Ag Business Test Review

Calculations

100

"If you sell 50 calves weighing 500 lbs each at $1.50/lb, what is your total revenue?"

Revenue=50×500×1.50=37,500

200

Todd's expenses per calf are $1,126. If he raises 300 calves, what are her total expenses?

Total Expenses=300×1,126=337,800 

300

"Allie bought 200 hogs for $5,500 and spent $1,750 for cost of gain. She sold them for $8,300. What is her profit per head?

Profit=(8,300−5,500−1,750)/ 200=5.25 per head

400

"Farmer Joe has a $35,000 loan payment due, a $15,000 credit card bill, $10,000 in cash, and 5,000 bushels of soybeans worth $12.32 per bushel. What is Joe’s working capital?"

 Current Assets=10,000+(5,000×12.32)=71,600 Current Liabilities=35,000+15,000=50,000 Working Capital=71,600−50,000=21,600

500

"Megan's farm has total assets of $600,000 and total liabilities of $450,000. If she wants to maintain a debt-to-asset ratio below 0.75, how much more can she borrow without exceeding this limit?"

Step 1: Calculate the maximum debt allowed with a ratio of 0.75:

Maximum Debt=0.75×600,000=450,000

Step 2: Determine how much more Megan can borrow:

Remaining Borrowing Capacity=450,000−450,000=0

Concepts

100

"What is the difference between assets and liabilities?"

Assets are items of value owned by a person or business (e.g., cash, land, equipment), while liabilities are debts or obligations (e.g., loans, credit card balances).

200

What is a current asset? Give an example

A current asset is an asset that can be converted to cash within a year. Example: cash, accounts receivable, or inventory.

300

What is the difference between current and noncurrent liabilities?"

Current liabilities are obligations due within one year (e.g., credit card bills, short-term loans). Noncurrent liabilities are obligations due after one year (e.g., mortgage loans, long-term debt).

400

"Explain the difference between operating and financing cash flows."

Operating cash flows are generated by regular business operations (e.g., sales, expenses). Financing cash flows relate to borrowing, repaying debt, or issuing equity (e.g., loans, payments on debt, dividend payments).

500

"What is depreciation, and how does it affect the value of an asset over time?"

Depreciation is the reduction in the value of an asset over time due to wear and tear, aging, or obsolescence. It reduces the asset’s book value and can provide a tax deduction for businesses.

Cash Flow

100

"Give two examples of cash inflows in farming."

Answers vary

200

Give two examples of cash outflows in a farming operation."

Answers vary

300

"What is the equation for net worth?"

Net Worth=Total Assets−Total Liabilities

400

"Describe two reasons why a farmer might have negative cash flow from operating activities but still be profitable overall."

• Timing of Revenue and Expenses: If expenses (like buying seeds or paying employees) occur before revenue from selling crops comes in, the farmer may have negative cash flow temporarily.
• High Depreciation Costs: Non-cash expenses, like depreciation on equipment, may reduce operating cash flow, but the farm might still be profitable after selling crops or livestock.

500

What are the three types of cash flow activities, and what does each represent in a farming business?"

• Operating Cash Flow: Day-to-day business activities like selling crops, paying for supplies, and employee wages.
• Investing Cash Flow: Cash used for or generated from long-term investments like purchasing land, equipment, or selling assets.
• Financing Cash Flow: Cash related to borrowing or repaying money, such as taking out loans or paying loan interest.

Ratios and Equations

100

"What is the formula for working capital?"

Working Capital=Current Assets−Current Liabilities

200

"Is a good current asset-to-debt ratio UNDER or OVER 1?"

A good current asset-to-debt ratio is OVER 1, meaning the business has enough assets to cover its debts.

300

How is the current asset-to-debt ratio calculated?"

Current Asset-to-Debt Ratio=Current Liabilities/Current Assets

400

"How is the total debt-to-asset ratio calculated?"

Debt-to-Asset Ratio=Total Assets/Total Liabilities

500

"What is the difference between the current ratio and the total debt-to-asset ratio? How do each of these ratios help a farmer assess the financial health of their operation?

• Current Ratio: Measures a farm’s ability to pay off its short-term liabilities with its short-term assets (e.g., cash, inventory). A higher ratio indicates that the farm has more liquidity and can cover its debts in the near term.
• Total Debt-to-Asset Ratio: Measures the percentage of the farm’s assets financed by debt. A higher ratio suggests that the farm is more leveraged, meaning it relies more on borrowed funds. A lower ratio indicates less financial risk.