Ag and resource enterprise analysis

comparative advantage

the ability of a firm, region, or country to produce a good or service at a relatively lower cost than another

diversification

the production of 2 or more commodities for which production levels and/or prices aren’t closely correlated

farm

any business entity that sold or would’ve sold in a normal year $1000 or more of ag products

farm management

the process of making decisions about the allocation of scarce resources in ag production for the purpose of meeting certain goals

precision agriculture

a production system using gps equipment to precisely apply different levels of inputs to different locations in a field according to their individual requirements

strategic alliance

agreement among multiple individuals or businesses for the purpose of obtaining economic advantages that wouldn’t be available to them individually

strategic management

the process of charting the overall long-term course of a farm or ranch

tactical management

the process of making and implementing short term decisions that keep the farm or ranch moving toward its long-term goals

technology

a particular system of inputs and production practices

vertical integration

a contractual or other business arrangement involving 2 or more stages in the production of a commodity

account payable

an expense has been incurred but not yet paid

account receivable

revenue for a product that has been sold but no payment has been received yet

accrued expense

an expense that has been incurred but not yet paid

custom hire

an arrangement in which an operator performs one or more machinery operations for someone else for a fixed charge

debt

an obligation to pay

expense

a cost or expenditure incurred in the production of revenue

financial statements

documents relating to the financial condition of a business

interest

the amount paid to a lender for the use of borrowed money, or the opportunity cost of investing equity capital in an alternative use

mortgage

a legal agreement by which a lender receives the right to acquire a borrower’s property to satisfy a debt if the repayment schedule is not met

prepaid expense

a payment made for a product or service in an accounting period before the one in which it will be used to produce revenue

principal

the amount borrowed, or the part of the original loan that hasn’t been repaid yet

real estate

land or assets permanently attached to land

revenue

the value of products and services produced by a business during an accounting period

asset

a physical or financial property that has value and is owned by a business or individual

balance sheet

financial report of a business at a point in time

current asset

asset normally used up or sold within a year

current liability

financial obligations that will become due and payable within a year

current ratio

the ratio of current assets to current liabilities, measure of liquidity

debt/asset ratio

the ratio of total liabilities to total assets, a measure of solvency

liability

an obligation or debt owed to someone else

liquidity

the ability of a business to meet its cash financial obligations are they come due

net worth

the difference between the value of assets owned by a business and the value of its liabilities

noncurrent asset

an asset that will normally be owned or used up over a period longer than a year

noncurrent liability

all obligations that don’t have to be paid in full within the next year

owner equity

net worth

solvency

the relationships among assets, liabilities, and equity

working capital

the difference between current assets and current liabilities

accounting period

the period over which accounting transactions are summarized

accrual accounting

an accounting system that recognizes income when it is earned and expenses when they are incurred

cash accounting

an accounting system that recognizes income when it is actually received and expenses when they are actually paid

depreciation

an annual, noncash expense to recognize the amount by which an asset loses value due to use, age, and obsolescence

gross revenue

the total of all the revenue received by a business over a period

income

economic gain resulting from the production of goods and services, including receipts from the sale of commodities, other cash payments, increases in inventories, and accounts receivable

income statement

a report that summarizes the income and expenses and computes the resulting profit of a business over an accounting period

inventory schedule

a complete listing of the number, type, and value of assets owned at a point in time

loss

financial result that occurs when expenses exceed revenue, causing a decrease in equity

net farm income

the difference between gross revenue and total expenses, including gain or loss on the sale of all capital assets

net farm income from operations

the difference between total revenue and gross expenses, not including interest expenses nor gain or loss on the sale of certain capital assets

profit

total revenue - total expenses

profitability

the degree or extent to which the value of the income derived from a set of resources exceeds their cost

acceleration factor

a value representing a constant percentage that is used to determine annual depreciation using the declining balance method

accumulated depreciation

the sum of all depreciation expense recorded for an asset from time of purchase to the present

book value

the original cost of an asset minus the total accumulated depreciation expense taken to date

capital asset

an asset expected to last through more than one production cycle that can be used to produce other salable assets or services

capital gain

the amount by which the sale value of an asset exceeds its cost or original tax basis

capital loss

the amount by which the sale value of an asset is below its cost or adjusted tax basis

declining balance method

a depreciation method that results in high depreciation in the early life of an asset and smaller amounts in the later years

depreciation

the amount by which an asset loses value due to use, age, and obsolescence

half-year convention

a provision of the income tax depreciation system that allows ½ year of depreciation in the year an asset is purchased regardless of the date of purchase

partial-year depreciation

depreciation for an asset that was purchased during the year and is calculated (prorated) according to the length of time it was owned

salvage value

the market value of a depreciable asset at the time it will be sold or removed from service

straight-line method

a depreciation method that results in an equal amount of depreciation for each year of an asset’s useful life

useful life

the number of years an asset is expected to be used in a business

amortized loan

loan scheduled to be repaid in a series of periodic payments

balloon payment loan

a loan amortization method where a large portion of the principal is due with the final payment

capital

a collection of physical and financial assets that have market values

credit

the capacity or ability to borrow money

down payment

the portion of the cost of purchasing a capital asset financed from owner’s equity, usually in the form of cash

installment loan

a loan that will be repaid by a series of payments scheduled over a period of time

installment purchase contract

a contract where a purchaser acquires an asset from a seller by making a series of principal and interest payments

lease

an agreement that allows a person to use and/or possess someone else’s property in exchange for a rental payment

line of credit

an arrangement by which a lender transfers loan funds to a borrower as they are needed, up to a maximum amount

marketing loan

a loan that can be obtained from the farm service agency using grain or cotton as collateral

secured loan

a loan for which the borrower agrees to let the lender take possession of an sell certain assets if the repayment terms are not met

self-liquidating loan

a loan that will be repaid from the sale of the assets originally purchases with the loan funds

unsecured loan

a loan for which the borrower doesn’t give the lender the right to possess certain assets if the repayment terms are not met (no collateral)

variable interest rate

an interest rate that can change during the repayment period of a loan

budget

an estimate of future income, expenses, and/or cash flows

cash flow

the movement of cash funds into and out of a business

cash flow budget

a projection of the expected cash inflows and cash outflows for a business over an accounting period

control

the process of monitoring the progress of a farm business and taking corrective action when desired performance levels are not being met

feasibility analysis

an analysis of the cash inflows generated by an investment compared to the cash outflows required

implementation

the process of carrying out management decisions

line of credit

an arrangement by which a lender transfers loan funds to a borrower as they are needed, up to a maximum amount

liquidity

the ability of a business to meet its cash financial obligations as they come due

statement of cash flows

a summary of the actual cash inflows and cash outflows from all sources experienced by a business during an accounting period

accounting profit

revenue remaining to pay management, unpaid labor, and equity capital for their use

breakeven price

the selling price for which total income will just equal total expenses for a given level of production

breakeven yield

the yield level at which total income will just equal total expenses at a given selling price

capital recovery

the annualized equivalent value of the initial investment cost of a capital asset

economic profit

total income minus total costs

enterprise analysis

an analysis of one or more individual enterprises in which a portion of the whole farm income and expense is allocated to each enterprise

enterprise budget

a projection of all the costs and returns for a single enterprise

fixed costs

costs that will not change in the short run even if no production takes place

gross margin

the difference between gross income and variable costs (income above variable costs)

operating costs

costs for the purchase of inputs and services used up relatively quickly, usually in one production cycle

ownership costs

costs that result from owning assets, regardless of how much they are used

return to management

the net return generated by a business after all expenses have been paid and the opportunity costs for owner’s equity and unpaid labor have been subtracted

variable cost

cost that occurs only if production takes place and tends to vary directly with the level of production

additional revenue

revenue that is received only if the alternative is chosen