Exam #2 Flashcards
The purpose of a _____________ is to measure the financial position of a business at any time through solvency and liquidity.
Balance Sheet
__________ measures the liabilities of a business relative to the amount of owner equity invested.
Solvency
Provides indication that all debts can be paid if the business sold.
Solvency
If the business is _____________, it is bankrupt.
Insolvent
_____________ measures the ability to meet financial obligations when they come due without disrupting the flow of business.
Liquidity
______ measures the ability to generate cash in the amounts at the time it is needed.
Liquidity
Liquidity/Solvency is a short-run concept.
Liquidity
Liquidity/Solvency is a long-term concept.
Solvency
Can you be liquid, but not solvent?
Yes
Can you be solvent but not liquid?
Yes and no.
________ can be sold to generate cash and used to produce other goods that in turn can be sold for cash in the future.
Assets
Assets that can be used up, sold, or converted to cash in the next year as a normal part of business activities.
Current Assets
The most important liquid of all assets
Current Assets
___________ assets is where revenue is made
Current Assets
___________ assets are light outputs.
Current.
___________ assets are inputs.
Noncurrent
___________ assets are any assets that are not classified as a current asset.
Noncurrent.
Piglets, hay, feed, calves, nails, are __________ assets.
Current
Land, home, and breeding stock are ____________ assets.
Noncurrent
An obligation/debt owed to someone else is a _____________.
Liability
An outsider’s claim against 1 or more of the business’s assets is a ____________.
Liability
Financial obligations that will become due and payable within 1 year from the date of the balance sheet is a ___________ liability
Current
________________ is a short-term issue.
Current liability
All obligations that do not have to be paid in full within the next year are __________ liabilities.
Noncurrent
Liability that is typically a debt due in 1-10 years is an ____________ liability.
Intermediate
A debt due in 10+ years is a ________________ liability
Long-term.
_____________ represents the amount of money left for the owner of the business should that asset be sold and all liabilities paid as of the date of the balance sheet.
Owner Equity
_____________ = Net Worth
Owner Equity
Owner Equity is also known as: ___________
net worth
T/F - Owner equity can change due to profit or loss.
True
T/F - Owner equity can be changed using assets to produce crops and livestock?
True
Changes in the composition of assets and liabilities always cause a change in owner equity
False
_________ sets inventory and is valued to current market price.
Market Value
Valued at original cost.
Cost
__________ is valued at both cost and market value.
Lower of Cost or Market
Purpose of a ______________ is to obtain measures of the financial position and strengths of the business: liquidty, solvency, and other financial performance.
Balance Sheet
T/F - Liquidity is usually measured over the next accounting periods.
True
T/F - Liquidity concentrates on noncurrent assets and noncurrent liabilities.
False
T/F - Liquidity concentrates on current assets and current liabilities.
True
________________ = Current Asset Value / Current Liability Value
Current Ratio
T/F - With Current Ratio, a value less than one is ideal.
False
T/F - In Current Ratio, a value greater than 1 is ideal.
True
__________ measures liquidity using a dollar ($) amount.
Working Capital
___________ = Current Assets - Current Liabilities
Working Capital
Working Capital = ____________ - __________
Current Assets - Current Liabilities
T/F - When analyzing solvency, we measure the relative relations among total assets, total liabilities, and equity, which include non-current terms.
True
T/F - When assets are less than liabilities, the business is solvent.
False
T/F - When assets are greater than liabilities, the business is solvent.
True
____________ measures what part of total assets is owed to lendors.
Debt/Asset Ratio
__________ = Total Liabilities / Total Assets
Debt/Asset Ratio
Debt/Asset Ratio = ____________ / __________
Total Liabilities / Total Assets
__________ measures what part of total assets is financed by the Owners Equity Capital
Equity/Asset Ratio
T/F - Equity/Asset Ratio measures what part of total assets is financed by the Owners Equity Capital.
True
Equity/Asset Ratio = ___________ / ___________
Total Equity / Total Assets
________________ = Total Equity / Total Assets
Equity/Asset Ratio
Debt/Equity Ratio = __________ / __________
Total Liabilities / Owner Equity
___________ = Total Liabilities / Owner Equity
Debt/Equity Ratio
AKA: the leverage ratio
Debt/Equity Ratio
__________ compares the proportion of financing provided by lenders with that provided by the owner.
Debt/Equity Ratio
T/F - Not all cash receipts are revenues.
True
T/F - Gift/Inheritance is a revenue
False
T/F - All cash receipts are revenues.
False
T/F - Gift/Inheritance is NOT a revenue.
True
T/F - A loan from the bank is NOT a revenue.
True
T/F - A loan from the bank is a revenue.
False
T/F - Non-farm income is not a revenue.
True
T/F - Non-farm income is a revenue.
False
T/F - Expenses can be cash or noncash.
True
T/F - Expenses can only be cash.
False
Depreciation, accounts payable, accrued interest, and other accrued expenses are _________ expenses.
Noncash
T/F - Not every expenditure of cash is a business expense
True
T/F - Every expenditure of cash is a business expense.
False
T/F - Clothes, gifts, etc., cannot be listed as an expense.
True
T/F - Expenses on an income statement consist of only business expense items required to produce agricultural commodities and services.
True
The “O” in NFIO stands for ___________
Operations
_________ is concerned with the size of the profit relative to the size of the business, or the value of resources used to produce the profit.
Profitability
T/F - A business can show a profit but have poor profitability rating if this profit is small relative to the size of the business.
True
_________ is the amount by which revenue exceeds expenses plus any gain or loss on the sale of capital assets.
Net Farm Income
T/F - NFIO and NFI can be the same.
True
T/F - NFIO and NFI can NEVER be the same.
False
Why can NFIO and NFI sometimes be the same?
Because we do not sell/make/lose money on the sale of capital assets.
T/F - Net Farm Income is a true measure of profitability
False
T/F - Net Farm Income is NOT a true measure of profitability
True
____________ = Revenue - Expenses = NFIO +/- Gain/Loss = NFI
Net Farm Income
T/F - On a Return of Assets formula, you want a high %.
True
T/F - On a Return on Assets, you want a low %.
False
__________ = Return of Assets / Average Farm Asset Value X 100%
Return on Assets
T/F - Balance Sheet is a period in time.
False
T/F - Balance sheet is a point in time.
True
T/F - Income Statement is a period in time.
True
T/F - Income Statement is a point in time.
False
_____________ is the return on the owner’s share of the capital invested.
Rate of Return on Equity
___________ = Return of Equity / Average Equity X 100%
Rate of Return on Equity
T/F - On Operating Profit Margin Ratio (OPMR), a higher value means more profit per dollar of revenue.
True
_________ = Operating Profit / Total Revenue X 100%
Operating Profit Margin Ratio
Operating Profit Margin Ratio = _____________ / ___________ X 100
Operating Profit / Total Revenue
Rate of Return on Equity = ______________ / _____________ X 100
Return of Equity / Average Equity
Return on Assets = __________________ / ___________ X 100
Return of Assets / Average Farm Asset Value
An ______________ is an estimate of the combination of inputs that can achieve the optimal level of output per unit of enterprise.
Enterprise Budgets
___________ is an individual crop or type of livestock.
Enterprise
A related portion of a business that can be treated as a unit
Enterprise
T/F - The primary purpose of a enterprise budget is to estimate the projected cost, returns, and profit for the enterprise.
True
T/F - Operating Profit Margin Ratio can be found at the local county extension agents to represent “typical” situations.
False
T/F - Enterprise budgets can be found at the local county extension agent’s office to represent “typical” situations.
True
T/F - All expenses must be estimated on a per-unit charge in an enterprise budget.
True.
________ include only costs that will be incurred if the enterprise is actually done.
Operating Expenses
T/F - Ownership expenses are variable expenses.
False
T/F - Ownership expenses are fixed expenses.
True
T/F - Operating expenses are fixed expenses.
False
T/F - Operating expenses are variable expenses.
True
T/F - Fixed assets shared with other enterprises must be pro-rated for each enterprise they support.
True
__________ are costs that would exist whether or not the enterprise is operated.
Ownership Expense.
Two main analyses on an enterprise budget?
Cost of Production Analysis and Breakeven Analysis
