week 6: financial management Flashcards
financial management
- planning and implementing the efficient and effective use of financial resources to achieve the goals of the organization
- goals vs means
- it is NOT just about numbers
fundamentals off management
- income statement
- balance sheet
- cashflow statement
assets
a resource owned or controlled (ie. money, a building, inventory)
liabilities
- a debt or financial obligation (what you owe on a loan)
owners/shareholders equity
total value of assets, taking into account liabilities
(equity = assets - liabilities)
revenue
funds received by an organization; increase in money
expenses
costs; outflow of money
profit
financial gain (revenue > expenses)
loss
financial loss (revenue< expenses)
what are the different financial statements?
- balance sheet
- income statement
- cashflow statement
balance sheets
provides a clear picture of the wealth of a sport organization through a compilation of assets and liabilities
- assets always appear at the top of these balance sheets
assets = liabilities + equity
- assets can be appreciate or depreciate
appreciate asset
value increase over time (ie. property)
depreciate asset
value decreases over time (ie. cars, gym equipment, office supplies etc)
income statements
provides a clear picture of the wealth of a sport organization through a compilation of revenues and expenses
- across a period of time
- records transactions when they occur regardless of when cash changes hands and shows the profit/loss achieved
- operating, investing, financing activities
cashflow statement
profit and cash are NOT THE SAME
- organizations cannot trade on profit terms, only cash terms
- basically summarizes what has gone in and our over the last accounting period
ratio analyses
- a method of evaluating an organizations financial performance by comparing in accounts with those of : previous years, budgets, other companies
key points to establish when using ratios
what are the “units” of the ratio?
what does the ratio mean?
what does a change in the ratio mean?
what is the “norm” for the ratio?
what are the limitations of the raio?
what are units for ratios
- growth
- profit
- productivity
- liquidity
profitability (performance)
growth, profit, and productivity ratios
- gross profit
liquidity
financial status ratios
- current ratio
profitability ratios
gross profit ratio:
gross profit ratio
how much profit an organization generates after deducting its costs of revenues
- gross profit ratio = (gross profit/profit) x 100%
gross profit and profit
gross profit: total earned - total spent
profit: total earned
liquidity ratios
current ratio
current raio
establishes whether a business has enough resources to meet immediate financial requirements
- current ratio = current assets/ current liabilities
current assets
can be converted into cash easily
current liabilities
short term
ratio of 1
$1 of resource to meet $1 of liability
- ideally, should be >1 but it varies by sector
- caution: not necessarily good to have plenty of current assets
what are the three types of budgets
1: operating budgets
2: program budgets
3: capital budgeting
operating budgets
estimate as accurately as possible, the organizations’ revenue and expenses
program budgets
allocating a designated amount of funds to each activity or program
capital budgeting
involve significant investments that are intended to produce some level of financial return or public benefit
what are some benefits for budgeting in sports organizations
- anticipate the future (assisting the strategic planning)
- determine resource needs and program priorities
- identify revenue shortfalls
- manage and monitor spending
- communicate the financial plans to key partners
- set and measure financial performance goals
costing
is essential to budgeting
- provides a starting point for controlling and managing costs contrasting between fixed and variable costs
fixed costs
remain constant - independent of the level of activity, or number of spectators, clients, or units
variable costs
change in direct relation to the number of spectators clients and users
break-even analysis
- break even
- profit
- loss
break even
revenues = expenses
- not making money; not losing money
profit
revenues > expenses
- making money
