SM Midterm Part 3

Flashcards created from lecture notes covering sport finance concepts, money management, constraints, municipal bonds, and key financial statements.

What does sport finance analyze within the sport industry?

Sport finance analyzes where the money comes from, where the money goes, and how to use the remaining money to foster future growth.

How is accounting defined in sport finance?

Accounting is the process of calculating revenue and expenses through receipts and other facts to determine the numbers for a company.

What does finance entail for an organization?

Finance entails identifying current and future revenue and expenses, as well as determining future budgets to help an organization succeed.

What is the role of an economist in sport finance?

An economist takes the numbers and financial projections from numerous companies to explore future trends.

What is the basic concept of money management for a business?

To keep increasing revenue and revenue sources while at the same time reducing expenses.

Why must non-profit organizations make money?

They need to make money so that they can pay bills, pay employees, and further their primary goals.

What internal constraints must managerial decisions review?

Internal constraints include a company's past credit history, sales volume, product lines, accounts receivable, inventory balances, and management structure.

How are accounts receivable and inventory balances characterized?

Accounts receivable is defined as money owed to the company by its debtors, and inventory balances are reported as an asset.

What external constraints affect managerial financial decisions?

External constraints include significant competition, high interest rates, shrinking of the money supply by the government, and the political environment.

What are municipal bonds and how are they used?

Municipal bonds are debt securities issued by state and local governments that function as loans from investors to fund public works such as parks, libraries, bridges, and other infrastructure.

What guidelines are used to compile standard financial statements?

Generally Accepted Accounting Procedures (GAAP).

What are the three main types of financial statements?

1. Balance Statement (Balance Sheet), 2. Income Statement, and 3. Statement of Cash Flow.

What is a balance sheet?

A document displaying the financial condition of a business at a single point in time, offering information about assets, liabilities, and owner's equity.

How are assets categorized on a balance sheet based on liquidity?

Assets are listed according to liquidity: current assets are converted within $1\text{ year}$ or less, while fixed assets are the least liquid (e.g., property and equipment).

What do the left and right sides of a balance sheet represent?

The left side (debt side) represents what the company owns, while the right side (credit side) indicates how the assets were financed.

How are current liabilities distinguished from long-term liabilities?

Current liabilities consist of obligations that must be paid down in $1\text{ year}$ or less, whereas long-term liabilities will not be paid for within $1\text{ year}$.

What does an income statement measure?

An income statement measures a business's profitability over a specific period of time and operating performance between two balance sheets.

What formula defines income on an income statement?

$$\text{Income} = \text{Revenues} - \text{Expenses}$$

What are the three main sections of an income statement?

1. Revenues and expenses from a company's operations, 2. Non-operating section (financing costs, income earned from financial investments, paid taxes), and 3. Net income of the company.

What is the purpose of a statement of cash flow?

It reports changes in a company's cash holdings over a particular period and shows the difference between what a company brings in and pays out across operating, investing, and financing activities.

How are operating, investing, and financing activities defined in cash flow statements?

Operating relates to cash flows from the sale of goods; investing involves additions or sales of fixed assets; financing covers cash flows to and from creditors and owners.

What is the role of an auditor regarding financial statements?

Auditors are usually the last person who can discover discrepancies, using standards to systematically report on the accuracy and correctness of accounting approaches.

What three specific areas does an auditor's opinion address?

1. Fairness of financial statements, 2. Degree to which statements comply with GAAP guidelines, and 3. Noticeable changes in accounting principles from industry norms.