Finance & Accounting

Question 1

Fixed asset

Answer 1

Fixed means it is all attributed in that single year

Question 2

Capitalized expenditure

Answer 2

Capitalized means that it is attributed over time, with depreciation

Question 3

Debt service

Answer 3

• Interest and required debt repayments are considered “debt service costs”
• Interest Expense = current year expense

Question 4

Profit & Loss Statement

Answer 4

For a period of time (i.e. a movie depicting a series of events)

Question 5

Balance Sheet

Answer 5

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)

Question 6

Cash flow statement

Answer 6

The movements of each balance sheet account, showing all cash
activity during year, and reconciling beginning and ending cash

Question 7

Accrual accounting method

Answer 7

• 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

Question 8

Double entry system

Answer 8

• 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

Question 9

T-system

Answer 9

• 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)

Question 10

Debits

Answer 10

Increase in an asset, decrease in a liability, decrease in a shareholders’ equity, increase in an expense (adds to the bucket)

Question 11

Credits

Answer 11

Decrease in an asset, increase in a liability, increase in a shareholders’ equity, increase in revenue (takes away from the bucket)

Question 12

Typical consolidation/accounting setup

Answer 12

1. Journal entries
2. General Ledger accounts (salaries, travel, equipment)
3. Departments (Ticket Sales, Marketing, IT, PR, Arena Ops)
4. Companies (examples from the Yankees: NY, Tampa, River 5. Operating Company, Pinstripe Bowl, NYCFC) - not real companies, just a way to manage the business
5. Consolidated financial statements

Question 13

Journal entries: On January 31st, Sports Clothing Inc, (“SCI”) paid $250,000 in cash for the monthly salaries of its employees

Answer 13

Debit (left)
$250k - Salary expenses

Credit (right)
$250l - Cash

Question 14

Journal entries: On February 1st, 2021, SCI paid $42,000 cash to rent office space and furnishings for the year ending December 31, 2021

Answer 14

Debit (left)
$42k - Rent expense

Credit (right)
$42k - Cash

Question 15

Journal entries: On February 10th, SCI issued 50,000 shares of $1 par value common stock for $200,000 in cash

Answer 15

Debit (left)
$200k - Cash

Credit (right)
$50k - Stock
$150lk - Capital

Question 16

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

Answer 16

Debit (left)
$1k - Cash
$750 - Cost of goods sold

Credit (right)
$1k - Sales revenue
$750 - Inventory

Question 17

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

Answer 17

Debits (left)
$60k - Accounts receivable
$45k - Cost of goods sold

Credits (right)
$60k - Sales revenue
$45k - Inventory

Question 18

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

Answer 18

Debits (left)
$200k - Cash

Credits (right)
$200k - Advances from customers

Question 19

Different ways to disaggregate ticket revenues

Answer 19

• Seating location (section, row, seat)
• Method of sale (sales rep, online, mobile, walk up, back office)
• Ticket type (full season, partial season, group)

Question 20

Variable pricing

Answer 20

• Ticket prices set in advance of on-sale

- Major variations are by seat and by game tier

Question 21

Dynamic pricing (airline pricing)

Answer 21

• 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

Question 22

NBA revenue sharing

Answer 22

• 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

Question 23

NFL revenue sharing

Answer 23

• 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

Question 24

MLB revenue sharing

Answer 24

• 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

Question 25

NHL revenue sharing

Answer 25

- 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

Question 26

NBA salary cap

Answer 26

- Soft cap - exceptions allow teams to go over - Cap and floor - Guaranteed player contracts

Question 27

NFL salary cap

Answer 27

- Hard cap - Salary floor - Non-guaranteed player contracts

Question 28

MLB salary cap

Answer 28

- Soft cap | - Guaranteed player contracts

Question 29

NHL salary cap

Answer 29

- Hard cap

Question 30

What are budgets?

Answer 30

- 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

Question 31

Budget hierarchies

Answer 31

1. Line items 2. Departments 3. Divisions 4. Companies

Question 32

Zero-based budgeting

Answer 32

All budget dollars are requested every year and then budgeted for if approved

Question 33

Historical growth budgeting

Answer 33

Budgets are set based on prior years’ spend and historical trends

Question 34

What are forecasts?

Answer 34

Updates to the budget that are more frequent that annually

Question 35

Direct expenses

Answer 35

An expense that directly relates to a specific segment of the business operation For example, raw materials such as leather to product footballs

Question 36

Indirect expenses

Answer 36

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)

Question 37

Return on investment

Answer 37

Profitability of a specific investment or project | ROI = (Gain from investment - Cost of investment) / Cost of investment

Question 38

Present value

Answer 38

Time value of money - a dollar today is better than a dollar tomorrow

Question 39

Net present value

Answer 39

Difference between the present value of the future income and the required investment NPV = PV - RI (required investment)

Question 40

Internal rate of return

Answer 40

An organization's required return rate for a project (a hurdle rate) IRR shows the rate of return when NPV = 0

Question 41

Payback period

Answer 41

Determines how long it will take a company to earn its money back on an investment

Question 42

Net working capital

Answer 42

= Current assets - current liabilities

Question 43

Working capital ration (or current ration)

Answer 43

= Current assets / current liabilities

Question 44

Quick ratio

Answer 44

= (Cash + short term investments + accounts receivable) / current liabilities

Question 45

Debt to equity

Answer 45

= Total liabilities / Total equity

Question 46

Return on assets

Answer 46

= Net profit / total assets

Question 47

Inventory turnover

Answer 47

= Cost of goods sold / inventory

Question 48

Accounts receivable turnover

Answer 48

= Sales / Accounts receivable

Question 49

Compound annual growth rate (CAGR)

Answer 49

Determines the ANNUAL growth rate

Question 50

PMT

Answer 50

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

Question 51

Elasticity of demand

Answer 51

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

Question 52

Break even point

Answer 52

Level of revenue that exactly matches the level of expense (Price x Unit sales) - (COGS x Unit sales) - Fixed costs = 0