Management in Sport - Part 1a: Introduction to Business Performance PDF

University of Ljubljana, School of Economics and Business Management in Sport - Part 1a: Introduction to Business Performance Prof. Tomaž Čater, Ph.D. Management in Sport Part 1a: Introduction to Business Performance...

University of Ljubljana, School of Economics and Business Management in Sport - Part 1a: Introduction to Business Performance Prof. Tomaž Čater, Ph.D. Management in Sport Part 1a: Introduction to Business Performance Business Performance The basic goal of a company is to be successful → three concepts that are directly related to performance – tying up the business elements the company must acquire business elements – buying the business elements means the money is tied up value result of tying up → balance sheet (moment) – spending business elements in the business process, we use business elements to create products – the business elements are being spent the value result of spending are costs → income statement (period) – selling the products/services at the end of the business process we sell the products value result of sales are revenues → income statement (period) Prof. Tomaž Čater, Ph.D. 1 Management in Sport Part 1a: Introduction to Business Performance Balance Sheet Prof. Tomaž Čater, Ph.D. 2 Management in Sport Part 1a: Introduction to Business Performance Balance Sheet Book and market value of the company – book value = value of all business assets as shown in the balance sheet – market value = value of the company on the market (how much would you get for all shares or for a 100% share in the company if you wanted to sell it) – usually: market value > book value – why? there are unrecognized assets (brand, long-term contracts, top employee knowledge) → this is clearly seen in mergers and acquisitions Prof. Tomaž Čater, Ph.D. 3 Management in Sport Part 1a: Introduction to Business Performance Current Assets They are a short-term (less than 1 year) tied up part of the company’s assets, which are constantly turning in the course of business and moving from one form to another The forms of current assets in a typical business process INVENTORIES OF INVENTORIES OF UNFINISHED PRODUCTS RAW MATERIALS CASH INVENTORIES OF FINISHED PRODUCTS ACCOUNTS RECEIVABLE Prof. Tomaž Čater, Ph.D. 4 Management in Sport Part 1a: Introduction to Business Performance Non-Current Assets They are a long-term (more than 1 year) tied up part of the company’s assets, which gradually transfer their value to products/services through depreciation and amortization Typical tangibles – property – plant – equipment – less typical (e.g. farming): plantations, breeding livestock Typical intangibles – goodwill – patents – licenses – other industrial property Valuation – carrying val. = cost val. – sum of depreciation/amortization Prof. Tomaž Čater, Ph.D. 5 Management in Sport Part 1a: Introduction to Business Performance Income Statement (Single vs. Multi Step) Prof. Tomaž Čater, Ph.D. 6 Management in Sport Part 1a: Introduction to Business Performance Revenues Definition = are the sales value of products or services created by a company through its operations over a period of one year Types of revenues – operating vs. non-operating (interest, others) Revenues and receipts – revenues increase a company’s profits – receipts increase a company’s cash position – revenues and receipts are usually related revenues become receipts (deferred payment) revenues are immediate receipts (payment in cash) receipts becomes revenues (payment in advance) – there is sometimes no link between revenues and receipts receipts that are not revenues (loan) revenues that are not receipts (stock surplus) Prof. Tomaž Čater, Ph.D. 7 Management in Sport Part 1a: Introduction to Business Performance Expenses Definition = are the costs relating to the products sold over a period of one year Types of expenses – operating vs. non-operating (interest, others) Expenses and expenditures – expenses reduce a company’s profits – expenditures reduce a company’s cash position – expenses and expenditures are usually related expenditures become expenses (payment for the material immediately) expenses become expenditures (payment for material later) – there is sometimes no link between expenses and expenditures expenses that are not expenditures (written off receivable) expenditures that are not expenses (purchase of land) Prof. Tomaž Čater, Ph.D. 8 Management in Sport Part 1a: Introduction to Business Performance Income Statement Definition of an absolute business success → profit or loss = the difference between revenues and expenses Profit/loss flow (income statement) vs. cash flow (cash flow statement) – profit/loss flow: revenues and expenses indicates a company’s absolute business success – cash flow: inflows (receipts) and outflows (expenditures) indicates a company’s liquidity and solvency (ability to settle overdue liabilities) – can a company be successful but illiquid or insolvent and vice versa? Prof. Tomaž Čater, Ph.D. 9 Management in Sport Part 1a: Introduction to Business Performance Business Performance Conception – the key to successful business is successful management of economic goods in a company (rarity of goods) – basic management principle = mini-max principle to achieve maximum result with the given resources to achieve given result with the minimal use of resources Performance in general = benefits / sacrifices Business performance = result / assets – result = measured quantity (e.g. profit) → income statement – assets = criterion for measuring the result (e.g. total assets, stockholders’ equity) → balance sheet Difference between absolute performance (profit/loss) and relative performance (e.g. ROA, ROE, productivity) Prof. Tomaž Čater, Ph.D. 10 Management in Sport Part 1a: Introduction to Business Performance Business Performance Due to problems with expressing the result and assets, the measure of relative business performance cannot be expressed uniformly → it is expressed by several partial performance indicators, where profitability is the most comprehensive measure of success in a market economy Two aspects of profitability – aspect of the owner → return on equity Net income (after taxes) ROE = —————————— Average equity – aspect of the whole company → return on assets Income before taxes ROA = ———————— Average assets Prof. Tomaž Čater, Ph.D. 11 Management in Sport Part 1a: Introduction to Business Performance Business Performance Relationship between profitability and some partial performance measures (DuPont’s system of related indicators) → return on assets (ROA) increases if – revenues-to-expenses ratio increases (revenues increase relatively more than expenditures) (c. p.) – labor productivity increases (c. p.) – the equipment of work with assets decreases (c. p.) Income Revenues – Expenses 1 ———— ————————— 1 – ——————————— Revenues Revenues Revenues-to-expenses ratio Income × × ROA ——— × Revenues Assets ——————————— Labor productivity Avg. number of employees Revenues ———— × × Assets Avg. number of employees 1 ——————————— ————————————— Assets Equipment of work with assets Prof. Tomaž Čater, Ph.D. 12