Chapter 2academic.luzerne.edu/tmchugh/COM204/PDFs/COM 204...Importance of Financial Statements •...
Transcript of Chapter 2academic.luzerne.edu/tmchugh/COM204/PDFs/COM 204...Importance of Financial Statements •...
Chapter 2
FINANCIAL MANAGEMENT
Manager Evaluation
• Success of a manager is judged by the profit
return he is able to produce
– Return on Investment (ROI)
– Excess of revenue over expenses
Fiduciary Responsibility
• Stations finances are his/her direct
responsibility
– cannot delegate responsibility
– must take charge of operating budget
– control income and expenses
– financial forecasting and planning
COMPETITIVE
ENVIRONMENT
• Manager must be aware of the forces that
effect the stations ability to make a profit
• The Industry
• The Competition
• The Government
• Unions
• Advertisers
• The Public (Social Forces)
• Technology
• The Economy
THE BOTTOM LINE
Programming Audience Sponsor Profit
QUANTIFY
• Manager must quantify financial effects of a
decision
– Proper balance between facilities improvement
& contribution to profit.
ACCOUNTING
• Recording, classifying & summarizing
business transactions, as well as interpreting
this compiled information to permit
informed judgements and decisions.
LIKE WHAT?
• How much cash is on hand (Liquid assets)
• How much do customers owe? How much do we
owe ?
• What were our sales last year? Last Month? Last
Quarter?
• What does it cost to produce an hour of local
programming?
• What is our profit or loss and what is the trend?
• What items of value does the business own?
BUSINESS MANAGER
• usually in charge of financial operation
• supervises all accounting
• maintains internal control procedures
• determines policy of extending credit to
customers
• collaborates on rate card structure
Financial Record Keeping Process
Journals
• Cash Receipts - identifies payer & type of acct.
• Cash Disbursement - all money paid out
(including expense category)
• Sales Journal - Records all advertising sales • name of client
– contract number
– date & amount
– name of acct. executive
LEDGERS
– Accts. Receivable - All monies owed
• name / date / delinquent
– Accts. Payable - all account (Short & Long Term)
– Payroll Ledger - all payroll disbursements
– General Ledger - all transaction (usually posted
monthly)
• Used to prepare financial statements
Balance Sheet
• A financial statement that shows the assets,
liabilities and equity of a business, at a
certain period of time.
BALANCE EQUATION
• ASSETS - Anything you own
• LIABILITIES - Anything you owe
• OWNERS EQUITY - Anything that’s left
• Assets = Liabilities + Owners Equity
(A=L+OE)
• Assets-Liabilities = Owners Equity
– (A-L=OE)
ASSETS
• Things owned by the company
– Cash
– Property / land / building
– inventory
– Intangibles - license / copyrights / trademarks
Current & Fixed Assets
• Current - either cash or capable of being
turned into cash or used up within one year.
• Fixed - Assets with a degree of permanence
– intended for use rather than re-sale
• also called “Plant Assets”
Normal Station Assets
• Property, Plant, equipment
• Ownership of certain broadcast rights (owned but not used)
• Good Will (ex. Selling price over value of assets)
– reputation / audience / community image / network
affiliation
• Other Assets
– salaries – prepaid expenses (taxes, insurance, rents)
– cash investments
– accounts receivable
LIABILITIES
• Claims of creditors on the assets of a business
including all debts owed by the company.
– Loans / interest due on notes / mortgages
– retirement plans
– taxes
– commissions
• Current Liabilities - Payable in less than a year
• Long Term - Payable in more than a year
NORMAL STATION EXPENSES
• Programming - broadcast fees, license fees, new
wire, shipping, phone, power, wages
• Engineering - parts and maintenance, rental
charges (land, power), equipment
• Sales Expense - PR, advertising/marketing,
promotion. Rating service, commissions
• Salaries are the highest expense item in Dept.
Owners Equity
• Also known as stock holders equity
• Whatever is left over from assets once debts are
paid
• Financial interest of the station’s owners
Basic Financial Statements
• Balance Sheet (A=L+OE)
• INCOME STATEMENT (Profit and Loss
Statement)
– A financial statement summarizing all of the
revenue and expense transactions that result in
a profit or loss over a period of time
– OR A statement of earnings reporting a firms
revenue, its costs to operate and its profits
during the year
CASE STUDY
• Owner invests $ 100,000 to buy a frequency &
Building
• Borrows $75,000 and invests $25,000 personally
– (millions of dollars)
WXYR-TV
Balance Sheet (as of September 30, 2013)
ASSETS:
Cash ……………………………. $ 8,000
Accts Receivable ………………. S 3, 500
Land & Building ……………….. $ 58,000
Intangibles …………………… $ 50,000
$119,500
LIABILITIES
Accounts Payable $ 12,000
Notes Payable (loan) $ 75,000
Taxes & Withholding $ 2,000
Other Liabilities $ 11,000
$100,000
Owners Equity $ 19,500
$119,500
(millions of dollars)
WXYR-TV
Balance Sheet (as of September 30, 2013)
ASSETS:
Cash ……………………………. $ 8,000
Accts Receivable ………………. S 3, 500
Land & Building ……………….. $ 58,000
Intangibles …………………… $ 50,000
$119,500
LIABILITIES
Accounts Payable $ 12,000
Notes Payable (loan) $ 75,000
Taxes & Withholding $ 2,000
Other Liabilities $ 11,000
$100,000
Owners Equity $ 19,500
$119,500
(millions of dollars)
Not enough liquid assetts to cover
current liabilities
Invested 100,000 but OE for
period is 19,500
WXYR-TV
Balance Sheet (as of September 30, 2014)
ASSETS:
Cash ……………………………. $ 4,000
Accts Receivable ………………. S 2, 500
Depreciable Assets……………… $ 50,610
Land ………….. ……………….. $ 10,000
Intangibles ……...……………… $ 23,000
$90,000
LIABILITIES
Accounts Payable $ 5,000
Notes Payable (loan) $ 80,000
Taxes /Capital Gains $ 8,000
$93,000
Owners Equity(Deficit) $ (3,000)
$ 93,000
(millions of dollars)
Importance of Financial
Statements
• Potential investors and owners of a business
depend on information contained in
financial reports
• info can be used to measure how effectively
the business is being operated
• Financial reports prepared at end of period
is the most reliable source of info on any
business.
WSPB-FM
Comparative Income Statement
Year Ending December 31, 2014
2013 2014
REVENUE 168,900 162,200
Technical Expenses 12,300 12,100
Program Expenses 48,200 47,600
Selling Expenses 29,400 28,100
G & A 67,500 63,900
EXPENSES 157,400 151,700
Income before taxes 11,500 10,500
Federal Income Tax 2,530 -------
INCOME 8970 8190
The Bottom Line (AGAIN!)
• If costs are greater than revenue - Negative
Profit (Loss)
• Excess of Income over expenses (Profit)
Accounting Terms
• Depreciation (Lower estimated value over
time)
• Amortization(gradual extinguishment
w/interest - loan or mortgage)
• Accrued Expense (Expense incurred but not
yet paid for
• Accrued Reserves (Revenue earned but not
yet collected)
OTHER TERMS
• Contingency Fund (Rainy Day)
• Capital Fund (Equipment)
• Gross (total Income)
• Net (After All expenses / taxes / etc)