In Regards to the Finance Exam

distributed club ownership

a league structure in which each individual franchise has its own ownership group. League wide revenues, such as those from national television contracts, are collected at the league level and distributed to each team to cover net costs. Team representatives select a commissioner to run the daily operations of the league.

single-entity structure

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

acid-test ratio

a measure of a company's ability to meet its current liabilities with its current assets, not including inventory

interest coverage ratio

a measure of a firm's ability to pay the interest on its debt

debt ratio

a measure of an organization's leverage, sometimes referred to as debts-to asset ratio

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

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

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

double-entry bookkeeping

a method of recording financial transactions where each transaction made by an organization is entered or recorded twice, once on the debit side of the accounting records and once on the credit side

balance sheet

a picture or snapshot of the financial condition of an organization at a specific point in time

retained earnings

a portion of earnings that a firm saves in order to finance operations or acquire assets

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 debts and obligations

financial management

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

generally accepted accounting principle (GAACP)

a standard set of guidelines and procedures for financial reporting

income statement

a statement of a company's income over a specified period of time, typically issued on an annual or quarterly basis.

earnings before interest and taxes (EBIT)

a useful measure of income or profit

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

interest rate risk

the rate of interest on a riskless security if inflation were not expected

real risk free rate

risk related to declining interest rates, primarily affecting short-term bills;

reinvestment rate risk

The structure of a league has greater financial impact because there are specific rules that the organization must follow

which has the greater impact in financial management: the structure of a league or the structure of a team?

equity financing

financing in which the sport organization exchanges a share or portion of ownership of the organization for money

government financing

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

expenses

funds flowing out of an organization as costs of doing business

leverage

how a company chooses to finance its operation with debt versus equity

that it cannot easily cover its liabilities very easily with its assets

if an organization's current ratio value is under 1.00 what might it suggest about the organization

revenues

income generated from business activities, such as the sale of goods or services

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

finance

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

cost of goods sold

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

One possibility could be soccer players from the U.S. not play professionally here. Would hurt the MLS and overall would hurt the overall Sports Industry

Many factors affect the economics of sport. What are some not mentioned in the chapter? How do they affect financial management of sport?

It involves decisions within firms regarding the acquisition of funds usually with the goal or outcome of wealth maximization. Might not be interested in wealth maximization, but instead of winning championships or in seeking celebrity status by being one of a select few professional sport franchise owners

What is financial management? How does it differ in the sport industry compared to other industries?

It affects the calculation of its size because there is many different aspects of sports, and often times the GDSP is not calculated correctly. The NAICS classifies the sports industry into the largest group which is Arts, Entertainment, and Recreation Management

Why does the definition of the sport industry affect the calculation of its size? How should the industry be defined?

current ratio

a formula that measures a company's ability to meet its current liabilities with its current assets

Sherman Antitrust Act

an 1890 law that forbids contracts or other actions among businesses that would restrict competition

price-to-earnings ratio

an estimate of how much money investors will pay for each dollar of the company's earnings, used widely to measure corporate performance and value

owner's equity

an estimate of the ownership value of a company

market value

an estimate of the value of a company according to the stock market

multiple owners/publicly traded corporation model

an ownership model in which a franchise is governed by a board of directors who are elected by shareholder vote.

multiple owners/private investment syndicate model

an ownership model in which a group of individuals pool their resources to purchase a franchise and incorporate as a partnership, LLC, or the like. The most common model of team ownership

single owner/private investor model

an ownership model in which one individual owns the firm

gift financing

charitable donations, either cash or in-kind, made to an organization

North American Industry Classification System (NAICS)

classification system used by the U.S. Census Bureau to measure and track economic activity in the United States.

contingent liabilities

debts that may or may not occur

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

default risk premium

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

dollar return

a comparative evaluation of risk

level of risk

long-term liabilities

liabilities due after one year

current liabilities

liabilities due within a year

the ease and speed with which an asset can be converted to cash

liquidity premium

money markets

markets for highly liquid, short-term securities

capital markets

markets for intermediate or long-term debt, as well as corporate stocks

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

maturity risk premium

wealth maximization

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

sustainability

meeting today's needs without compromising the future generations' ability to meet their own needs

accounts receivable

money owed by a company's customers

the gain or loss of an investment over a period of time

rate of return

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

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

risk-free rate

quick ratio

same as acid test ratio

investments

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

liquidity

the ease and speed with which an asset can be converted to cash

liabilities

the financial obligations or debts owed by an organization to others

gross domestic sports product (GDSP)

the market value of a nation's output of sport-related goods and services in a given year

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

the amount of fluctuation that occurs in a series of similar investment returns and the degree to which the returns deviate from the average

volatility

assets

what a company owns, including items such as cash, inventory, and accounts receivable

1.Debt Financing (sport teams issue bonds or borrow from lending institutions to finance operations through debt) 2. Equity Financing (not used amongst sport teams typically but organizations, like Under Armour issue stock) 3. Retained Earnings (finance acquisition of players, improve operations, or make other investments) 4. Government Funding (can be used to finance stadiums) 5. Gift Financing (alumni donating to college sports team)

what are the five forms of financing, and how is each used within sport?

Assets (cash) Liabilities (accounts payable) Owner's Equity (retained earnings)

what are the three main sections of the balance sheet? give an example for each section

how much debt the company has to other organizations

what information do leverage ratios provide?

the income statement tracks revenues and expenses coming in and out, and the statement of cash flows tracks cash coming in and out

what is the primary difference between an income statement and a statement of cash flows?

they provide key information about the condition and performance of a company and are, therefore, vital for managers to understand

what is the purpose of computing financial ratios?

The VideoProgramming Choice and Deceny Act, and the Taxpayer Protection and Corporate Responsibility act

what legislative actions currently being considered in Congress may affect the financial management of sport?

sustainability is meeting today's need without effecting future generations, so it would make sense that we would meet needs in a conservative matter to not effect our environment for future generations

why is sustainability in the sport industry linked to the green movement?

it allows comparisons of the market values of companies of all sizes.

why is the price to earnings ratio so widely used among investors?

to see if they are advancing as a company and are growing

why should financial ratio answers be compared to the company's past years?