticket sales, local television and radio, advertising, and sponsorship, shared within the league - *SOS*

Gross Domestic Sport Product (GDSP)

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

1. current ratio: must be above 2.0 to be good 2. quick ratio: higher the better 3.. total asset turnover: revenues exceed assets, higher better 4. inventory turnover: higher better 5. *debt ratio: lower better!!* 6. interest coverage ratio: can cover the interest w/ earnings, higher better 7. net profit margin: higher better 8. return on equity: higher better 9. market value: higher better 10. price to earnings ratio: higher better

the 10 ratios - what are the diff? - CQ,TID,IN,RMP

Owner's Equity

the amount remaining after the value of all liabilities is subtracted from the value of all assets - exchanging a portion of the company for money

Present Value (PV)

the current value of a payment that will be received or paid in the future, computed by applying a discount termed overflow benefits - *SOS*

Covariance

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

Inflation

the devaluation of money over time •Loss of purchasing power

Liquidity

the ease with which an asset can be converted into cash

nominal value

the face value of money

default

the failure of an organization to fulfill its obligations toward a loan, often because it ceases operations or enters bankruptcy

nominal interest rate

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

Gross Domestic Product (GDP)

the market value of all final goods and services produced within the borders of a county, state, country, or other region in a year

economic growth

the part of the economic cycle when the economy is increasing in real terms (faster than the rate of inflation)

market risk

the portion of a stock's risk that cannot be eliminated through a diversified portfolio; it is measured by the degree to which the stock moves with the market

inflation premium

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

required rate of return

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

Nominal Risk Free Rate

the real risk-free rate of interest plus an inflation premium

Consumer Price Index (CPI)

the result of a calculation based 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 - *SOS*

dollar return

the return on an investment measured by subtracting the amount invested from the amount received

Franchise Ownership Model •Single owner/private investor (mar cuban) •Multiple owners/private investment syndicate model (most popular, the reds) •Multiple owners/publicly traded corporation model (the paclers)

what Affects tax and legal obligations with different benefits - types of models??

1. economic 2. global 3. political

what are the 3 sources of risk??

The unexpended balance at the end of a prior fiscal year that has been rolled forward to the next fiscal year. Carry-forward budget can be positive (funds available to spend) or negative (a deficit that needs to be covered).

what is carried forward money/budget?

General accepted accounting principles - - Set of rules concerning how a company reports its economic activity to stockholders and other external parties

what is the GAAP

Generally Accepted Accounting Principles (GAAP)

what the best practices for accounting? - *SOS*

1) balance sheet 2) income statement 3) statement of cash flows - all very universal

whats the diff btwn the 3 financial statements?? - *SOS*

•Growth •Peak •Recession •Recovery

•Four stages of economic cycle

•To evaluate how well a company is operating in the current time period •To compare current and past performance •To compare current and historical performance to industry standards •To study efficiency of operations

•Reasons why financial managers engage in ratio analysis:

risk

•a measurement of the volatility of rates of return - *SOS* - *a measure of the chance something unfavorable will happen*