Final Exam Review NotesChapter 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 Liabilitiesa. Current assetsb. Non-current assetsc. Current liabilitiesd. Non-current liabilities

4. Net Wortha. Amount of wealth remaining if all

assets are sold and liabilities paidb. Will change if: c. Will not change when:

5. Balance Sheet Analysisa. Purposeb. Liquidity

c. Solvency6. Measures of Liquidity

a. Current ratiob. Working capital

7. Measures of Solvencya. Debt/Asset ratiob. Equity/Asset ratioc. Percent equity

8. Cost or market basis balance sheet?Chapter 6 B. Income Statement and It’s Analysis

1. Definition

2. Categories of revenue3. Categories of expenses

a. Cash expensesb. Non-cash expensesc. Expenses may also be classified as

fixed or variable4. Cash Vs. Accrual accounting5. Income Statement Analysis

a. Net farm incomeb. Rate of return on assetsc. Rate of return on equityd. Operating profit margin ratioe. Return to labor and management

f. Return to laborg. Return to managementh. Changes in Owners Equity

Chapters 7 & 8Production levels and input and output combinations

1. The production function-TPP, APP, MPP, MVP, MIC, MR, MC, and the profit maximization decision rules2. Least cost combinations-substitution and

price ratios3. Enterprise combinations-supplementary, complementary, and competitive enterprises

Chapter 9Cost 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 14Forms 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.