Study Guide

Front 1

A method of accounting in which income is reported in the year it is earned and expenses are reported in the year they are incurred

Back 1

Accrual Accounting

Front 2

items and property owned or controlled by an individual or a business that have commercial or exchange valu

Back 2

assets

Front 3

A financial statement or presentation of data that represents financial performance based on projections of events and conditions

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pro forma

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A lump sum final payment of a loan. It reflects the entire remaining balance of a shorter-term loan, which is amortized over a longer term.

Back 4

ballon payment loan

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A financial statement reflecting the projected sources and uses of cash during an accounting period. Items on the statement are usually categorized as business or nonbusiness with subdivisions for funds from business operations and funds from financing.

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cash flow statement

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A summary of the revenue and expenses of a business over a period of time to determine its profit position

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income statement

Front 7

Repayment of a loan over several periods with equal payments of principal plus interest in each period

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constant payment

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The borrowing capacity of a firm or other economic unit, as determined by lenders based on an evaluation of a firm’s credit worthiness.

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credit

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Cash and near-cash items with values that will probably be realized in cash or used up during the year. Also assets whose conversion to cash would only minimally disrupt the normal business operation

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current assets

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Financial obligations that are due and payable within the next year.

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Current Liabilities

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A liquidity ratio calculated as current assets divided by current liabilities.

Back 11

current ratio

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A decrease in value of real property caused by age, use, obsolescence, and/or physical deterioration. A noncash accounting expense that reflects the allowable deduction in book value of assets such as machinery, buildings, and breeding livestock.

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deprecation

Front 13

The process of measuring and monitoring business performances over time to maintain desired standards of performance

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financial control

Front 14

A statement filed by a lender with a public official. The statement reports the security interest or lien on the borrower’s non-real estate assets.

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Financial Statement

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The financial statement that reflects the value of the assets of an individual or a business and the financial claims on these assets at a specific point in time.

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balance sheet

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The financial ratio that expresses a firm’s return to assets relative to the amount of interest charges due on debt obligations.

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interest coverage

Front 17

A financial efficiency measure calculated as interest expense divided by value of farm production or gross revenue

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Interest Expense Ratio

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The financial claim by owners on the total assets of a business, calculated as total assets minus total liabilities. Also called equity capital and ownership equity

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Net Worth

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All assets and liabilities not classified as current.

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Non-current assets and liabilities

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A line of credit in which the maximum amount of a loan is the total of loan disbursements. Repayments do not make loan funds available again as in a revolving line of credit

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Non-revolving and Revolving credit

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A short-term loan to finance crop production, livestock production, inventories, accounts receivable, and other operating or short-term liquidity needs of a business

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Operating Loan

Front 22

profitability measure representing the rate –of-return on business assets during an accounting period. ROA is calculated by dividing the dollar return to assets during the accounting period by the value of assets at the beginning of the period or the average value of assets over the period

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Rate of Return on Assets

Front 23

A profitability measure representing the rate-of-return on the equity capital that owners have invested in a business. ROE is calculated by dividing the dollar return to equity capital during an accounting period or the average value of equity capital over the period

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Rate of Return on Equity

Front 24

The portion of net income that is retained within a business and added to net worth.

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Retained Earnings

Front 25

The adjustment of a lender’s base interest rate in response the anticipated level of a borrower’s credit risk in a loan transaction. Higher risk loans may carry higher interest rates, with the rate differential representing the risk premium.

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Risk Premium

Front 26

A collection of risky assets or enterprise, none of which dominates another.

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Risk Efficient Set

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An attitude toward risk in which the investor requires compensation for taking

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Risk Aversion

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One risky investment dominates another if it has the same expected return and less risk, or the same risk and a higher expected return. Also called risk efficiency.

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Risk Dominance

Front 29

A loan made for a purpose that generates sufficient income to repay the loan within the maturity period

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Self Liquidating Loan

Front 30

A business condition of financial viability in which net worth is positive and the business is expected to meet its financial obligations as they come due.

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Solvency

Front 31

The ability of a business to generate cash, with little risk of loss of principal value, to meet financial obligations, transactions, or investment opportunities.

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Liquidity

Front 32

A statistical measure of the amount of dispersion or random variation of a projected outcome about its expected value; the square root of the variance.

Back 32

Standard Deviation

Front 33

A statistical measure of the amount of dispersion or random variation, based on squared deviations about a variable’s expected value

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Variance

Front 34

The difference between current assets and current liability. Often used as a measure of business liquidity

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Working Capital

Front 35

the firms ability to generate sufficent cash from product sales to repay the laon plus intrest according to the contracted financing terms

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repayment capacity

Front 36

the relationship b/t the values of assets pledged as secruity for a loan and the outstanding loan balance

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collatral risk

Front 37

refers to the potential failure of the borrower to generate suffienct cash from product sales to repay the loan plus interest

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repayment risk