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83 Cards in this Set

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Amortized Loan
A loan with a series of regularly scheduled payments that include both interest and partial repayment of principal.
Equal Payments
Payments are of equal size declining principal and increasing interest.
Equal Principal
Equal principal payments with declining interest payments. Interest decreases because the unpaid balance decreases; because interest payments decrease, total payment declines.
Reverse Amortization
The annual payment is less than the interest obligation during the early years of the debt obligation so that the outstanding balance on the debt actually increases rather than decreases.
Assets
For agricultural purposes, assets are normally divided into categories based on their useful life.
Current Assets
Assets that will be used or converted into cash within one year in the normal operation of the business. Also called liquid assets.
Intermediate Assets
Assets with useful lives of one to ten years that are used in the production process. Their sale would affect the future income potential of the business.
Long-Term Assets
Permanent assets with useful lives in excess of ten years. Also called fixed assets. Sometimes both intermediate and long term assets are called fixed assets.
Real Assets
Asset that are tangible or physical in nature such as land, machinery, and livestock.
Balance Sheet
A listing of all assets and libilities at a given point in time. The amount by which assets exceed liabilities is called net worth or owner's equity. Also called a net worth statement or financial statement.
Comparative Balance Sheet
A listing of the current balance sheet with those of previous years so trends can be identified.
Statement of Changes in Financial Position
A listing of the amount by which various items on the balance sheet change from one time period to the next.
Bond
Long term promissory note for money borrowed by a firm from investors.
Bearer Bond
No record of ownership exists. Possession shows proof of ownership.
Registered Bond
The owner's name is recorded and interest payments are sent directly to the owner.
Callable Bonds
Refers to the ability to pay off a debt obligation prior to its maturity at the option of the issurer of debt.
Convertible Bonds
Debt instruments that can be exchanged for shares of common stock or an equity interest in the company.
Debentures
Bonds that are not secured by the assets of a firm.
Mortgage Bond
A bond that is secured by a lien against the property of the firm.
"Zero Coupon" Bonds
A special kind of debt instrument where the interest payments are not made on a regular basis but instead are "accumulated" and paid at the date of bond or debt maturity.
Capital
As used in capital assets, capital investments, capital imporvements; to describe money invested in anticipation of a return over a long period of time.
Human Captial
Human assets consisting of items such as skilled workers.
Physical Capital
Consists of financial assets and real assets.
Capital Market
Included all financial transactions between users of funds and suppliers of funds.
Primary Market
Trading in new financial instruments where the funds received are invested in the firm. A market for new securities.
Cash Flow
Cash money flowing in and out of the business. Cash flow is not the same as profitiability.
Cash Flow Budget
A summary of all cash income and expenditures for a given period of time, normally one year. It shows when additional funds will need to be borrowed, and when funds will be available for repayment of debt.
Working Capital
The amount of capital or current assets available for use in operating the business. Commonly calculated as the amount by which current assets exceed current liabilities.
Commercial Paper
Short term promissory note issued by a corporation.
Common Size Statement
A financial statement expressed in percentages of the total rather than dollar amounts. It shows the relative amount that each component contributes to the total. Size of the firm is not a factor.
Compensating Balance
A minimum account balance that a borrower is required to maintain as a requirement of obtaining a loan. It raises the effective interest rate on the loan.
Credit
Money borrowed with the understanding it it will be repaid.
Line of Credit
Commitment by a lender to provide up to a set amount of funds during a specific period of time. Funds are drawn against this commitment as they are needed. Also called a budget loan.
Revolving Line of Credit
A loan in which a maximum loan balance is set. As a borrower repays during the term of the loan, he/she can again borrow up to the loan limit without applying for a new loan.
Split Line of Credit
Using a number of lenders to finance various enterprises within a business. Normally refers to short and intermediate term credit.
Creditor
The party providing or lending the money.
Credit Rating
A judgment of a borrower's ability to handle credit based on past performance.
Credit Risk
The risk assumed for the possible nonpayment of credit extended.
Creditworthiness
The proven ability of a borrower to use and repay borrowed funds.
Unsecure Creditor
A creditor that does not have a lien on any particular property is unsecured.
Debt
A financial obligation owed to another.
Debtor
The person who either owes payment or other performance on the obligation, such as a contract or note.
Equity
The amount of the owner's capital invested in the business. The amount by which assets exceed liabilities. Example, equity in a farm is the value of the farm less the amount owed against it. Also called owner's equity, or net worth.
Financial Statement
Usually means a balance sheet, but also includes to all statements pertaining to the financial status of the business.
Income Statement
A summary of income and expenses over a given time period. In addition to cash income and expenses, it takes into account all changes in the value of inventories and capital assets to arrive at net farm income.
Net Farm Income
The profit or loss from the year's operation. It is calculated through the use of an income statement. It considers not only cash income and expenses, but also depreciation, inventory changes and the value of products consumed in the farm home.
Statement of Retained Earnings
Financial statement that reconciles the balance in retained earnings account at the beginning of the income statement period to the balance at the end of the period.
Interest
A charge paid for the use of someone eles's money. It includes three things: 1) A return to the lender for the use of the money. 2) A return to account for the devaluation of the money over the repayment period due to inflation. 3) A return to the lender to compensate for the possibility that the loan may not be repaid (risk).
Nomial Interest Rate
The actual interest rate quoted by financial lenders and others.
Effective Interest Rate
The effective interest rate includes the nominal or interest rate plus the additional interest due to compounding.
Real Interest Rate
An interest rate for which the effects of inflation have been removed. Usually calculated as the nominal interest rate minus the inflation rate. (i.e. 12% - 5% = 7%)
Add-On Interest
May be used on installment loans, Interest is calculated on the full amount of the loan for the entire loan period as though there were no periodic payments. This amount of interest is then added to the amount borrowed. The total is divided by the number of payments to determine the size of each payment. Since the borrower is paying interest on the full amount but has use of the full amount for only part of the loan period, the effective (actual)interest rate is higher than the rate that is stated. Also called a flat rate loan.
Annual Percentage Rate (APR)
A disclosure of all costs (loan fee, discount rates, etc.) involved with a loan to show the actual percentage interest paid on an annual basis.
Discount Interest
A loan requiring the interest to be paid in advance. The interest is calculated in advance and deducted from the loan amount that is disbursed to the borrower. Since the borrower receives less funds than the amount on which he/she is paying interest, the effective (actual) rate is higher than the stated rate. Also called a front end loan.
Remaining Balance
Interest is calculated only on the remaining or unpaid balance of the loan. As a result, interest payments decline as the unpaid loan balance declines. The effective rate is the same as the stated rate. Also called interest on the unpaid balance loan.
Simple Interest
Used on loans with a single payment. Interest is calculated on the fair amount of the loan during the time period for which the money is borrowed. The effective rate is the same as the stated rate.
Variable Interest
The interest rate may be adjusted up or down during the term of the loan depending on the interest rates in major money markets or the prime interest rate.
Leverage
The use of borrowed capital to enlarge the size of the business to a size greater than would be possible using only equity capital. It assumes that returns from using additional capital will be greater than the cost of borrowing it.
Liabilities
Financial obligations of a business. There are several categories of liabilities frequently used in agricultural finance. The liability will normally be secured by assets in similar categories. For example, current liabilities are normally secured by current assets.
Contingent Liability
Financial obligation which will become due only under specific circumstances. An example is income taxes on capital gains if farmland is sold.
Current Liability
A financial obligation which will become due and payable within one year period. It includes the current principal payment and accrued interest on intermediate and long term debts.
Intermediate Liability
Liabilities whose repayment schedule is spread over a two or ten year period.
Long-Term Liability
Normally mortgage loans repayable over a ten to fourty year period.
Liquidity
The ability of a business to generate cash to meet its financial obligations as they become due.
Point
One percent of the loan amount; one-hundredth of the total amount of a loan.
Pro forma Statements
Projected financial statements that are projected for future periods. Balance sheets, cash flow statements, and income statements are often projected to determine the future financial status of a firm.
Repayment Capacity
The ability of a business to repay money borrowed for that business.
Solvency
A measure of the relative size of a business' assets and liabilities.
Balloon Loan
Loans with periodic payments during the term of the loan, with the remaining balance due at maturity. Payments may be interest only or interest plus some portion of the principal. The ballon payment is the final payment of a balloon loan.
Blended Rate Loan
A refinanced loan wherein the lender combines the interest rate of the existing loan with a current rate.
Construction Loan
A loan wherein money is advanced as construction takes place.
Non-Recourse Loan
An obligation which can be collected by the secured party only by taking the property used as collateral. In other words, the debtor has no personal obligation other than what was used as collateral and the secured party cannot collect more than the collateral even if the loan is more than the value of the collateral.
Participation Loan
A loan that requires interest plus a portion of the profits as payment.
Purchase Money Loan
A loan used to purchase property that serves as its own collateral.
Rollover Loans
Short-term loans obtained with the anticipation that the loan will be renewed at its due date, rather than repaid.
Secured Loan
A loan in which some asset is pledge as collateral to ensure payment of the loan.
Self-Liquidating Loans
A loan which will be repaid from the sale of the assets originally purchased with the loan funds.
Short Term Loan
A loan rescheduled to be repaid in less than a year.
Signature Loan
A loan for which no collateral is pledged.
Single Payment Loan
A loan in which the entire amount owed is due in one payment at maturity.
Term Loan
A loan that requires only interest payments until the last day of its life, at which time the full amount borrowed is due.
Take-Out-Loan
A permanent loan arrangement to replace a construction loan.
Unsecured Loan
A loan for which there is no collateral required. The loan is backed up only by the promise of the borrower to repay.