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?