Accounting and Finance

Flashcards about financial ratios for AGEC 101.

Ratio Analysis

Uses ratios of various items from the balance sheet and income statement to measure a business’s performance.

Liquidity Ratios

Ability to meet day-to-day cash needs for the firm.

Solvency Ratios

Ability to repay debts if the firm ended business today.

Activity Ratios

Level of activity relative to the inventory, what the firm owes in the short run, and what is owed to the firm in the short run.

Profitability Ratios

Asses the firm’s profitability.

Current Ratio

Relationship between current assets and current liabilities; shows the farm’s ability to meet its bills during the next accounting period by converting current assets to cash.

Debt to Asset Ratio

Total debt divided by total assets.

Debt to Equity

Measures the relative size of claims on a firm’s assets between its lenders and the owner(s).

current ratio equation

current assets/current liabilities

debt/equity ratio

current liabilities/total owner’s equity

debt/asset ratio

total liabilities/total assets

financing

Capital (resources) are provided to the farm
or leave the farm. They are not paid for or earned.

financing examples

Contributed Capital
Gift and Inheritances
Non-farm Income Contributed
Personal Withdrawals
Money Borrowed
Paying Back Loans

investing

buying and selling capital (long-term) assets

investing examples

Purchasing land

Purchasing tractor

Purchasing milk robot

Selling truck

Selling side by side

operating

selling farm products that were produced on the farm.

operating examples

Milk

Corn

Soybeans

Equine training

Purchasing supplies

Paying workers

Paying taxes

Purchasing services