fruit business analysis handbook final

7/23/2019 Fruit Business Analysis Handbook Final

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FruitFarm Business Analysis

Workbook

Fruit AoE Team



Fruit Farm Analysis Workbook % Financial [PAGE 2]

The &n%de'th Farm Financial Analysis

Table of Contents

&NSTR()T&*NS++++++++++++++++++++++++++++++++++++,++++++,+++,,

BALAN)E S-EET E./LANAT&*N++++++++++++++++,,+++++++++++++++++,,,,+++, 0

BALAN)E S-EET: ASSETS++++++++++++++++++,+++++,+++++++++++++++++,,,1

BALAN)E S-EET: L&AB&L&T&ES 2 NET W*RT-+++++++++,++++++++++++++++++++++,33

4EBT AN4 STR()T(RE%BE&NN&N *F 5EAR ++++++++,++++++++++++++++++++++,,,36

4EBT AN4 STR()T(RE%EN4 *F 5EAR ++++++++++++,+++++++++++++++++++,+,,,+,30

S($$AR5 AN4 )*$/AR&S*N F*R ASSETS AN4 L&AB&L&T&ES +++,++,,++++++++++++,++,,+++,31

&N)*$E STATE$ENT E./LANAT&*N+++++++,,++++++++,+++++++++++++++++++,,37

&N)*$E STATE$ENT: )AS- FAR$ RE8EN(E++++++++++,,,,,+++++++++++++,,,+,+++++,39

&N)*$E STATE$ENT: )AS- FAR$ E./ENSES++++,+++,,+++++++++++++++++,,,,+++++,,3

NET FAR$ &N)*$E STATE$ENT+++++++++++++++++++++++++++++++++++++,,6;

STATE$ENT *F )AS- FL*WS AN4 )AS- RE)*NS&L&AT&*N,,++++++++++++++++++++++++,,63

F&NAN)&AL $EAS(RE$ENTS E./LANAT&*NS,,+++++++++++++++++++++++++++,+++,,66




INSTRUCTIONS

Goal: For a one%year 'eriod= de@elo' an accrual adusted income statement, This means 're'aring the ollo!inginancial re'orts:

3, Balance Sheet statement at beginning o year= !ith both cost and market @aluations,6, Balance Sheet statement at end o year= !ith both cost and market @aluations,C, &ncome statement= sho!ing in@entory adustments and de'reciation,0, Summary o cash lo!s including 'rinci'al borro!ings and re'ayments,

From the accrual income statement and other documents= @arious 'roit and inancial ratios indicating strengths

and !eaknesses o the arm business can be calculated, This inancial analysis should be 'erormed e@ery year to monitor the business,

Choices: 5ou ha@e three !ays to accom'lish this,

3, Fill in the !orksheets in the ollo!ing 'ages to 'erorm a manual D'a'er business analysis, *nce this!orkbook is com'leted it can easily be used or F&N/A)# com'uterized business analysis in'ut, 5our Etension Agent can hel' you !ith the F&N/A)# 'rogram,

or

6, Run Fin'ack sot!are= using the 5ear End Analysis GF&NANH o'tion,a, )ontact your county $ichigan State (ni@ersity Etension oice and ask to be 'ut in contact !ith

your 4istrict Etension Farm $anagement Agent or !ith your Local Agent, They ha@e the sot!areon their com'uters and !ill arrange to do the analysis,

b, Buy the F&N/A)# sot!are rom the )enter or Farm Financial $anagement at the (ni@ersity o $innesota= 60 )lassroom *ice Building= 30 Buord A@enue= St, /aul= $innesota <<3;9 or 'hone 9;;%6C0%3333, To 're@ie! !hat F&N/A)# does= @isit their !eb site at:

or




Balance Sheet Instructions an

!"#lanations

The balance sheet or net !orth statement is asna'shot o the inancial 'osition o the arm business at a gi@en 'oint in time, E@erything the business o!ns and o!es is listed on the balancesheet, &t 'ro@ides a summary o ho! unds ha@e been in@ested in the business GassetsH and theinancing methods GliabilitiesH used at a gi@en 'oint

in time, Accurate and detailed balance sheets areneeded to accom'lish the ollo!ing: Analyze the inancial 'erormance o the

business, Secure credit and inancing rom lenders

$onitor inancial 'rogress o@er time

$ake inancial 'roections

(nderstand the inancial risk 'osition

/ro@ide inormation or Estate /lanning

The irst ste' in building an accurate balance sheetis to select the date that the balance sheet re'resents,&t needs to be consistent rom year to year,4ecember C3st is the 'reerred date as thiscorres'onds to the end o the 're@ious cash

accounting year and the beginning o the net,Accurate balance sheets or the beginning and endo the cash accounting 'eriod enables adustment o cash accounting or in@entory changes that occurred

)urrent assets are cash or other assets that aree'ected to be realized in cash or consumed Geed=etc,H in 'roduction during a business year,

All su''lies on hand should be 'riced at their cost,ro!ing cro's such as !heat or alala= should belisted at the actual cash costs in@ested to date,

See a''endi 3 or inormation on calculating theJuantity o cro's in storage and 'ricing corn silageand haylage,

o@ernment 'ayments should relect 'ayments yetto come as a result o 'ast acti@ities= not utureacti@ities, A cro' under loan can be @alued andlisted !ith cro's held or sale only i oset later bya loan against it in the liability section,

The $arket 8alue and )ost 8alue @alues are thesame or current assets,

%aluation Methos for Intermeiate an &ong'

term $ssets

8alues or intermediate and long%term assets should be determined using both their )ost 8alue and their $arket 8alue, The )ost 8alue is the 'urchase 'rice

minus the de'reciation taken to date, This should be consistent !ith income ta records, The $arket8alue is the amount that !ould be recei@ed i theasset !ere sold on the o'en market &t is im'ortant



There is signiicant @alue in both $arket 8alue and)ost 8alue balance sheets, $arket 8alue only can be @ery misleading in determining 'roitability andmonitoring inancial 'rogress o@er time, Net !orth

calculated rom a $arket 8alue balance sheet isaected by inlation or delation as !ell as actualearned income, The )ost 8alue balance sheet is notaected by inlation or delation and is more useulin monitoring the businesses inancial 'roitabilityand 'rogress since only the changes in net !orthresulting rom earnings are included, There iss'ace to enter both the )ost 8alue and the $arket8alue o term assets in the !orksheet,

Intermeiate Farm $ssets&ntermediate%term assets are those resources thatsu''ort 'roduction, They are not intended or immediate sale, Such assets are e'ected to ha@e auseul line o 3 to 7 years, They include machineryand eJui'ment Gmarketable @alue and un%de'reciated @alue be consistent year to yearH=

breeding li@estock= and securities not readilymarketable,

&ong'Term Farm $ssetsLong%term assets include items o a more 'ermanent nature= such as armland= buildings andim'ro@ements= and non%arm real estate, Landshould be listed se'arately rom arm buildings andim'ro@ements,

Non'Farm $ssets Non%arm Assets are those assets not used in thearm business, These could be 'roits taken romthe business or 'ersonal use /ersonal residence

Liabilities are all obligations that are o!ed as o thestatement date, 4o not change the classiication o a liability as it matures, $ake sure 'rinci'al andun'aid accrued interest are se'arated, The 'rinci'al balances should not include un'aid interest,Accrued un'aid interest is listed se'arately,Statements rom lending institutions should be usedto @eriy balances,

Current Farm &iabilities)urrent liabilities are those due and 'ayable ondemand or !ithin the o'erating year, )ommoditycredit loans should be added to this section, & a))) loan is entered= make sure the 'roduct is listed

on the asset side o the balance sheet as !ell,

&t is im'ortant to se'arate and understand thedierence bet!een borro!ed money and un'aid bills, &n cash accounting= un'aid bills ha@e not yet been claimed as a ta%deductible e'ense,

Intermeiate Farm &iabilities'&ntermediate liabilities and debts are against

intermediate assets, These ty'ically are due !ithin7 or 3; years, Loans or machinery and eJui'ment 'urchases and breeding li@estock tend to all intothis category, Leases= such as on silos andmachinery= should be added here,

&ong'term Farm &iabilitiesLong%term liabilities are against long term Assets,Ty'ically these are land contracts and mortgages onland and buildings, These ty'ically !ere set u'

originally !ith 3; or more year to re'ay,

Non'Farm &iabilities Non%Farm Liabilities are those liabilities against



Balance Sheet: ASSETS

CURR!NT $SS!TS Beginning of year

(ate) *+*+,,,,

!n of -ear

(ate) *.+/*+,,,,

*0 Farm Chec1boo1 an Cash 3B 3E

2re#ai !"#enses an Su##lies on 3an

4uantity 5 %alue+Unit (ollars 4uantity 5 %alue+Unit (ollars

Seed

Fertilizer

)ro' chemicals

4rying Fuel

)ro' su''lies

/ackaging $aterials

Nursery Stock

Fuel 2 *il

/arts 2 $isc Su''lies

4ues

$iscellaneous

*ther




$ccounts Receivable Beginning of -r (ate *+*+,,,,

!n of -ear

4ate 36>C3>OOOO

o@ernment /rogram /ayments

-edging Accounts

*ther )urrent Assets

0, Total $ccounts Receivable 0B 0E

Cro#s In Inventory 4uantity 5 2rice (ollars 4uantity 5 2rice (ollars

A''les in Storage

A''les P /rocessing

)herries P Tart

)herries P S!eet

Blueberries

(nrecei@ed Balance 6 years or more

*ther



INT!RM!(I$T! F$RM $SS!TSBeginning of -r

(ate) *+*+,,,,

!n of -r

(ate) *.+/*+,,,

Breeing &ivestoc1 Number 5 %alue+3ea (ollars Number 5 %alue+3ea (ollars

9, Total Breeing &ivestoc1 9B 9E

Machinery : !;ui#ment8Cost value is the remaining un'e#reciate ta" basis<

Cost %alue Mar1et %alue Cost %alue Mar1et %alue

$achinery

*ther




&ONG T!RM F$RM $SS!TS Beginning of -ear

(ate) *+*+,,,,

!n of -ear

(ate) *.+/*+,,,

Farm &an )ost @alue is the remaining un%de'reciated ta basis G!hat you 'aid or it minus ta de'reciation claimedH$cres 5 %alue

!;uals Mar1et


-ome Farm

36, Total &an

*.BC *.BM *.!C *.!M

Farm Builings : Im#rovements )ost 8alue is the remaining un%de'reciated ta basis

Farm Buildings

&m'ro@ements including Tile

rates= /lants 2 Trellis

Fruit /lantings GbearingH

Fruit /lantings Gnon%bearingH




NON'F$RM $SS!TS Beginning of -ear

(ate) *+*+,,,,

!n of -ear

(ate) *.+/*+,,,,


31, Savings an Chec1ing

*9BC *9BM *9!C *9!M

Stocks and Bonds

*ther )urrent Assets




-ousehold Furnishings 2 A''liances

Non%arm 8ehicles

)ash 8alue o Lie &nsurance

Retirement Accounts and &RAIs

*ther &ntermediate Assets

Non%Farm Real Estate 5our -ouse

*ther Long Term Assets

37, Total Non'Farm $ssets 8Inclue line *9<

*BC *BM *!C *!M

TOT$& COMBIN!( F$RM $N( NON'F$RM $SS!TS

39, 8a lines D@ **@ * an * for each column <

*?BC *?BM *?!C *?!M

D NOT!) &ine 8Current Farm $ssets< ' Use cell B for both the Cost %alue an Mar1et %alue columns for the Beginning of

the -ear@ an cell ! for both the Cost %alue an Mar1et %alue columns for the !n of the -ear figures0




Balance Sheet: LIABILITIES

CURR!NT F$RM &I$BI&ITI!S Beginning of -ear

(ate) *+*+,,,, !n of -ear

(ate) *.+/*+,,,,

Farm accounts #ayable Gun'aid bills 2 credit cards i not sho!n as 'rinci'al debtH

4uantity 5 %alue+Unit (ollars 4uantity 5 %alue+Unit (ollars

Seed

Fertilizer )ro' chemicals

4rying Fuel

$isc, )ro' E'enses

/ackaging $aterials

Fuel 2 *ilRe'airs

)ustom -ire

Labor Related &tems

Land Rents

$achinery (n'aid LeasesReal Estate Taes

&nsurance or *ther




(ebt an Structure' B!GINNING OF -!$R ' (ate) *+*+,,,,, S3ORT'T!RM F$RM 8(ebts on O#erating &oans<

)RE4&T*R &nterestRate

Tot, /rinci'alBalance

(n'aid Accrued&nterest

5ear / 2 &/ayment

$onth 4ue Tot, /rinci'alBalance GsameH

6;0 Total Accrued &nterest 8$ $cc0 Int0 Column< ;;;=;;;

63, )urrent /rinci'al 4ue on &nter,2 L, Term 4ebt 8$ 2rinc0 (ue columns lines . : .< 63B

66, Accrued &nterest on Short= &nter,2 Long Term 4ebts 8$ acc0 int0 columns lines .>@. : .< 66B

6C, Total *'er, Loans= )urrent 'rinci'al and Accrued &nterest 8$ all of this column to this cell< 6CB

60, Total Current Farm &iabilities 8$ &ines *=B an ./B ' Beginning of year< 60B

INT!RM!(I$T!'T!RM F$RM 8(ebts on Machinery@ Breeing &ivestoc1 : #erha#s Blgs0<




5ear / 2 &/ayments

$onth4ue

Final5ear

/rinci'al 4ue innet 36 $onths

&ntermediateBalance



Fruit Farm Analysis Workbook % Financial [PAGE 14]6, Total Farm &iabilities% Beginning o 5ear 8$ lines .AB@ .9B@ an .?B< 6B 7

NON F$RM &I$BI&ITI!S ' B!GINNING OF -!$R

Accounts 'ayable and other accrued e'enses

)redit )ards

C;, Total Non Farm accounts #ayable@ accrue e"#enses@ Creit Cars an other 7

CR!(ITOR Interest

Rate

Tot0 2rinci#al

Balance

Un#ai $ccrue

Interest

-ear 2 : I

2ayments

Month

(ue

Final

-ear

2rinci#al

(ue

*.mnth

Term

Balance

Current )urr All ;=;;;

)urr, All ;=;;;

)urr All ;=;;;

Intermeiate

&ong Term

C3, Totals o /rinci'al 2 Accrued&nterest

7 7




(ebt an Structure ' !N( OF -!$R ' (ate) *.+/*+,,,,, S3ORT'T!RM F$RM 8(ebts on O#erating &oans<

)RE4&T*R &nterestRate Tot, /rinci'alBalance (n'aid Accrued&nterest 5ear / 2 &/ayment $onth4ue Total /rinci'alBalance GsameHGsameH

C0, Total Accrued &nterest 8$ $cc0 Int0 Column< ;;;=;;;

C<, )urrent /rinci'al 4ue on &nter,2 L, Term 4ebts 8$ 2rinc0 (ue columns lines /= : A*< C<E

C1, Accrued &nterest on Short= &nter,2 Long Term 4ebts 8$ acc0 int0 columns lines /A@/= :A*H C1E

C7, Total *'er, Loans= )urrent 'rinci'al and Accrued &nterest 8$ all of this column to this cell< C7E

C9, Total Current Farm &iabilities 8$ &ines *=! an /! ' !n of -earH C9E

INT!RM!(I$T!'T!RM F$RM 8(ebts on Machinery@ Breeing &ivestoc1 : #erha#s Blgs0<




5ear / 2 &/ayment

$onth4ue

Final5ear

/rinci'al 4ue innet 36 $onths

&ntermediateBalance




NON F$RM &I$BI&ITI!S ' !N( OF -!$R Accounts 'ayable and other accrued e'enses

)redit )ards

00, Total Non Farm accounts #ayable@ accrue e"#enses@ Creit Cars an other




5ear / 2 &/ayment

$onth4ue

Final5ear

/rinci'al 4ue36mnth

TermBalance

)urrent )urr, All ;;;=;;;

)urr, All ;;;=;;;

)urr, All ;;;=;;;

&ntermediate

Long Term

0<, Totals o /rinci'al 2 &nt,

01, Total Non Farm &iabilities 8a the three bole cells 6ith 7 signs in line AA an line A< 01E




Summary an Com#arison Sheet for $ssets an &iabilities$SS!TS Beginning of -ear

(ate) *+*+,,,,

!n of -ear

(ate) *.+/*+,,,,

N*TE: For Total Farm )urrent Assets use cell 7B or both)ost 8alue 2 $arket 8alue or Beginning 5ear use cell 7Eor both )ost 8alue 2 $arket 8alue or End o 5ear

Cost %alue Mar1et%alue

Cost %alue Mar1et %alue

09, Total Farm )urrent Assets 8line <

0, Total Farm &ntermediate 8line **<

<;, Total Farm Long%Term Farm 8line *<

<3, Total Farm Assets 8a lines A?@ A=@ ><

<6, Non Farm Assets 8line *<

<C, Total )ombined Farm 2 Non%Farm Assets 8a lines * an .<

&I$BI&ITI!S 8Cost an Mar1et %alues 6ill be the same<

N*TE: )ost 8alue and $arket 8alues are the same or theBeginning o 5ear and )ost 8alue and $arket 8alues are thesame or the End o the 5ear columns or Liabilities

Cost %alue Mar1et

%alue

Cost %alue Mar1et %alue

Beg0 of -r0 !n of -r0<0, Total Farm )urrent Liabilities 8.AB< 8/?!<

<<, Total Farm &nterm, Liabilities 8.9B< 8A>!<

<1, Total Farm L, T, Liabilities 8.?B< 8A.!<

<7, Total Farm Liabilities 8a lines A@ : 9<

<9, Non Farm Liabilities 8/.B< 8A9!<

<, Total )ombined Farm 2 Non%Farm Liabilities 8a lines : ?<

B$&$NC! S3!!T OR N!T EORT3 COM2$RISON




INCOME STATEMENT - Explanat!n"

The 'roit and loss statement or NET FAR$&N)*$E 'resents a summary o income= relatede'enses and the resultant 'roit or loss romo'erations or a gi@en 'eriod= normally one year,The income statement starts !ith the NET )AS-FAR$ &N)*$E and then makes in@entoryadustments to determine NET */ERAT&N/R*F&T, 4e'reciation and other ca'ital

adustments are made net to determine NETFAR$ &N)*$E,

By com'aring 'roit and loss statements or se@eralyears= you can see trends in your business, & youuse a 'roit and loss statement along !ith a balancesheet= you can calculate your return on in@estment,

An income statement must include adustments or in@entories= and de'reciation,

NET )AS- FAR$ &N)*$E is sim'ly the

dierence bet!een total cash income and total cashe'enses, This @alue minus ta de'reciation is!hat are subect to cash basis income taes,

NET */ERAT&N /R*F&T takes into accountin@entory changes o current assets and un'aid bills,These changes are oten huge and make signiicantdierences to the income statement, A eed shortage

due to drought oten !ill not sho! in cash lo!until net year,

NET FAR$ &N)*$E takes into accountde'reciation and other ca'ital acti@ities, This is!here the cost o machinery= buildings and other assets !ith a lie o more than one year getsaccounted or, The change in in@entory o Breeding

Li@estock is accounted or in this section, The NetFarm &ncome is the return to un'aid labor andmanagement and the arm eJuity used in the business,

BMBeginning= EMEnding= )M)ost 8alue= $M$arket 8alue



Income Statement: CASH FARM REVENUE for

the Year

C$S3 F$RM INCOM!4uantity (ollars

A''les P Fresh Bu

A''les P /rocessed Bu

A''les P "uice Bu

ra'es Ton

)herries GS!eetH P Fresh Ton

)herries GS!eetH P /rocessed Ton

)herries GTartH P /rocessed Ton

/eaches Bu

/lums Bu

/ears Bu

Stra!berries Lbs

Rasberries Lbs

Blueberries P Fresh Lbs

Blueberries P /rocessed Lbs

As'aragus Tons

8egetables




Income Statement: CASH FARM EXPENSES for

the Year

C$S3 F$RM !52!NS!S 8e"#enses #ai< 4uantity : Unit (ollarsSeed > Re'lacement Trees Units

Fertilizer

)ro' )hemicals

)ro' &nsurance

4rying Fuel

&rrigation Energy

/ackaging and Su''lies

(tilities )ro's

-auling and Trucking )ro's

$arketing )ro's

/roduce or Resale

/ackages and )artons

Bees

&/$ Scouting

Bin Rents

7;, &nterest

Fuel and *il

Re'airs

)ustom -ire

-ired Labor Gincluding har@estH

Land Rent




73, Total Cash Farm !"#enses




.0 N!T C$S3 F$RM INCOM! 8&ine 9= minus &ine *<

IN%!NTOR- C3$NG!SQNote: The numbers belo! the cell or bo is !here you ind your @alue,

Cro# : Fee Mar1et

&ivestoc1

Receivables :

other

income items

2re#ai

!"#enses

2ayables :

$ccrue

!"#enses

7C, Ending &n@entory

8line !< 8line 9!< 8line A!/!< 8line .!< 8line *=B..B<

GBeginningH70, Beginning &n@entory

8line B< 8line 9B< 8line AB/B< 8line .B 8line *=!/9!<

GEndingH

7<, &n@entory )hange 8line / minus line A<

71, Total &n@entory )hange

8Combine all cells in line 0 Ma1e sure to a or subtract e#ening on the cells iniviual value0<

0 N!T O2!R$TING 2ROFIT 8&ine . combine 6ith line 9<

(!2R!CI$TION $N( OT3!R C$2IT$& $(HUSTM!NTS

Breeing

&ivestoc1

Machinery :

!;ui#ment

Builing :

Im#rovements

Other

$ssets

79, Ending &n@entory

8line ?!< 8line =!C< 8line */!C< 8line *>!C*A!C<

7, )a'ital Sales 8 <




Statement Of Cash Flows and Cash Reconciliation

SOURC! OF FUN(S US! OF FUN(S

Beginning )ash Balance 8line *B< Ending )ash Balance 8line *!<

ross )ash Farm &ncome 8line 9=< Total )ash Farm E'ense 8line *<

9<, Farm )a'ital Sales 8sum of line =

bloc1s

;, Farm )a'ital /urchases 8sum of line ?*

bloc1s91, Net Non%Farm &ncome 3, &ncome Ta and S,S, /aid

97, $oney Borro!ed 6, /rinci'al /ayments

99, its and &nheritances C, )ash its i@en

Beg, Non%Farm Sa@ings 8line *9BC< End, Non%Farm Sa@ings 8line *9!C<

9, Total )ash &nlo!s 0, Subtotal )ash *utlo!s

<, A''arent amily li@ing e'ense 8line ?= minus line =A<

1, Family li@ing e'ense re'orted

7, 4iscre'ancy G(naccounted )ashH 8line = minus line =9<

This section is used to hel' determine the accuracyo the inormation, With large unaccounted cash=one should Juestion the accuracy o the inancialinormation, 5our accounting system should be

able to account or these acti@ities, For assistancecontact your local etension agent to learn about the$S( Etension Telarm arm record kee'ingsystem,

BMBeginning= EMEnding= )M)ost 8alue= $M$arket 8alue




#INANCIA$ MEAS%&EMENTS - Explanat!n"

-a@ing an understanding o the inancial ratios andmeasurements or s'eciic arms can gi@esigniicant guidance o !here to in@estigate or o''ortunities and im'ro@ements in the business,E'ansion easibility can be more realisticallye@aluated !ith good inancial inormation, -igh 'roitability and adeJuate cash lo! is the result o many actors, &normation rom the beginning and

ending balance sheets and the income statement can be used to calculate these inancial measurements,The indicators should be calculated each year todocument and monitor inancial 'rogress,

Side%by%side com'arisons o the eiciency ratios toother $ichigan arms !ill hel' the manager identiy!here im'ro@ements may be made, The inancial

measures allo! the arm manager to identiy !herestrengths and !eaknesses o the business are, Arethey ha@ing a 'roitability 'roblem= a cash%lo! 'roblem= or a debt structure 'roblem Are theeiciencies !ithin reason= or should managementenergies by ocused to enhance the strengths andminimize the !eaknesses A lo! asset turno@er rate may indicate the necessity to liJuidateun'roducti@e assets= including machinery=un'roducti@e land= or high @alued land,

to be Dstrong, A business !ith !eak current ratioand cash lo! 'roblems should e@aluate stretching 'rinci'al 'ayments o@er more years, &t is also@aluable to look at ho! this ratio has changed o@er recent years and relate to 'roduction and>or in@estment occurrences,

Solvency

The arm (ebt to $sset Ratio tells us !hat 'ercentage o business assets are o!ed to creditors,This is calculated by taking total arm liabilitiesdi@ided by total arm assets, The debt to asset ratiomeasures the inancial 'osition o the business, &tgi@es us a measure o risk e'osure and the abilityo the business to take hits, The debt to asset ratiois not a measurement o 'roitability, Ratios than

1<K are considered to be D!eak= !ith ratios thanC<K considered to be Dstrong, The eJuity to assetratio is sim'ly the re@erse o the debt to asset ratio=and the debt to eJuity ratio is com'uted using thesame @alues, &t is also called the leverage ratio andlenders tend to use it, This is an im'ortant @alue tomonitor o@er time and as maor in@estments areconsidered or made, A goal may be a 4ebt to Assetratio belo! 1;K e@en during a maor e'ansion,

2rofitability



Fruit Farm Analysis Workbook % Financial [PAGE 25]arm assets= ratios 0K are considered D!eak=!hile 3;K are considered to be Dstrong,

The Rate of Return on Farm !;uity measures

ho! !ell your eJuity ca'ital is being em'loyed bythe business, &t is calculated by taking the net armincome= minus the @alue o o'eratorIs un'aid labor and management= di@ided by the a@erage total armeJuity, -ighly le@eraged and under ca'italizedarms can get !ild results, & your debt is !orkingor you= the return on eJuity !ill be higher than thereturn on assets, & the arm has no debt= the returnon eJuity !ill be the same as the return on assets,Rate o return on arm eJuity should be higher thanrate o return on assets= but ratios 1K areconsidered D!eak= !hile ratios 36K areconsidered Dstrong,

The O#erating 2rofit Margin ratio measures the

eiciency in terms o the return 'er dollar o sales,The o'erating 'roit is beore interest e'ense= butater taking a charge or the @alue o un'aid labor and management, A lo! o'erating 'roit margincan be caused by lo! 'roduction= lo! 'rices= or high in'ut costs, These in'ut costs include all thee'enses included under cash arm e'enses= butnot including interest, &nterest e'ense does not

aect the o'erating 'roit margin, A high @alue o un'aid labor management !ill reduce the o'erating 'roit margin, 4e'reciation is also not 'art o theratio *'erating 'roit margin ratios 3;K are

earnings 'lus de'reciation= 'lus interest on theintermediate and long%term debts di@ided by theannual scheduled 'rinci'le and interest on theintermediate and long%term debts, Notice that the

amount o money a@ailable or debt ser@icing o theintermediate and long%term debts does not includethe interest that is 'aid on short%term one year ando'erating loans, The ratio o 3 or 3;;K means thatthere is ust enough money to ser@ice the debt,Ratios less than 33<K are considered D!eak= !hileratios greater than 30;K are considered Dstrong,The arm !ith a !eak re'ayment ca'acity may or may not ha@e a 'roitability 'roblem, Re'aymentca'acity is a measurement o the ability o the business to 'ay interest and 'rinci'al in relationshi'to ho! debt is structured, A ast debt re'aymentstructure !ill generate a lo!er re'ayment ca'acity,The arm may be e'eriencing cash lo! 'roblems=creating a !eak current ratio= because o the ast

re'ayment schedule, A arm !ith a relati@ely goodrate o return on assets and net arm income ratio= but a !eak re'ayment ca'acity can restructure itsdebt to s'read out 'ayments and im'ro@e cash lo!,

Eiciency $easures

The $sset Turnover Rate measures ho! eicientlyassets are being utilized in the business to

generating re@enue, A lo! asset turno@er ratioindicates that the business has a lot o assets noteiciently being utilized, -o!e@er= a business canha@e a lo! asset turno@er ratio i it has a high 'roit



Fruit Farm Analysis Workbook % Financial [PAGE 26] but do not include interest, &t is similar to the 'roitmargin= ece't it looks at the e'enses @ersus theincome= and the o'erating e'enses ratio does notinclude a @alue or un'aid labor and management=

!here the o'erating 'roit margin does include a@alue or un'aid labor and management, Theo'erating e'ense ratio is commodity s'eciic= butratios 9;K are considered D!eak= !hile @alues7;K are considered Dstrong,

The same items that aect the o'erating 'roitmargin also directly in@ersely aect the o'eratinge'ense ratio= !ith the ece'tion o the @alue o un'aid labor and management, So to some degree=the same items that aect the o'erating 'roitmargin also aect the o'erating e'ense ratio,

The (e#reciation !"#ense Ratio is used to look atthe amount o income being used or ca'ital items,

A ratio 3;K is considered D!eak= !hile a ratio<K is considered Dstrong,

The de'reciation e'ense ratio should not includethe de'reciation on 'urchased breeding li@estock=nor should it include the a''reciation or de'reciation on raised breeding li@estock, The only

!ay to decrease the de'reciation ratio= !ithout amaor change in the business= is to decrease theamount o ca'ital 'urchases each year, &t !ill take ae! years to !ork out o a high ratio A arm that

money let o@er ater o'erating= de'reciation andinterest e'enses, &t is dierent than the o'erating 'roit margin because interest and de'reciation isincluded= !hile the @alue o un'aid amily labor and

management is not included in NF&R, A net armincome ratio 7K is considered D!eak= !hile3<K is considered Dstrong, A lo! net armincome ratio indicates the arm is not generatingmuch 'roit or the un'aid labor or or net !orthgain, Businesses that do not ha@e any un'aid labor=i,e,: a cor'orate structure !here the o!ners are 'aidthrough salaries= !ill tend to ha@e a lo!er armincome ratio because the @alue o un'aid labor isincluded in the cash e'enses,




5ear OOOOOOOOO

FIN$NCI$& M!$SUR!M!NTSBeginning of -ear !n of -ear

&I4UI(IT-

9, )urrent Farm Assets 8line B< and 8line !<

, )urrent Farm Liabilities 8line .AB< and 8line /?!< 7

3;;, Farm Current Ratio 8line =? ivie by line ==<

SO&%!NC-3;3, Total Farm 4ebt 8line .= B< and 8line A/ !< 7

3;6, Total Farm Assets 8line * BM< and 8&ine * !M< 7

3;C, (ebt to $sset Ratio GFarm=$arketH 8line *>* ivie by line *>.< 5 *>> K K

2ROFIT$BI&IT- ,,,,,

3;0, Net Farm Income G$arket 8alueH 8&ine ?A #lus line 9!M minus line 9BM<

3;<, Farm Total Accrual &nterest 8line > #lus line /9! minus line ..B<

3;1, 8alue o Un#ai Family labor and $anagement 86hat is yours an others time 6orth<

3;7, A@erage Farm Assets G$arket 8alueH 88line *>.B #lus line *>.!< ivie by .<

3;9, Rate of Ret0 on Farm $ssets 88line*>A #lus line*> minus line*>9< ivie by line*>< 5 *>> K

3;, A@erage Total Farm EJuity 88line 9>BM #lus line 9>!M< ivie by .<

33;, Rate of Return on Farm !;uity 88line *>A minus line *>9< ivie by line *>=< 5 *>> K

333, O#erating 2rofit Margin 8line*>A #lus line*> minus line*>9< ivie by line**9< 5 *>> K

R!2$-M!NT C$2$CIT- J $ccrual




Farm Name ____________________ Business Year ______

FINANCIAL RATIOSGENERAL GUIDELINES

Weak Caution Strong

Liui!it"

Current Ratio #$ine %&&' _________________________ <1 ________________________ >2 ________________________

So$(en)"

Farm Debt to Asset Ratio #$ine %&*' _________________________ >65% ________________________ <35% ________________________

+ro,ita-i$it"

Rate of Return on Farm Assets #%&.' ________________________ <4% ________________________ >10% ________________________

Rate of Return on Farm Equit #%%&' _________________________ <6% ________________________ >12% ________________________

!"eratin# $rofit ar#in #$ine %%%' _________________________ <10% ________________________ >20% ________________________

Re/a"ment Ca/a)it"

&erm Debt Co'era#e Ratio #$ine %%0' _________________________ <115% ________________________ >140% ________________________ E,,i)ien)"

#Commo!it" S/e)i,i)'

Asset &urno'er Rate ()t* #$ine%%1' _________________________ <40% ________________________ >50% ________________________

!"eratin# E+"ense Ratio #$ine%%.' _________________________ >,0% ________________________ <-0% ________________________

De"re.iation E+"ense Ratio#$ine%%2' _________________________ >10% ________________________ <5% ________________________

/nterest E+"ense Ratio #$ine %3&' _________________________ >10% ________________________ <5% ________________________

et Farm /n.ome Ratio #$ine %3%' _________________________ <-% ________________________ >15% ________________________

Business Strengt4s51___________________________________________________________________________________________________________________ 2___________________________________________________________________________________________________________________ 3___________________________________________________________________________________________________________________ 4___________________________________________________________________________________________________________________ 5___________________________________________________________________________________________________________________ 6___________________________________________________________________________________________________________________ O//ortunities51___________________________________________________________________________________________________________________ 2___________________________________________________________________________________________________________________ 3___________________________________________________________________________________________________________________

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