Final Exam 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
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)
Human Resources
More like other industries
Consumers Dictate Products
Vertical coordination
Niche markets
Environmental and health concerns
Chapter 2
A. What is management?
B. Goals or objectives
Some common goals
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
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
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
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
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
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
Chapter 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
Chapter 10
Enterprise Budgeting
1. What an enterprise budget is and purposes for
which it may be used?
2. Parts and structure
3. Know how to do break-even analysis from an
enterprise budget.
4. Know how to use budgets to estimate maximum
land rents, and “returns to ---” and “returns over ---”.
Chapter 11
Partial budgeting
1. What it is and purposes for which it is used?
2. Components, organization, and structure?
3. Be able to develop one for a simple problem.
Chapter 13
Cash Flow Budgeting
1. What it is?
2. What is it used for?
3. Structure?
Chapter 14
Forms of Business Organization
A. Major forms of business organization
For each know something about the following:
1. Organization and characteristics
2. Advantages
3. Disadvantages
Chapter 15
Managing Risk and Uncertainty
1. Sources of risk and uncertainty
production - technical, marketing - price, financial,
legal, and personal
2. Risk bearing ability and attitude
3. Forming expectations
Most likely; averages-simple, weighted
4. Measuring variability
Range, variance, standard deviation, coefficient
of variation, cumulative distribution function
5. Decision making under risk
Decision tree, payoff matrix, decision rules
6. Tools for managing risk
Production, market, financial risk
Chapter 17
Investment Analysis
1. Know the definitions, uses, and how to determine
or calculate:
Present value, net present value, internal rate of
return, discount rate, financial feasibility, economic
feasibility.
2. Know the role of time value, inflation, and risk in
determining an appropriate discount rate.
Chapter 19
Capital and the Use of Credit
1. What is capital and what are it’s sources?
2. What is credit?
3. Know what the cost of capital is?
4. Know how to decide how much capital to use?
5. Know what leverage is and how it is measured?
6. Know
definition/description/advantages/disadvantages for
types of loans by length, use, security, and
repayment plan.
7. Know
definition/description/advantages/disadvantages for
sources of loan funds.
Chapter 20
Land -- Control and Use
Know the advantages and disadvantages of
ownership, cash leasing, and share leasing.