Lec 6 - Principles of farm business analysis Flashcards

1
Q

define control function

A

mprovement in the business is part of managements control function by use of ‘control’ - the process of monitoring the progress of the business and taking corrective action

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2
Q

The principle functions of management are

A

planning, implementation and control

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3
Q

What are the three Steps in Control?

A
  1. Establishing standards for comparison
  2. Measuring the actual performance
  3. Taking corrective action once a problem is identified
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4
Q

Re: the Improvement Process, what is ‘improvement’?

A

closing the gap between the current and desired performance of an operation or process.

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5
Q

What is the first step in the improvement process?

A

Assessing the gap between actual and desired performance

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6
Q

What is KPI?

A

Key Performance Indicators - critical measures of business performance

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7
Q

Define Historically based targets

A

compare current and historical performance

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8
Q

Define Strategic targets

A

reflect level of performance required to achieve strategic goals

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9
Q

Define external performance-based targets

A

targets that reflect performance achieved by similar competitor organisations

ie. compares a businesses performance against other comparable operations.
- best practiced as continuous process
- Provides ideas and information not ‘solutions’
- Benchmarking is about stimulating creativity in improvement practice

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10
Q

Define Absolute performance targets

A

targets based on theoretically achievable levels

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11
Q

Define benchmarking

A

Business Benchmarking; a process in which a business evaluates its own operations (often specific procedures) by detailed comparison with those of another business (esp. a competitor), in order to establish best practice and improve performance

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12
Q

What are the limitations of Benchmarking?

A
  • Difficult to establish cause and effect
  • Often point data rather than longitudinal
  • Difficult to include ‘qualitative’ elements such as customer relations, innovation, human resource development etc…
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13
Q

What are the 5 different types of analysis? (flow chart)

A
  • financial Performance (profitability) - how well is a business is using its resources
  • Farm size/scale - determines if the business is of sufficient size
  • Efficiency - examines the technical and economic efficiency of the production processes
  • Financial structure - examines the balance between assets acquired by debt and those contributed by the owners (equity)
  • Enterprise mix - examines the mix of enterprises
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14
Q

What are the 3 standards of comparison?

A
  • budgets
  • comparative analysis
  • historical trends
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15
Q

The two budgets most commonly seen in agriculture are …?

A

gross margin

cash flow

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16
Q

Gross margin equation?

A

gross margin (GM) = gross income - variable costs

17
Q

what is gross income?

A

gross income - total income (cash & non-cash) before any expenses are paid

18
Q

define variable costs

A

costs associated only when production takes place and tend to vary with level of production

19
Q

define fixed costs

A

(overhead costs) - costs that will not change in the short run even if no production takes place

20
Q

give 2 eg’s of variable & fixed costs

A

variable costs - fuel for machinery & fertiliser

fixed costs - interest rates & salaried labour costs

21
Q

preferred unit for gross margins is

A

the limiting resource (eg. land)

22
Q

the expressed unit for gross margins is

A

$/hectare

23
Q

what are the 2 applications of Gross Margins?

A
  • Comparing alternative enterprises within the one farm business
  • Farm performance analysis; gross margin analysis can be used to highlight inefficient management practices particularly when compared to other properties
24
Q

Limitations of Gross Margins?

A
  • do not involve management changes in level of fixed costs
  • Do not consider interactions e.g. crop rotations
  • Do not consider economy of scope and economies of scale
  • Should not be used where the income or the costs are incurred through time periods greater than 12 months
25
Q

A cash flow budget application?

A
  • to Assess the economic feasibility of a project
  • Used for alternatives involving significant capital expenditure that appears attractive on the basis of
    partial budgets or gross margins
26
Q

What are comparative (ratio) analysis?

A

the study of financial condition and performance of a business through ratios derived from items in the financial statements or from other financial or non-financial information - allows meaningful comparison of different sized elements
eg. (1) 2200 lambs / 2000 ewes = 1.1
vs
(2) 1200 lambs / 900 ewes = 1.33
thus, (2) flock has better reproductive rate than (1) -> can be compared to low, avg or top performers