Ag Business Vocabulary

calendar year

Length of time for one year of financial records for a business-starts January 1st, ends December 31st.

working capital

Measurement of liquidity-current Assets minus current liabilities

leverage

Term referencing the amount of liabilities in relationship to the equity or net worth. A business is considered highly leveraged if the total debt is substantially greater than the equity (net worth) A business is considered modestly leveraged if the total debt is substantially less than the equity.

deferred debt

The amount of debt listed as an intermediate or long term liability; amount of debt not due within the next 12 months.

annual percentage rate (APR)

The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

breakeven yield

The yield (production level) necessary at a given market price equals total variable costs plus fixed costs.

breakeven

Where total revenue from production (yield) times market prices equals the combined total of variable costs plus fixed costs.

proprietorship

a business owned by a single person or family

put option

a contract that gives the buyer the right to sell a future contract for an agricultural commodity at a specified price - it is used to set a minimum selling price in advance

s corporation

a corporation that ix taxed like a partnership

operating loan

a crop lien can be used to secure a (an) ___

bear market

a downward trend in the market

cooperative (coop)

a form of business in which profits are distributed as patronage refunds and all members have a single vote

amortized loan

a loan that is scheduled to be repaid in a series of periodic payments

bear

a market participant who believes prices are too high and will decline

bull

a market participant who believes prices are too low and will advance

cash contract

a means of reducing risk by setting the price you will get for your commodity when delivered to the buyer

elasticity

a measure of a variable's sensitivity to a change in another variable

debt equity ratio

a measure of solvency; total liabilities divided by net worth

current ratios

a measurement of liquidity; current assets divided by current liabilities

accrual method

a method of record keeping and reporting income that includes changes in inventory values

administrator

a person legally vested with the right of administration of estate

agent

a person who transacts the business and represents the employer in business affairs

inventory

a physical count of all assets - normal a value is placed on the assets

partial budget

a projected look at the affects that in or changes might have on an enterprise buget or the whole duget

income statement

a report that summarizes the income, expenses, and profit of a business over a period of time

input

a resource used to produce a product

budget

a schedule of expected returns and costs

annuity

a series of equal periodic payments

hedging

a strategy of reducing the risk of declining market prices by selling a commodity futures contract in advance or when the actual product is sold

balance sheet

a summary of the financial situation for a business at a specific point in time - also called a Net Worth Statement - a snapshot of the asset and liability position of a business at a point in time

cash accounting

all taxable income is included as income in the year that is recieved

accrual accounting

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

depreciation

an annual, non-cash expense to recognize the amount by which an asset loses value due to use, age, and obsolescnece

enterprise

an individual crop or type of livestock such as wheat, alfalfa, dairy cattle

benefit/cost ratio

an investment analysis ration equal to the present value of all future benefits of an investment divided by the present value of all future costs

bull market

an upward trend in market prices

-current

assets that are normally used up or sold within a year e.g.: cash on hand, inventories of feed, grain, supplies, and market livestock

-fixed

assets with a life greater than 10 years e.g.: land a buildings

-intermediate

assets with a life greater than year but less than 10 e.g.: breeding livestock, machinery, equipement, perennial crops

discounting

backwards of compounding

variable costs

business expenses that will be incurred only if production occurs and will vary in amount comparable to changes in the size, scope, and scale of the business.

operating costs

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

fixed costs

costs that will not change in the short run even if no production takes place e.g.: machinery depreciation, interest, taxes, insurance, land charge.

variable expenses

costs that will occur only only if production actually takes place, and they tend to vary with the level of production e.g.: seed, fertilizer, chemicals, fuel, oil, repairs, interest, labor

liquidity measurements

current ratio; working capital; net farm income

liability

debt (owed by individual or business that need to be paid at a future date)

current liability

debt to be paid in the next 12 months.

intermediate liabilities

debts due after 12 months but before 10 years

breach of contract

failure to comply with the terms and agreements of a contract

gross margin

gross income minus variable costs

basis (marketing)

in futures contract trading, the difference between the local cash market price and the price of the near term (expiring) futures contract

-complementary

increasing production in one increases production of the other

accrued interest

interest owed but not yet paid

Capital Assets

intermediate or fixed assets (such as farm equipment, vehicles, breeding stock, real estate.)

real property

land and all immovable fixtures erected, growing, or affixed to the land

fiscal year

length of time for one year of financial records for a business-can start any time during the year, set by business bylaws or operating agreement. Ex: starts October 1st, ends Sept. 30th.

breeding livestock

livestock held for reproduction

breakeven price

market price necessary at a given production level that equals the combined total of variable costs plus fixed. costs.

debt to asset ratio

measurement of solvency. Smaller the number, the more solvent the business.

accounts payable

money owed by a business for goods or services recieved

accounts receiveable

money owed to the business for goods delivered or services recieved

partnership

more than one person owns the business or provides management - more than one owns, but the limited partners do not manage the business and have liability limited to their investment

corporation

owners have shares in a separate legal entity that itself can own assets and borrow money

beneficiary

person named in an insurance policy, will, or other document to receive the proceeds at the time of death or loss

-supplementary

production in one can increase

assets

resources controlled by the farm or ranch

net worth

same as equity. Total Assets minus total liabilities. The expected dollar value remaining if after all of the assets were sold and after all the liabilities were paid.

capital gain

taxable income when a person sells a capital asset Calculated by taking the original cost minus the depreciation taken.

liquidity

the ability of a business to pay off liabilities; when current assets exceed current liabilities

marginal revenue

the additional income received from selling one additional unit of output

capital

the amount of money that can be obtained by borrowing against or the selling of assets

accounts

the basic storage unit for accounting data used to accumulate amounts from similar transactions; constitutes the core data elements of the financial system

marginal cost

the cost added by producing one extra item of a product

solvency

the degree to which the liabilities of a business are backed up by assets

opportunity cost

the income that could be received by employing a resource in its most profitable alternate use

salvage value

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

call option

the option to buy a contract at today's price at sometime in the future

adjusted basis

the original cost of an asset plus the value of any improvement, less the amount of depreciation, losses, depletion; also called book value

basis

the original purchase price, including fees, commissions, and other expenses related to the purchase

strike price

the price at which a put or call option can be exercised

allocations

the process of assigning costs of one segments of the organization to other responsibility centers

compounding

the process of determining the future value of an investment or loan, in which is charged on the accumulated interest as well as the original capital

break-even yield

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

appraisal

the receipt of (or the making of) a series of uniform payments over a specified period of time

amortization

the repayment of a loan and the interest due in a series of equal payments

output

the result or yield from a production process, such as crops or livestock

net farm income

the return to owner equity, management and unpaid labor

break-even price

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

book value

the value at which an asset is carried on a balance sheet; also called adjusted basis

net capital ratio

total assets divided by total liabilities

gross income

total income, both cash and non-cash, received for a business before paying expenses (revenue)

-competitive

two enterprises competing for the same inputs, if production in one increases, the other decreases

utility

will increase the value of a commodity by meeting a consumer need and providing some degree of satisfaction in the process

double declining balance:

Accelerated method of depreciation where a given percentage (based on the useful life of the asset) is multiplied by the difference between the purchase price minus salvage value. The amount charged to the business will decrease each year during the useful life.

attractive nuisance

An object that is a danger to those that are attracted to it. Usually a term for artificial objects that may potentially attract someone through curiosity and then injure them.

asset turnover ratio

Calculated by dividing gross revenue by average total farm assets. Gross receipts is the gross receipts from the from farming plus (or minus) total non-cash adjustments. Average total farm assets are the total farm assets in year one plus year two divided by two.

long-term liabilities

Debts or obligations not due within the next 12 months, the deferred portion of debt that financed a long term asset, such as real estate.