AGRICULTURAL FINANCIAL MANAGEMENT - Exam 1 Study Guide (Sept 17, 2025)

Vocabulary-style flashcards covering key terms and definitions from the study guide notes.

Financial management

The planning, organizing, directing, and controlling of a firm’s monetary resources to achieve its goals, including investment decisions, financing decisions, and risk management.

Life cycle stages of a business firm

Start; Growth; Consolidation & maturation; Transfer.

Financial risk

Risk associated with the use of borrowing and leasing.

Business risk (in agriculture)

Risks arising from uncertainties in technology, price changes, personnel performance, and legal changes.

Common ground between financial and business risk

Both are risks that can affect value and the potential to fail or flourish a business.

Six steps in the strategic management process

1) Defining and developing a firm’s mission; 2) Formulating objectives; 3) Assessing the firm and evaluating the environment; 4) Building strategy; 5) Implementing strategy/operational plan; 6) Evaluating performance and implementing corrective actions.

Sources of information flow

Internet; Colleges of Agriculture; Government agencies; Communications agencies.

Main sources of loan funds in U.S. Agriculture

Government agencies; Commercial banks; Farm credit system; Life insurance companies.

Key components of agricultural finance

High technology use (precision agriculture, biotechnology, genetics); Information-intensive but relationship-driven financing; Dependence on global exports.

Bonus: risk in the strategic process

Risk is involved in implementing strategy because outcomes and durations are uncertain, requiring ongoing performance evaluation.

Cash basis accounting

An accounting method that facilitates tax management by shifting sales and expenditures across years.

Accrual accounting

An accounting method that measures and matches income earned and expenses incurred within an accounting period.

Financial statement

A formal record of a business’s financial activities and position over a specific period; used to assess and monitor financial position and progress.

Income statement

A statement summarizing revenue (receipts) and expenditures (costs) over a period.

Balance sheet

A systematic listing of a business’s assets and liabilities at a specific point in time.

Statement of owner's equity

Reconciles changes in retained earnings, contributed capital, and market valuation of assets.

Statement of cash flows

Summarizes cash inflows and outflows from operating, investing, and financing activities.

Liability

An obligation a business owes; example: a loan.

Current asset

Assets expected to be realized in cash or used within 12 months; example: cash.

Noncurrent asset

Assets that yield services over several years; examples: machinery & equipment, land.

Current liability

Obligations payable within 12 months; examples: accounts payable, notes payable.

Noncurrent liability

Obligations with a maturity greater than 1 year; example: noncurrent portion of notes payable on real estate assets.

Net worth

Total assets minus total liabilities.

Four parts of an income statement

Farm revenue; Farm expenses; Nonfarm adjustments; Income taxes.

Farm revenue

Revenue from cash receipts from sale of production, government payments, or increases in value of unsold items.

Farm expenses

Examples: seed, fertilizer, machinery repair, rent; grouped as cash operating expenses, noncash adjustments, and interest expense on farm loans.

Depreciation (general definition)

Allocation of the cost of a tangible asset over its useful life, reflecting the asset’s loss of value over time.

Straight-line depreciation formula

(Cost − Salvage value) / Useful life.

Double declining balance depreciation formula

2 / Useful life × Book value at start of year.

Sum of the year’s digits (SOTYD) depreciation formula

Depreciation for year t = (Remaining life in year t / S) × (Cost − Salvage), where S = N(N+1)/2 and N is useful life in years.

Purpose of statements of owner equity

Reconciles the change in net worth from one period to the next.

Two major components of owner’s equity changes

(1) Changes from retained earnings and contributed capital; (2) Fluctuations in market valuation.

Sections of the cash flow statement

Operating, financing, and investing activities.

Common uses of cash outflows

Pay operating expenses; Make capital investments; Reduce debt; Support family withdrawals; Pay income taxes; accumulate savings.

Most liquid asset

Cash.

Pro forma statements

Accounting information set up in advance to project impacts of events on profitability (income statement) or financial position.

Pro forma cash flow vs actual cash flow

Pro forma cash flow is a projection based on historical data and assumptions; a cash flow statement uses actual company data.

Five relationships between income statements and balance sheets

1) Changes in values; 2) Changes from beginning to ending balance sheet; 3) The depreciation charge; 4) Income taxes due on closing balance sheet; 5) How depreciable and fixed assets are evaluated.

Current assets vs noncurrent assets (recap)

Current assets are cash/near-cash expected to be realized within 12 months; noncurrent assets yield services over multiple years and are longer-term investments.