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section 2 - Flashcards

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Class:AGSC 3020 - Agribusiness Management
Subject:Agricultural Science
University:Southern Utah University
Term:Spring Semester 2011
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 OE=A-L  Assets (owned) = Liability (owed) + Owner Equity (owners share)
 Income statement  Profitability over a period of time
 Assets  Left or top of balance sheet
 Current assets  Used up or sold within one year as part of normal business activities  Examples- liquid assets (change to cash quickly),inventories of products, accounts receivable,
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 Non-current assets
 Intermediate assets  1-10 years of life
 Long term (fixed) assets longer than 10 years of life
 Current liabilities  Due and payable within one year  Examples: accounts payable, principle and interest payments, operating loans, taxes, accrued expenses
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 Intermediate liab.  Due in 1-10 years
 Long-term liab.  Greater than ten years
 Owner Equity  Current investment in business
 How does OE change? • Retained profit or loss • Capital added to the business • Capital withdrawn from the business
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 Types of balance sheets  Cost- basis  Market- basis
 Cost- basis  Includes cost, farm production cost, and cost less to accumulate depreciation  Exceptions: raised crops or livestock for sale • Use market value for exceptions
 Market- basis  Often greater than cost due to inflation and fast depreciation  Exceptions: (accounts receivable, prepaid expenses, established crops,)- valued as cost basis  More accurate reflection of financial condition and strong collateral for loans
 Liquidity • Ability to generate cash to meet financial obligations • Solvency  Current ratio= current assets/current liabilities  Indicator of relative safety margin  Greater than 1.0 desired
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  Debt- to –asset ratio= total liab/ total assets  Indicates proportion of asset value owed lenders – less than 1.0 desired
 Equity to asset ratio= total equity /total assets  indicates proportion of asset value financed by owned equity  greater is better maximum of 1.0
 debt to equity ratio = total liab./ total equity  compares proportion of financing from lender a to proportion from business owner smaller is better “leverage ratio”
 Debt structure ratio= current liab./ total liab  Indicates total liab that are due within a year
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  OE=A-L  Assets (owned) = Liability (owed) + Owner Equity (owners share)
  Income statement Profitability over a period of time
  Assets Left or top of balance sheet
  Current assets Used up or sold within one year as part of normal business activities
 Examples- liquid assets (change to cash quickly),inventories of products, accounts receivable,
  Non-current assets 
  Intermediate assets  1-10 years of life
  Long term (fixed) assetslonger than 10 years of life
  Current liabilities Due and payable within one year
 Examples: accounts payable, principle and interest payments, operating loans, taxes, accrued expenses
  Intermediate liab. Due in 1-10 years
  Long-term liab. Greater than ten years
  Owner Equity Current investment in business
  How does OE change?• Retained profit or loss
• Capital added to the business
• Capital withdrawn from the business
  Types of balance sheets Cost- basis
 Market- basis
  Cost- basis Includes cost, farm production cost, and cost less to accumulate depreciation
 Exceptions: raised crops or livestock for sale
• Use market value for exceptions
  Market- basis Often greater than cost due to inflation and fast depreciation
 Exceptions: (accounts receivable, prepaid expenses, established crops,)- valued as cost basis
 More accurate reflection of financial condition and strong collateral for loans
  Liquidity• Ability to generate cash to meet financial obligations
• Solvency

 Current ratio= current assets/current liabilities
 Indicator of relative safety margin
 Greater than 1.0 desired
   Debt- to –asset ratio= total liab/ total assets Indicates proportion of asset value owed lenders – less than 1.0 desired
  Equity to asset ratio= total equity /total assets indicates proportion of asset value financed by owned equity
 greater is better maximum of 1.0
  debt to equity ratio = total liab./ total equity compares proportion of financing from lender a to proportion from business owner smaller is better “leverage ratio”
  Debt structure ratio= current liab./ total liab Indicates total liab that are due within a year
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