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)