AFM Financial Analysis & Budgeting in Farm Management 3

Question 1

A farm shows a debt-to-asset ratio of 0.65. How would this farm be classified financially?

Accepted Answer

Highly leveraged with vulnerable financial position

Answer

A debt-to-asset ratio of 0.65 means 65% of assets are financed by debt, which is considered a highly leveraged and financially vulnerable position.

Question 2

Which measure best captures a farm's ability to generate cash from operations to service debt?

Accepted Answer

Term debt coverage ratio

Answer

The term debt coverage ratio measures whether farm income is sufficient to cover scheduled principal and interest payments on term debt.

Question 3

On an accrual-adjusted income statement, an increase in grain inventory from the beginning to the end of the year would:

Accepted Answer

Increase net farm income

Answer

An inventory increase is added to cash sales on an accrual basis, increasing the value of farm production and therefore net farm income.

Question 4

A farmer is considering leasing versus purchasing equipment. Which financial factor most favors leasing?

Accepted Answer

Need to preserve working capital and credit capacity

Answer

Leasing preserves working capital and avoids large down payments, maintaining credit capacity for other farm needs.

Question 5

In break-even analysis for a crop enterprise, the break-even yield is calculated as:

Accepted Answer

Total costs (fixed + variable) divided by market price per unit

Answer

Break-even yield equals total costs (fixed plus variable) divided by the expected market price, representing the minimum yield needed to cover all costs.

(AFM) Accredited Farm Manager Certification Practice Test

(AFM) Accredited Farm Manager Certification Practice Test

AFM Financial Analysis & Budgeting in Farm Management 3