Finance & Accounting Flashcards
Fixed asset
Fixed means it is all attributed in that single year
Capitalized expenditure
Capitalized means that it is attributed over time, with depreciation
Debt service
- Interest and required debt repayments are considered “debt service costs”
- Interest Expense = current year expense
Profit & Loss Statement
For a period of time (i.e. a movie depicting a series of events)
Balance Sheet
A “snapshot” at a certain period (e.g. 12/31 or 6/30). Must
balance on both sides (i.e. a picture at a point in time)
Cash flow statement
The movements of each balance sheet account, showing all cash
activity during year, and reconciling beginning and ending cash
Accrual accounting method
- Revenue or expenses are booked when a transaction occurs, not when a payment is made
- This utilizes the matching principle where revenue and expenses should be recognized at the same time
Double entry system
- For any given transaction, a minimum of 2 entries must be made for bookkeeping
- For every transaction, the amount of debits must equal the amount of credits
- Ensures the statements are balanced at the end of a given period
T-system
- Entries made on the right side of the T are credits, and entries
on the left side of the T are debits - Corporate assets are listed on the left (debits), liabilities and the owners’ equity are listed on the right side (credits)
Debits
Increase in an asset, decrease in a liability, decrease in a shareholders’ equity, increase in an expense (adds to the bucket)
Credits
Decrease in an asset, increase in a liability, increase in a shareholders’ equity, increase in revenue (takes away from the bucket)
Typical consolidation/accounting setup
- Journal entries
- General Ledger accounts (salaries, travel, equipment)
- Departments (Ticket Sales, Marketing, IT, PR, Arena Ops)
- Companies (examples from the Yankees: NY, Tampa, River 5. Operating Company, Pinstripe Bowl, NYCFC) - not real companies, just a way to manage the business
- Consolidated financial statements
Journal entries: On January 31st, Sports Clothing Inc, (“SCI”) paid $250,000 in cash for the monthly salaries of its employees
Debit (left)
$250k - Salary expenses
Credit (right)
$250l - Cash
Journal entries: On February 1st, 2021, SCI paid $42,000 cash to rent office space and furnishings for the year ending December 31, 2021
Debit (left)
$42k - Rent expense
Credit (right)
$42k - Cash
Journal entries: On February 10th, SCI issued 50,000 shares of $1 par value common stock for $200,000 in cash
Debit (left)
$200k - Cash
Credit (right)
$50k - Stock
$150lk - Capital
Journal entries: SCI sold merchandise at a selling price of $1,000 on March 1st; the merchandise sold had cost to SCI $750. The customer paid SCI in cash with no refunds
Debit (left)
$1k - Cash
$750 - Cost of goods sold
Credit (right)
$1k - Sales revenue
$750 - Inventory
Journal entries: SCI sold merchandise at a selling price of $60,000 on March 10th; the merchandise sold had cost to SCI of $45,000. The customer agreed to pay SCI in the third quarter
Debits (left)
$60k - Accounts receivable
$45k - Cost of goods sold
Credits (right)
$60k - Sales revenue
$45k - Inventory
Journal entries: SCI receives $200,000 from a customer for merchandise on March 15th. SCI will deliver 3/4 of the merchandise on June 30th and 1/4 on December 31st
Debits (left)
$200k - Cash
Credits (right)
$200k - Advances from customers
Different ways to disaggregate ticket revenues
- Seating location (section, row, seat)
- Method of sale (sales rep, online, mobile, walk up, back office)
- Ticket type (full season, partial season, group)
Variable pricing
- Ticket prices set in advance of on-sale
- Major variations are by seat and by game tier
Dynamic pricing (airline pricing)
- Occurs between on-sale and event date
- Results from change of demand from variable pricing
- Started due to the 2008/2009 recession and the increase in the secondary market resale activity
- Used to maximize revenue by increasing attendance by finding the correct price
NBA revenue sharing
- League net income is split evenly (including national TV)
- Local revenues, net of deductible expenses, are split in a complicated formula
- Market disqualifications (like New York, LA)
- Receipt limits - depending on predetermined criteria
- Contribution limits - depending on predetermined criteria
NFL revenue sharing
- League revenue is split evenly
- Gate split is 66% home, 34% road
- All other revenue sources are not split
- Additional sharing in stadium fund
- Additional tax on big market teams depending on profitability
- In 2019, the shared amount was $8.8b
MLB revenue sharing
- League revenue is split evenly
- Local revenues split in a complicated formula (approximately 34% of their net local revenue)
- Payers vs. payees is a $0 sum game
- Postseason revenue is excluded
- Market disqualification
- Total local revenue shared in 2019 was $440m
NHL revenue sharing
- Player Compensation Cost Redistribution System
- 50% raised from the top 10 revenue grossing clubs (prorated portions)
- Remaining 50% from flat tax (35% on each club’s playoff gate receipts and centrally generated league revenues)
- Market disqualification
NBA salary cap
- Soft cap - exceptions allow teams to go over
- Cap and floor
- Guaranteed player contracts
NFL salary cap
- Hard cap
- Salary floor
- Non-guaranteed player contracts
MLB salary cap
- Soft cap
- Guaranteed player contracts
NHL salary cap
- Hard cap
What are budgets?
- A financial plan for a revenue, expense, P&L, cash flow, or balance sheet item
- They are a roadmap to what a company will do and how it will perform
Budget hierarchies
- Line items
- Departments
- Divisions
- Companies
Zero-based budgeting
All budget dollars are requested every year and then budgeted for if approved
Historical growth budgeting
Budgets are set based on prior years’ spend and historical trends
What are forecasts?
Updates to the budget that are more frequent that annually
Direct expenses
An expense that directly relates to a specific segment of the business operation
For example, raw materials such as leather to product footballs
Indirect expenses
Overhead or other indirect costs incurred in achieving project completion, but not applicable to an specific task
For example, employee salaries associated with office personnel who do not design, manufacture, or distribute the footballs (i.e, administrative assistants)
Return on investment
Profitability of a specific investment or project
ROI = (Gain from investment - Cost of investment) / Cost of investment
Present value
Time value of money - a dollar today is better than a dollar tomorrow
Net present value
Difference between the present value of the future income and the required investment
NPV = PV - RI (required investment)
Internal rate of return
An organization’s required return rate for a project (a hurdle rate)
IRR shows the rate of return when NPV = 0
Payback period
Determines how long it will take a company to earn its money back on an investment
Net working capital
= Current assets - current liabilities
Working capital ration (or current ration)
= Current assets / current liabilities
Quick ratio
= (Cash + short term investments + accounts receivable) / current liabilities
Debt to equity
= Total liabilities / Total equity
Return on assets
= Net profit / total assets
Inventory turnover
= Cost of goods sold / inventory
Accounts receivable turnover
= Sales / Accounts receivable
Compound annual growth rate (CAGR)
Determines the ANNUAL growth rate
PMT
Calculates a consistent annual value at a constant interest rate to
arrive at an ending value (FV) or a desired starting amount (PV)
Helpful with “smoothing” annual escalators
Elasticity of demand
The degree to which a change in pricing affects the unit sales of a product
- If a change in process does not impact demand, then the demand is inelastic (essential goods like milk, eggs) - marquee events, popular concerts
- An elastic demand changes significantly when prices change (entertainment or disposable goods with several alternatives) - mid-season day games
Break even point
Level of revenue that exactly matches the level of expense
(Price x Unit sales) - (COGS x Unit sales) - Fixed costs = 0
