FARM RECORDS

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FARM RECORDS

• FARM RECORD ANALYSIS

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FARM RECORDS CONCEPTS

• 1. INTRODUCTION TO RECORDS
• 2. ACCOUNTING EQUATION
• 3. BALANCE SHEET
• 4. INCOME STATEMENT
• 5. INVENTORY
• 6. DEPRECIATION
• 7. ACCOUNTING METHODS
• 8. CASH FLOW
• 9. RECORD S SYSTEMS
• 10. COMPUTERIZED RECORDS
• 11. LABOR RECORDS
• 12. FARM RECORDS ANALYSIS
• 13. INCOME TAX

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TEXT BOOK READINGS
FARM RECORDS ANALYSIS

• KAY EDWARD. FARM MANAGEMENT 5TH ED. PGS 73-75
  88- 93

FARM RECORDS RESOURCE BOOK PGS 79 - 86
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LESSON OBJECTIVES
FARM RECORDS ANALYSIS
AFTER THIS LESSON, THE STUDENT SHOULD BE ABLE TO

• 1. DISCUSS THE PROCESS OF USING RECORDS TO
  ANALYZE A FARM BUSINESS
• 2. CALCULATE AND EVALUATE CAPITAL POSITION
  RATIOS LIQUIDTY AND SOLVENCY
• 3.CALCULATE AND EVALUATE PROFITABILITY MEASURES
  AND RATIOS
• 4. CALCULATE AND EVALUATE FINANCIAL EFFICIENCY
  RATIOS
• 5. MAKE SUGGESTIONS ON HOW TO IMPROVE LIQUIDITY,
  SOLVENCY, AND PROFITABILITY.
• 6. DISCUSS NON-FINANCIAL MEASURES OF PERFORMANCE

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FARM RECORDS ANALYSIS
DISCUSSION POINTS I. BUSINESS ANALYSIS II.
FINANCIAL POSITIONS RATIOS III. CAPITAL
POSITION STANDARDS IV. IMPROVING CAPITAL
POSITION V. FIN PERFORMANCE RATIOS VI.
IMPROVING FIN PERFORMANCE VII. NON-FINANCIAL
PERFORMANCE
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I. BUSINESS ANALYSIS
Learning Objective
DISCUSS USING RECORDS TO ANALYZE A FARM BUSINESS
12-1
A. KEEPING FINANCIAL RECORDS

• 1. RECEIPTS
• 2. EXPENSES
• 3. DEPRECIATION
• 4. GARBAGE IN GARBAGE OUT

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CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective

• "KEEPING comprehensive farm business records is
  only the first step. Some business operators keep
  very well organized and detailed records, provide
  information to their income tax preparer, and
  then file them away, never actually using the
  information to either evaluate the current status
  of the business or to plan for its future. The
  information which can be obtained from farm
  business records is a valuable tool for business
  management decisions.

  www.griffin.peachnet.edu/caes/agcrisis/content/r
ecords.htm
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B. SUMMARIZING FINANCIAL RECORDS
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective

• 1. INCOME STATEMENT

2. BALANCE SHEET
3. CASH FLOW
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CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective
C. ANALYZING FINANCIAL RECORDS

• 1. WHY
• a. FIND STRENGTHS WEAKNESS
• b. MAKE COMPARISONS

1) AT THE FARM LEVEL a). TREND ANALYSIS
b). COMPARE TO HISTORY c). IDENTIFY
GROWTH/DECLINE d). COMPARE TO PLANS
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2). AT THE INDUSTRY LEVEL
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective
a). INDUSTRY TRENDS b). COMPARE TO INDUSTRY AVE
YOU
INDUSTRY
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2. HOW RATIO ANALYSIS
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective
a. LIQUIDITY
ABILITY TO PAY BILLS ON TIME WITHOUT DISRUPTING
NORMAL BUSINESS OPERATIONS  
b. SOLVENCY
MEASURES AMT OF BORROWED CAPITAL (DEBT) A
BUSINESS USES RELATIVE TO OWNER'S EQUITY
c. PROFITABILITY
MEASURES THE EXTENT TO WHICH A BUSINESS GENERATES
A PROFIT FROM RESOURCES
d. REPAYMENT
MEASURES ABILITY TO REPAY FARM DEBT FROM FARM AND
NON-FARM INCOME
e. EFFICIENCY
MEASURE HOW  INTENSIVELY  A BUSINESS USES ASSETS
TO GENERATE GROSS REVENUES
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MGT MEAS OVERVIEW
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective

• A. FINANCIAL MEASURES (S)
• 1. FINANCIAL POSITIONBAL SHEET
• a. GUAGE WHERE WE ARE
• b. CAPITAL POSITION
• (1). LIQUIDITY
• (a). PAY BILLS ON TIME
• (2). SOLVENCY
• (a). PAY ALL BILLS
• (3). REPAYMENT CAPACITY
• (a.). ABILITY FOR NEW DEBT

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CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective
2. FINANCIAL PERFORMANCE

• a. HOW WE DID
• b. EFFICIENCY
• c. PROFITABILITY
• B. NON-FINANCIAL PERFORMANCE
• (PHYSICAL UNITS)
• 1. PRODUCTIVITY
• 2. EFFICIENCY

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II. FINANCIAL POSITION RATIOS
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective

• A. CAPITAL POSITION RATIO (BAL SHEET)
• 1. LIQUIDITY PAY BILL ON TIME
• a. CURR RATIO CUR ASSETS / CUR LIAB

Reflects your farms ability to meet short term
debt without disrupting normal business
b. WORKING CAP CUR ASSETS - CUR LIAB
Measures amount of money you would have left if
current assets were sold and current liabilities
paid
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c. WORKING RATIO
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective

• ( CURR ASSETS WORKING SSETS)
• (CURR LIAB WORKING LIAB)

d. CURR DEBT CURR LIAB / TOTAL LIAB
What proportion of total debt is is due within
one year
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CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective
2. SOLVENCY PAY ALL BILLS

• a. ASSET-DEBT RATIO TOT ASSETS / TOT LIAB
• b. ASSET-EQUITY RATIO TOT ASSETS / EQUITY
• c. DEBT-ASSET RATIO TOT LIAB / TOT ASSETS
• d. DEBT-EQUITY RATIO TOT LIAB / EQUITY
• e. EQUITY-ASSET RATIO EQUITY / TOT ASSETS
• f. EQUITY-DEBT RATION EQUITY / TOT LIAB

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III. CAPITAL POSITION STANDARDS
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective

• GOOD
• gt1.51
• lt30

MID 1.5-1.01 30-40
BAD lt1.01 gt40

• A. LIQUIDITY
• 1. CURR RATIO
• 2. CURR DEBT

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CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective

• B. SOVENCY
• 1. ASSET/DEBT
• 2. ASSET/EQUITY
• 3. DEBT/ASSET
• 4. DEBT/EQUITY
• 5. EQUITY/ASSET
• 6. EQUITY/DEBT

• GOOD
• gt1.5 1
• lt30
• lt.4 1
• lt.6 1
• gt.6 1
• gt2.3 1

MID 1.5-1.1 1 30-40 .4 - .7 1 .6 - 2.3 1 .6
- .3 1 2.3 - .4 1
BAD lt1.1 1 gt40 gt.7 1 gt2.3 1 lt.3 1 lt.4 1
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DIFFERENT AG INDUSTRY RATIOS
CALCULATE AND EVALUATE CAPITAL POSITION RATIOS
12-1
Learning Objective
1.751
2.51
2.01
2.51
1.51
40
50
60
35
65
1.51
.671
1.01
.541
1.861
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IV. IMPROVING CAPITAL POSITION
SUGGEST HOW TO IMPROVE LIQUIDITY, SOLVENCY, AND
PROFITABILITY
Learning Objective
5

• A. IMPROVING LIQUIDITY
• 1. RESTRUCTURE DEB PAYMENT
• a. TIMING AND/OR AMOUNTS
• 2. REDUCE FAMILY SPENDING
• 3. INCREASE CASH INFLOW
• 4. DECREASE CASH OUTFLOW
• B. IMPROVING SOLVENCY
• 1. SOLICIT OUTSIDE OWNERSHIP
• 2. SELL AND LEASE BACK
• 3. REFINANCE

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V. FINANCIAL PERFORMANCE
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3

• A. PROFITABILITY FROM INCOME ST
• 1. NET CAST INCOME
• CASH OPER REC - CASH OPER EXP(FV)
• 2. NET OPERATING INCOME
• NCI (NON-CASH REC) - (NON-CASH EXP)
• 3. NET FARM INCOME
• NET OPER INC CAP GAINS - CAP LOSSES
• 4. OPERATING PROFIT MARGIN
• NET FARM INC INC EXP - VAL OF OPER LABOR
• VALUE OF PRODUCTION
• 5. ABSOLUTE MEASURES
• 6. INTERNAL COMPARISONS ONLY!!

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CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
C. FROM INC ST BAL SHEET

• 1. RETURN TO CAPITAL
• a. RETURN ON ASSETS (ROA)
• (NET FARM INC INT EXP OPER LAB VAL)
• TOTAL FARM ASSETS
• DOESNT CONSIDER DEBT IMPACT

b. RETURN ON EQUITY (ROE) (NET FARM INC
OPER LABOR VALUE) TOTAL FARM EQUITY
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CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
2. RETURN TO LABOR

• a. LABOR MGT INCOME S
• (NET FARM INC INT EXP-LAB VAL-OPP INT)
• b. MGT INC VAL OF MGT SKILLS
• LABOR MGT INC - (OPER LABOR )
• c. RETURN ON LABOR /HR
• LAB MGT INC - (0PER REC .05)
  HOURS WORKED

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VII. FINANCIAL PERFORMANCE STANDARDS
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3

• A. EFFICIENCY
• 1. GROSS RATIO
• 2. VAR RATIO
• 3. FIXED RATIO
• 4. INTEREST
• 5. DEPREC
• 6. NET FARM INC
• 7. ASSET T.O.

• GOOD
• lt85
• lt65
• lt20
• lt10
• lt10
• gt15
• gt25

MID 85-95 65-80 20-35 10-20 10-15 10-15 15-2
5
BAD gt95 gt80 gt35 gt20 gt15 lt05 lt15
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CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
MID 4 - 9 3 - 6 25 - 10 4 - 8 /HR

• GOOD
• gt9
• gt6
• gt5
• gt25
• gt8 /HR

BAD lt4 lt3 lt5 lt10 lt4

• B. PROFITABILITY
• 1. RET ON ASSETS
• 2. RET ON EQUITY
• 3. MGT INCOME
• 4. OPER PROFIT
• 5. RET ON LABOR

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DIFFERENT AG INDUSTRY RATIOS
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
5.5
3
7.5
2.5
4.4
5
15
13.8
3.85
12.6
1.5
0.35
0.80
0.25
1.75
FIN EFF
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VIII. IMPROVING FINANCIAL PERFORMANCE RATIOS
SUGGEST HOW TO IMPROVE LIQUIDITY, SOLVENCY, AND
PROFITABILITY
Learning Objective
5

• A. IMPROVE PRODUCTION MANAGEMENT
• 1. IMPROVE ENTERPRISE EFFICIENCY
• 2. IMPROVE ENTERPRISE COMBINATIONS
• B. IMPROVE MARKETING MANAGEMENT
• 1. ASSES MARKETING EFFECTIVENESS
• 2. INCREASE AVERAGE PRICE RECEIVED
• C. IMPROVE FINANCIAL MANAGEMENT
• 1. ASSES LOAN TERMS
• 2. DO ENTERPRISE COSTING

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DU PONT EQUATION
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
NET PROFIT MARGIN
ASSET TURNOVER
ROE
X
X
LEVERAGE
ASSET MANAGEMENT
REV EXPENSE MANAGEMENT
DEBT MANAGEMENT
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ASSET TURNOVER
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
ATO GROSS REC / TOTAL ASSETS

• 1) ASSET TURNOVER MEASURES THE RATE AT WHICH THE
  FARM CAN PRODUCE SALES EQUAL TO THE ASSET
  VALUE USED

2. BIOLOGICAL PRODUCTION USUALLY RESULTS IN LOW
TURN OVER RATES
3. FACTORS REDUCING TURNOVER
a. REPRODUCTION PROBLEMS b. PRODUCTION PROBLEMS
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NET PROFIT MARGIN
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3

• NET PROFIT MARG NET INCOME / GROSS REC

1) PROFIT EFFICIENCY RATHER THAN PROFIT LEVEL
a). EXPENSE CONTROL FEED EFFICIENCYCOST /
OF GAIN LABOR EXPENSE FACILTIES EXP
DEPREC INTEREST
b). REVENUE MANAGEMENT BETTER BASE MKT,
PRICE PREMIUMNS
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LEVERAGE
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3

• LEVERAGE 1 / EQUITY/ TOTAL ASSETS

1) IF YOUR ARE LEVERAGED PROFITABLE, ROE WILL
INCREASE
2) LEVERAGE MULTIPLES YOUR PROFITS
MULTIPLES YOUR LOSSES
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DU PONT EXAMPLE FOR SWINE FARM
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
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DU PONT EXAMPLE FOR DAIRY FARM
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3

• ASSET MANAGEMENT
• (GROSS REV/TOT ASSETS)
• CULLING RATE
• CALVING INTERVAL
• DAYS OPEN
• MORTALITY RATES
• SERVICES PER CONCEPTION
• INVESTMENT PER COW
• AGE AT FRESHING
• INVESTMENT PER MAN

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DU PONT EXAMPLE FOR DAIRY FARM
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3
NET PROFIT MARGIN (NET INC/GROSS REV)

• LABOR EXPENSE
• DEPREC EXPENSE
• FEED EXPENSE
• FEED EFFICIENCY
• MILK PRICE

• FAT
• SOLIDS
• SOMATIC COUNT
• PROTEIN
• ROLLING HERD AVE
• MILK PER MAN

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DU PONT EXAMPLE FOR DAIRY FARM
CALCULATE EVALUATE PROFITABILITY MEASURES
Learning Objective
3

• LEVERAGE
• (1/(EQUITY/TOTASSETS)
• WORKING CAPITAL
• CURRENT RATIO
• WC/GROSS RATIO
• WC/COW
• TOTAL EQUITY
• TERM DEBT/EQUITY
• TOT DEBT/EQUITY
• INTEREST EXPENSE

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CALCULATE AND EVALUATE FINANCIAL EFFICIENCY
RATIOS
Learning Objective
4
A. FINANCIAL EFFICIENCY FR INCOME ST.

• 1. WHERE DOES 1 OF REVENUE GO?
• 2. GROSS RATIO TOT EXP/GROSS OPER REC
• a. FR 1 REV HOW MUCH PD IN EXPENSES?
• 3. VARIABLE RATIOVAR EXP/GROSS OPER REC
• a. FR 1 REV HOW MUCH PD IN VAR EXP?
• 4. FIXED RATIO FIXED EXP/GROSS OPER REC
• a. FR 1 REV HOW MUCH PD IN FIX EXP?
• 5. DEPR RATIO DEPR EXP/ GROSS OPER REC
• a. FR 1 REV HOW MUCH PD IN DEPR EXP?
• 6. INTEREST RATIO INT EXP/GROSS OPER REC
• A. FR 1 REV HOW MUCH PD IN INT EXP?

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VIII. NON-FINANCIAL PERFORMANCE STANDARDSA.
LIVESTOCK PRODUCTION
DISCUSS NON-FINANCIAL MEASURES OF PERFORMANCE
Learning Objective
6

• DAIRY 50-70 COWS _at_18,000
• FEEDER PIG 150-175 SOWS _at_16
• FAR/FIN 100-125 SOWS _at_ 16
• COW/CALF 500 COWS500 CALF
• FEED LOT 1000 HD _at_1100
• SHEEP 750 EWES _at_1.75 LAMBS

• 1,000,000 S
• 2,500 HEAD
• 400,000 S
• 250,000 S
• 1,000,000 S
• 1,300 HEAD

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B. LIVESTOCK EFFICIENCY
DISCUSS NON-FINANCIAL MEASURES OF PERFORMANCE
Learning Objective
6

• 4 LBS FEED/LB OF GAIN
• 1.5-2.0 S/HD/DAY
• 8 LBS FEED/LB OF GAIN
• 2.0-2.5 S/HD/DAY

• SWINE
• FEED EFFICIENCY
• RATE OF GAIN
• BEEF
• FEED EFFICIENCY
• RATE OF GAIN

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C. CROP PRODUCTION700-1000 ACRES
DISCUSS NON-FINANCIAL MEASURES OF PERFORMANCE
Learning Objective
6

• YIELDS
• 125 BU
• 42 BU
• 65 BU
• 85 BU
• 6.5 TONS
• 4.0 TONS
• 20.0 TONS

• CROP
• CORN
• SOYBEANS
• WHEAT
• OATS
• ALFALFA HAY
• MIXED HAY
• CORN SILAGE

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SUMMARY
RECORD ANALYSIS

• 1. MGT MEASURES ARE RELATIVE NOS THAT ALLOW US
  TO COMPARE BETWEEN FARMS
• 2. THE MAJOR AREAS FOR COMPARISON ARE
• A. FINANCIAL POSITION
• B. PROFITABILITY
• C. REPAYMENT CAPACITY
• D. FINANCIAL EFFICIENCY
• 3. NON FINANCIAL PERFORMANCE RATIO ANALYZE
  ENTERPRISE PERFORMANCE

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RECORDS ANALYSISCONCEPT REINFORCEMENT
FARM RECORD ANALYSIS

• WHO YOU
• WHERE Pg 85 FARM RECORDS RESOURCE BOOK
• WHEN ANNOUNCED IN CLASS
• HOW CALCULATE EACH OF THE RATIOS USING INFO AT
  THE TOP

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ASSOCIATED LAB ACTIVITIES
FARM RECORD ANALYSIS

• LAB 9 MANAGEMENT MEASURES

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PERFORMANCE QUIZ1 TRY 1/2 LETTER GRADE
FARM RECORD ANALYSIS

• USING A SHEET OF FORMULAS AND DATA THAT YOU WILL
  BE GIVEN, YOU WILL NEED TO CALCULATE VARIOUS MGT
  MEASURES
• 9 CORRECT 60 LEVEL
• 15 CORRECT PEFECT SCORE
• 16-20 CORRECT EXTRA CREDIT

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NEXT TOPIC

• INCOME TAX