AGEC 365 Exam Questions and Answers
Graded A+
Return on Farm Assets (ROFA) - Correct answer-Ability of the farm to generate
operating income from asset holdings. The higher the ratio, the greater the profit
per dollar of farm assets
Return on Farm Equity (ROFE) - Correct answer-Ability of the farm to generate
operating income on owner's equity. The higher the ratio, the higher the profit per
dollar of equity
Cost of Farm Debt (COFD) - Correct answer-Shows how costly it is for the farm to
take debt. Cost is measured in terms of interest expense. Lower is generally better.
Operating Profit Margin Ratio (OPMR) - Correct answer-Return per dollar of gross
income, or operating income relative to farm size. The higher the ratio, the greater
the profit relative to farm revenues.
Working Capital - Correct answer-Amount of cash left over after liquidating
current assets to service current liabilities. Not particularly informative since it
does not take farm size into account
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, Current Ratio - Correct answer-Current assets as a proportion of current liabilities.
Must be at least 1 since the farm should have at least enough current assets to pay
current liabilities
Quick (or Acid Test) Ratio - Correct answer-Ability of most liquid current assets
(those that can be liquidated within 90 days) to service current liabilities. More
conservative measure than current ratio
Working Capital to Value of Farm Production - Correct answer-Availability of cash
relative to size of farm operations. Very useful measure because cash requirements
are dependent on farm size.
Leverage (or Debt to Equity) Ratio - Correct answer-Size of farm debt relative to
owner's equity. High ratio means farm aggressively finances growth with debt.
Should not exceed 1 as owner's equity should be greater than debt.
Debt to Asset Ratio - Correct answer-Proportion of business value that belongs to
creditors. If all assets were sold off, the DTA shows the percentage that creditors
would receive.
Equity to Asset Ratio - Correct answer-Proportion of business value that belongs to
owner. If all assets were sold off, the ETA shows the percentage that owner would
receive.
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Graded A+
Return on Farm Assets (ROFA) - Correct answer-Ability of the farm to generate
operating income from asset holdings. The higher the ratio, the greater the profit
per dollar of farm assets
Return on Farm Equity (ROFE) - Correct answer-Ability of the farm to generate
operating income on owner's equity. The higher the ratio, the higher the profit per
dollar of equity
Cost of Farm Debt (COFD) - Correct answer-Shows how costly it is for the farm to
take debt. Cost is measured in terms of interest expense. Lower is generally better.
Operating Profit Margin Ratio (OPMR) - Correct answer-Return per dollar of gross
income, or operating income relative to farm size. The higher the ratio, the greater
the profit relative to farm revenues.
Working Capital - Correct answer-Amount of cash left over after liquidating
current assets to service current liabilities. Not particularly informative since it
does not take farm size into account
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
, Current Ratio - Correct answer-Current assets as a proportion of current liabilities.
Must be at least 1 since the farm should have at least enough current assets to pay
current liabilities
Quick (or Acid Test) Ratio - Correct answer-Ability of most liquid current assets
(those that can be liquidated within 90 days) to service current liabilities. More
conservative measure than current ratio
Working Capital to Value of Farm Production - Correct answer-Availability of cash
relative to size of farm operations. Very useful measure because cash requirements
are dependent on farm size.
Leverage (or Debt to Equity) Ratio - Correct answer-Size of farm debt relative to
owner's equity. High ratio means farm aggressively finances growth with debt.
Should not exceed 1 as owner's equity should be greater than debt.
Debt to Asset Ratio - Correct answer-Proportion of business value that belongs to
creditors. If all assets were sold off, the DTA shows the percentage that creditors
would receive.
Equity to Asset Ratio - Correct answer-Proportion of business value that belongs to
owner. If all assets were sold off, the ETA shows the percentage that owner would
receive.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
