Boston Celtics Inc. Case Study Essay, Research Paper
Boston Celtics, Inc. Case Study
Business Strategy Analysis
The National Basketball Association ( NBA ) is the lone professional hoops conference in the U.S. However there are 23 franchises ( member squads ) that are all in competition with each other. Boston Celtics, Inc. is one of the 23 franchises in the NBA. There are, both, high degrees of competition and a high degree of hazard involved with these franchises.
It is difficult to come in into this industry due to some hard barriers that a new franchise would necessitate to look at if they wanted to come in this industry. The 23 bing squads are located in 23 major U.S. metropoliss. A new franchise would hold to be strategically placed. They would necessitate to look at population in the country, geographic part, market stableness, and possibly telecasting evaluations to see the popularity of the athletics in the specified part. Another barrier, to get the better of rejection into the industry, is the high fixed costs of running a squad. Fixed costs include wages of the participants and managers because they receive contracts of one or more old ages in length. There are besides high variable costs. Because of the high fixed and variable costs, the barriers that a new franchise would hold to get the better of are high.
Since the squad and participants are the merchandise, there is non much opportunity of merchandise distinction. Each squad has to hold the same ordinances and features to go a portion of the NBA. However, there can be high degrees of distinction in the participants, their public presentation, and the quality of their drama. Besides under distinction, such features as image, visual aspect, and repute would stand out.
For Boston Celtics, Inc. the pricing schemes were really structured. For the regular season place games, ticket gross revenues ranged from $ 8.00 to $ 23.00 per game in the 1985-86 season. In the 1986-87 season, tickets ranged from $ 9.00 to $ 26.00. Home games were held at the Boston Gardens. The mean ticket in the 1985-86 season was $ 16.72, and the mean ticket for the 1986-87 season was projected to be $ 18.49. Other net income drivers include the gross revenues of sweatshirts, shirts, chapeaus, hoopss, and other ware with the squad insignia on them.
Accounting Analysis
There are several fiscal statements offered in this instance survey. They are Balance Sheets, Statements of Operations, and Statements of Cash Flows. The three fiscal studies gave sufficient information for the fiscal analysis that follows in the following portion of the instance survey. There is besides sufficient information for the organisation as a whole and it & # 8217 ; s accounting policies. Boston Celtics, Inc. was faced with the determination of whether to take portion in a partial sale of the franchise. The franchise & # 8217 ; s policies listed in the instance survey are Revenue and Cost Recognition, Player Acquisition Costs, National Basketball Association Franchise, Media and Other Contracts, Equipment and Improvements, Pension Costs, Income Taxes, and so Financial Statements.
Grosss and costs are recognized in the fiscal statements provided. Revenues consist of ticket gross revenues and telecasting and wireless broadcast medium fees, and the costs consist of participant and managers & # 8217 ; wages, game costs, fringe benefits and insurance, sphere leases and travel, NBA attending appraisals, promotional costs, general and administrative costs, and amortisation. The NBA Franchise is amortized on a straight-line method over a 40-year period. Player acquisition costs are foremost estimated at just market value for the participant contracts. They are amortized on the straight-line method, whether acquired from the bill of exchange or another squad. Equipment and betterment are recorded at cost, and depreciation and amortisation are estimated over the utile lives of the assets. Media and other contracts are recorded at just market value. They are besides amortized on a straight-line method depending on the specific footings of the contract. They are calculated on an accelerated method instead than a straight-line method. Pension costs are amortized on a 30-year period and funded as accrued. Income revenue enhancements by the company were provided for federal and province based on income recorded for fiscal statements & # 8217 ; intents until 1985. The statement of operations merely showed figures from September 27, 1983 to June 30, 1984 because it was tantamount to a full twelvemonth & # 8217 ; s operations that included all grosss for such a twelvemonth. There were certain fiscal statements non given that may hold been helpful to analyze the company more exhaustively. They were non needed to demo the contemplated settlement of Boston Celtics, Inc. The Financial records given showed inside informations refering to assets and liabilities as to where the money was spent or to be spent. Detailss about deferred grosss and costs were besides given. Furthermore, inside informations were besides given on an earning footing and hard currency footing.
Fiscal Analysis
Assetss 1985 1986
Current Asset Turnover 10.33 7.2
Working Capital Turnover -10.76 -10.56
Current plus turnover and on the job capital turnover both show how many dollars of gross revenues the Boston Celtics, Inc. is able to bring forth for each dollar invested in current assets and working capital. The current plus turnover ratio shows that Boston Celtics, Inc. did non better as it went from 10.33 down to 7.2 within one twelvemonth. The on the job capital turnover ratio is up by about.2. It is still in the negative and betterment demands to go on by either bettering gross revenues or diminishing current liabilities.
Histories Receivable Turnover 11.24 18.34
Histories Collectible Turnover.14.13
Histories receivable and collectible turnover ratios show how the on the job capital is being used in a productive mode. The histories receivable turnover ratio increased from 1985 to 1986 because gross revenues increased for the twelvemonth, and histories receivable decreased from 1985 to 1986. The histories collectible turnover ratio decreased from 1985 to 1986. The lessening was due to a larger addition in purchases instead than an addition in histories collectible from 1985 to 1986.
Current Ratio.51.59
Cash Ratio.13.30
Quick Ratio.60.53
The above ratios measure the franchise & # 8217 ; s ability to refund the current liabilities with their short-run assets. The current ratio compares current assets to current liabilities. The addition from 1985 to 1986 shows an addition in both current assets and current liabilities. The hard currency ratio reveals that there was a lessening from 1985 to 1986 due to an addition in hard currency and short-run investings as compared to an addition in the current liabilities. The speedy ratio increased from 1985 to 1986 due to the same grounds the hard currency ratio decreased, but at that place was a lessening in histories receivable.
Operating Cash Flow Ratio 1.70 1.68
This ratio shows that their ability to bring forth the resources needed to refund their current liabilities decreased. This was because of a larger addition in the hard currency flow from operations versus the addition in current liabilities.
Capital Structure 1985 1986
Liabilities-to-Equity Ratio 17.77 1.57
This ratio shows a lessening from 1985 to 1986, which is due to a larger addition in entire liabilities versus the addition in stockholder & # 8217 ; s equity.
Debt-to-Equity Ratio 23.24.77
This ratio shows how many dollars of debt funding they used for each dollar invested by their stockholders. Because there was no long-run debt, there was an tremendous lessening from 1985 to 1986.
Debt-to-Capital Ratio.70.43
This ratio gives the proportion of debt in the entire capital of the company. This lessening is a consequence of non holding any long-run debt in 1986, as antecedently stated.
Equity-to-Capital Ratio.03.39
This ratio shows an addition from 1985 to 1986 due to a little addition in entire capital and an addition in entire stockholder & # 8217 ; s equity.
Interest Coverage.47 -7.43
This ratio shows that the dollars of net incomes available for each dollar of needed involvement payment drastically decreased from 1985 to 1986. Both old ages have figures below 1, which shows that the company is hardly covering their involvement disbursal through operating activities in 1985 and non at all in 1986. This is a bad mark for the company. Because of the lessening there is no shock absorber to run into their involvement duties.
Net income Margin 1985 1986
Return-on-Equity 1.84.93
This ratio shows a lessening, which means that the proprietors, or direction, are non apportioning the invested financess from stockholders good. This ratio is normally the starting point for an analysis of a company & # 8217 ; s public presentation, this peculiar ratio shows that Boston Celtics, Inc. is enduring.
Return-on-Assets.05 3.6
This ratio compares the net net income border or return on gross revenues versus the assets turnover. This addition reveals that they were able to bring forth more net income per dollar of assets invested in 1986 compared to the old twelvemonth.
Regular season grosss increased in 1986 from 1985 as shown in the fiscal statements. Ticket gross revenues, telecasting and wireless grosss, and other grosss increased from 1985 to 1986. Costss were besides lifting from 1985 to 1986. In some countries, additions in grosss were non adequate to cover some short-run liabilities that accrued up to 1986.
Forecasting Analysis
The proprietors are interested in selling portion of the franchise, but they want to maintain their control over the franchise. The Celtics would profit from a Maestro Limited Partnership ( MLP ) . This would still let the original proprietors to maintain ownership and control over the franchise. MLP & # 8217 ; s offer limited liability to the limited spouses, denial of direction, and personal revenue enhancement rates. If the proprietors of the franchise decided to follow through with selling a portion of the franchise, they would still hold a bulk ownership of 60 per centum. The ratios in the above fiscal analysis are strong indexs that it would be good to the franchise to allow new investors help take portion in bettering the pecuniary Numberss for Boston Celtics, Inc.
The addition in net incomes is good. Ticket monetary values were raised each twelvemonth, and demand was at a high. This was a consequence of the Celtics holding a victorious repute. They had a back-to-back tally of 270 place games being wholly sold out, make fulling the Garden & # 8217 ; s 14,890 seats. This information would be utile to portion with investors upon advancing the partial sale of the company. They brought up the fact that some of their short-run debt had already been paid off, in attempts to increase the attraction of their sale to investors.
The success of the franchise to a great extent weighed on the success of the squad. With that in head, the company would look to be a hazardous investing. So, they offered more suggestions about how they would maintain afloat. They wanted to seek a new accounting system, which would be $ 220,000 plus an estimated amortisation over five-years and one-year operating costs. The cost of the new system was highly high and was hence non really good information.
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