Exam 1 Review Questions

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School

Washington State University *

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Course

374

Subject

Finance

Date

Jan 9, 2024

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pdf

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2

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SPMGT 374 1 Review Questions Exam 1 I recommend using these questions to study for Exam One. Note that the exam will be composed of multiple choice and true or false questions. You will not do well if you try to memorize the answers to the review questions. Instead, you should aim to be able to explain why you answered the questions as you did. My favorite strategy for studying is to try and teach someone how to answer the questions: try it. Section One: Introduction to Sport Finance 1. Basics of financial management a. Define finance and how it differs from accounting. b. In what ways is financial management for sport organizations similar and different from organizations in other industries? c. Basic financial concepts: Identify the main sources of revenues and expenses of professional sport teams. Identify the highest costs and revenue sources of professional sport teams. 2. Financing methods a. Review the personal finance examples related to the home mortgage options and car loan options. b. Describe the five major ways of financing operations (including advantages and disadvantages of each of them). What are the differences between them? Which ones are unique to sport? Which ones would be the most appropriate to use to fund a new professional sport league (for which the sport is not quite popular in the US such as rugby)? 3. Team ownership structures a. Describe the models for franchise or team ownership. What are the differences between them? What are the advantages and disadvantages of each? b. Explain why major sport leagues in the US do not want their teams to be owned by the government, the community, and/or via publicly traded corporations. 4. League ownership structures a. Describe the models for league ownership. What are the differences between them? What are the advantages and disadvantages of each? Section Two: Financial Statements and Ratios Analyses 1. Balance Sheet, Income Statement, and Cash Flow Statement a. What is a financial statement? What is the standard companies must follow? What type of company is and is not required to report their financial statements to the public? b. Define and describe each of the three types of financial statement we reviewed in class. c. Explain the differences between these three major types of financial statements. d. Remember the important equations for the balance sheet and for the income statement.
SPMGT 374 2 e. List the types of things you would expect to find on each statement. What order should they appear? What is cash basis and accrual basis accounting and how might they influence how a financial statement is prepared? 2. Financial Ratios a. Why do we use financial ratios? b. Identify the financial ratios, explain what they measure and how they differ. c. Explain how you would interpret the results you obtain from each ratio. d. Remember the appropriate unit to be used for each financial ratio. e. What ratios are most important to make a decision about investing in a company? f. Make sure to understand the nuances of interpreting the price to earnings ratio. 3. Financial Ratios problems: a. Two sports apparel stores in Spokane have the following: Store 1 has current assets of $800,000, current liabilities of $1 million and no inventory. Store 2 has current assets $1.2 million, current liabilities of $900,000 and an inventory worth $130,000. Calculate the current and quick ratios for each company. Which one do you think is in a better financial position and why? b. If a company has total assets of $1 million and total liabilities of $400,000, what is its debt ratio? Would you feel that they are highly leveraged by debt? Is this good, bad, or would you need more information to make a full analysis? What else would you want to see? c. What is the net profit margin of Under Armour, if they have current assets of $2 million, current liabilities of $800,000, $250,000 in inventories, net profit of $1.1 million, and total revenues of $3.5 million? (Round to 2 decimal places) MORE DETAILS ABOUT THE EXAM: There will be 10 multiple choice questions about section 1 and 20 multiple choice questions about section 2. Each multiple choice question is worth 2 points. There will be 8 true/false questions about section 1 and 9 true/false questions about section 2. Each true/false question is worth 1 point. Exam 1 will take place during regular class time on Monday, September 25 th . You will have 50 minutes to complete this exam, so make sure to show up on time to take advantage of the full 50 minutes. You will be given a formula sheet that includes all the financial ratios equations and you will have to bring a calculator to class. You will not be allowed to use any electronics (smartphone, tablets, laptops) while taking the exam.
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