Exam 1 Review Notes

1. Exam 1 Review Notes Chapter 1 I. Introduction Structure of Production Agriculture Trend toward fewer but larger farms Contributing Factors: 1. Labor-saving technology 2. Good employment opportunities outside of agriculture 3. Farmers and ranchers aspiring to standards of living comparable to non-farm families

2. 4. Some technologies available only to large size farms 5. Specialization Information Technology More information More reliable and easier to use Financial Management More competition for capital (will require better financial reporting and planning) Less emphasis on resource ownership (more emphasis on resource use rights)

3. Human Resources More like other industries Consumers Dictate Products Vertical coordination Niche markets Environmental and health concerns

4. Chapter 2 A. What is management? B. Goals or objectives 1. Some common goals

5. C. Functions of Management 1. Planning-Steps in the process 2. Implementation 3. Control Management Information and Asset Value 1. Valuing Assets a. Market value b. Cost c. Lower of cost or market d. Farm production cost e. Cost less depreciation

6. 2. Depreciation a. Purposes of depreciation b. Terminology c. Methods for calculating depreciation II. Tools of Financial and Business Analysis Chapter 5 A. Balance Sheet and It’s Analysis 1. Definition 2. Balance Sheet Categories a. Asset b. Liability c. Net Worth (owner’s equity) N.W.=A-L

7. 3. Classification of Assets and Liabilities a. Current assets b. Non-current assets c. Current liabilities d. Non-current liabilities 4. Net Worth a. Amount of wealth remaining if all assets are sold and liabilities paid b. Will change if: c. Will not change when: 5. Balance Sheet Analysis a. Purpose b. Liquidity

8. c. Solvency 6. Measures of Liquidity a. Current ratio b. Working capital 7. Measures of Solvency a. Debt/Asset ratio b. Equity/Asset ratio c. Percent equity 8. Cost or market basis balance sheet? Chapter 6 B. Income Statement and It’s Analysis 1. Definition

9. 2. Categories of revenue 3. Categories of expenses a. Cash expenses b. Non-cash expenses c. Expenses may also be classified as fixed or variable 4. Cash Vs. Accrual accounting 5. Income Statement Analysis a. Net farm income b. Rate of return on assets c. Rate of return on equity d. Operating profit margin ratio e. Return to labor and management

10. f. Return to labor g. Return to management h. Changes in Owners Equity Chapters 7 & 8 Production levels and input and output combinations 1. The production function-TPP, APP, MPP, MVP, MIC, MR, MC, and the profit maximization decision rules 2. Least cost combinations-substitution and price ratios 3. Enterprise combinations-supplementary, complementary, and competitive enterprises

11. Chapt. 9. Cost concepts 1. Opportunity cost 2. Short & long run 3. Fixed and variable components 4. Average fixed & variable costs - long run average cost 5. Decision rules regarding how much to produce

13. 4. TRUE (T) - FALSE(F) (2 Points each) A.________ Owner’s equity = assets - liabilities. B. ________ The current ratio is a measure of Solvency. C. ________ Net farm income less family living expenses, taxes and other withdrawals = returns to equity.