99 Cards in this Set
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Balance Sheet
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A picture or snapshot of the financial condition of an organization at a specific point in time
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Debt Ratio
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Measures how an organization finances its operation with debt and equity
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Inventory Turnover Ratio
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Measures how often an organization sells and replaces its inventory over a specified period of time
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Price-to-Earnings Ratio
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An estimate of how much money investors will pay for each dollar of the organization's earnings
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Statement of Cash Flows
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Tracks cash in and out of an organization over a specified period of time
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Investments
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Three interrelated sectors exist within finance - the focus of which sector is on security choices made by individual and institutional investors as portfolios are being built
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Debt Financing
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When an organization borrows money that must be paid back over time, usually with interest
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Financial Management
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Three interrelated sectors exist within finance - the goal or outcome of those working in which of the following sectors is to acquire and secure funds to maximize shareholder wealth
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Gift
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Type of financing that includes charitable donations, either cash or in-kind, made to an organization and is the primary source or operating and investing income for major collegiate sports programs
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Money and Capital Markets
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Three interrelated sectors exist within finance - includes securities markets, investment banking, insurance, and mutual fund management
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Finance
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The science of fund management and includes application of concepts from accounting, economics, and statistics
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Ways to Finance Operations
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1. Debt financing
2. Equity financing
3. Reinvestment of retained earnings
4. Government financing
5. Gift financing
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Equity Financing
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A share or portion of ownership is exchanged for money; funds obtained without incurring debt
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Government Financing
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May include land use, tax abatement, direct stadium financing, state/municipal appropriations, and infrastructure improvements
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Gross Domestic Product (GDP)
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The monetary value of all the finished goods and services produced within a country's borders in a specific time period; usually calculated on an annual basis.
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Professional Sport Ownership Models
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1. Single Owner/Private Investor Model
2. Multiple Owners/Private Investment Syndicate Model
3. Multiple Owners/Publicly Traded Corporation Model
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Single Owner/Private Investor Model
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One individual owns the firm
(ex: Mark Cuban - Dallas Mavericks)
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Multiple Owners/Private Investment Syndicate Model
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Group of individuals pool resources to purchase franchise
Most common model
Commonly partnership or LLC
(Ex: St. Louis Cardinals and the Oakland Raiders)
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Multiple Owners/Publicly Traded Corporation Model
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A franchise is governed by a board of directors who are elected by shareholder vote, board of directors then appoints the team's senior management
(Ex: Green Bay Packers and Manchester United)
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League Structures
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Single Entity
Distributed Club Ownership
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Single Entity
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One group or individual owns league and all teams
(Ex: MLS)
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Distributed Club Ownership
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Each individual franchise has its own ownership group. League wide revenues collected and distributed to teams. League structured as a non-profit governed by representatives from teams
(Ex: MLB)
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Generally Accepted Accounting Principles (GAAP)
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A standard set of guidelines and procedures for financial reporting
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Assets
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What a company owns
(Ex: Cash and Inventory)
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Accounts Receivable
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The money a company is owed by customers
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Liabilities
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The organization's financial obligations or debts owned to other
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Owner's Equity
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An estimated measure of the ownership value of the company
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Liquidity
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How quickly an asset can be converted into cash
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Income Statement
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Shows the organization's income over a specified period of time and is typically issued on an annual or quarterly basis
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Cash Basis Accounting
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Recognizes transactions when money is either received or paid out
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Accrual Basis Accounting
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Accounts for income when it is earned and expenses when they are incurred, rather than when the money is exchanged
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Operating Section
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The organization's cash flows from normal business operations, such as from sales or paying employees
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Investing Section
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The buying and selling of fixed assets, such as PP&E
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Financing Section
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The company's debt and equity financing, such as the sale of stock or repayment on a loan
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Current Ratio
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Organization's ability to meet its current liabilities with its current assets
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Quick Ratio
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Organization's ability to meet its current liabilities with current assets other than inventory
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Total Asset Turnover Ratio
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How efficiently an organization is utilizing its assets to make money
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Interest Coverage Ratio
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Measures a firm's ability to pay interest on its debt
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Net Profit Margin Ratio
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Measures the effectiveness and efficiency of the organization's operations; higher value = efficient
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Return on Equity Ratio
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Measures the rate of return a company's owners or shareholders are receiving on their investment
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Market Value Ratio
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An estimate of the value of a company according to the stock market
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Earnings Per Share
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The earnings the company generated per share of outstanding company stock
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Risk
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A measure of the uncertainty of returns
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Beta
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A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Used in CAPM, that calculates the expected return of an asset based on its beta and expected market returns
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Money Markets
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Markets for highly liquid, short-term securities
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Capital Markets
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Markets for intermediate or long-term debt, as well as corporate stock
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Retained Earnings
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Earnings that a firm saves in order to fund operations of acquire assets
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Gross Domestic Sports Product (GDSP)
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The market value of a nation's output of sport-related goods and services in a given year
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Sherman Antitrust Act (1890)
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The Act forbids contracts and other actions among businesses in restraint of trade
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Rate of Return
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The gain or loss of an investment over a period of time
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Volatility
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The amount of fluctuation that occurs in a series of similar investment returns and the degree to which those returns deviate from the average; more = greater risk
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Level of Risk
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A comparative evaluation of risk, determined by comparing the risk of one asset or firm to another
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Risk-free Rate
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The interest paid on risk-free investment that provide a guarantee return
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Risk Premium
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The difference between rate of return for the risky investment and the risk-free rate
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London Interbank Offered Rate (LIBOR)
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A benchmark interest rate based on the rate that banks in the London interbank market pay to borrow unsecured funds from each other
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Risk of Time
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The fact that risk increases as the length of time funds are invested increases
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Nominal Interest Rate
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The interest rate on a given debt security; consists of the real risk-free rate of interest plus multiple risk premiums
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Inflation
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The devaluation of money over time
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Real Risk-free Rate
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The rate of interest on a riskless security if inflation were not expected
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Inflation Premium (IP)
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The portion of an investment's return that compensates the investor for loss of purchasing power over time
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Maturity Risk Premium (MRP)
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Accounts for the risk of a change in the value of a security due to changes in interest rates
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Interest Rate Risk
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The risk that interest rates will increase, causing a decline in the value of the security.
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Investment Risk
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Measures the likelihood of low or negative future returns
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Stand-alone Risk
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The investor's risk as if only one asset were held
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Probability Distribution
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List of all possible outcomes (projected returns) of an investment, with a probability assigned to each outcome; the sum MUST equal 1
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Expected Rate of Return
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The sum of each possible outcome multiplied by its probability
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Probable Return
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The product of the projected return and the probability of that outcome occurring
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Realized Rate of Return
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The return that is actually earned during a given period of time; usually differs from the expected rate of return
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Standard Deviation
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A measure of variability in a distribution of numbers and, in the case of an investment, indicates the riskiness of the investment
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Coefficient of Varaiation
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Measures the stand-alone risk of an investment
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Correlation Coefficient
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Measures the degree of the relationship between two variables
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Capital Asset Pricing Model (CAPM)
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Provides a mean ti analyze the relationship between risk and rate of return
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Sources of Risk
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1. Capital finance
2. Operating budgets
3. League loan pools
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Central Revenues
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Revenues paid directly to the league
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Local Revenues
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Team earnings from home ticket sales, local television and radio, advertising, and sponsorship, that are shared within the league
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Time Value of Money
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The yearly, monthly, or even daily changes in the purchasing power of money
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Consumer Price Index (CPI)
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The result of a calculation based on the prices of goods and services in more than 200 categories reflecting the current lifestyle of the typical American consumer to determine the overall change in real prices during a period
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Future Value
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The value of money after an interest rate is applied over a specified period of time
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Simple Interest
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Only calculated on principal
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Compound Interest
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Calculated on principal and on the interest generated by that principal
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Annuity
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Any series of equal payments or receipts made at regular intervals
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Present Value
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Today's value of a future cash flow
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Discount Rate
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Also known as capitalization rate - it is a measure of risk or uncertainty of time and is influenced by the perception of future inflation rates, interest rates and business activity
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Economics
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The study of how people choose to allocate their scare resources'
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Demand
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The quantity of a product or service desired by consumers
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Scarcity
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Describes the situation when the availability of a resource does not meet current demand
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Price
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What one party (the buyer) must give to obtain what is offered by another party (the seller)
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Microeconomics
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The study of issues that occur at the firm level, such as supply, demand, and pricing
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Macroeconomics
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The study of forces that affect numerous or even all sectors of the overall economy, such as income, unemployment, and inflation at the community, national, regional, or global level.
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Accounting Profit
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Earned when revenues exceed costs and expenses over a particular period of time
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Economic Profit
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Determined after including the opportunity costs associated with the financial decision
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Opportunity Costs
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Costs in terms of foregone alternatives
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Freedom of Information Request
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Request filed by a citizen under the Freedom of Information Act to discover where and how a government agency is spending its money.
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Antitrust Exemption
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Prohibits unfair restraints of trade and the creation of monopolies. MLB enjoys a much stronger antitrust exemption than any other US professional sport league.
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Sole Proprietorship
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A business that is legally owned and operated by a single individual
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General Partnership
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The joining of two or more individuals with the intent to own and operate a business
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Subchapter S Corporation
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A business structure under which shareholders; distributions are taxed as ordinary income and shareholders are shielded from personal liability
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LLC/LLP
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A business structure under which shareholders' distributions are taxed as ordinary income and shareholders are shielded from personal liability
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C Corporation
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A business structure under which the company may seek investors and conduct business activities around the world. Must hold annual meetings, elect a board of directors, and provide specific annual paperwork to the government and to shareholders
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SPTE 440: Test 1