Survivor… The Balance Sheet Challenge

1. Survivor…The Balance Sheet Challenge Presented by: Carol Roth, Outreach Specialist, Program on Agricultural Technology Studies (PATS) Rose Skora, UWEX Agricultural Educator, Racine & Kenosha Counties Power Point Content Developed by Bob Cropp, Agriculture Agent, UWEX-Pepin County Balance Sheet Challenge Developed by: UW-Extension Building a Vision Team

2. Goals For This Workshop Participants will: • Understand the value of balance sheets • Why we create them • Learn the components of balance sheets • What goes in • Learn what a balance sheet measures • What comes out

3. INFORMATION = POWERThe Right Amount of Information is Powerful What is Right for YOU?

4. Good Business Managers • Make Good Decisions • Manage Change Well • Rate of Change, Adaptability, Innovation Treadmill • Confident Risk Takers – Knowledge and Skill • Mission – Vision – Goals - Benchmarks • Problem Solvers – Engineering Language

5. A Language of Business Financial Statements&Financial Analysis Tools Who will you be Talking To? Yourself Where are you Where do you want to be How will you get there

6. Financial Statements Serving Management’s Needs Records Management Reports Decision-Making

7. Financial Statements serving management’s needs Records Management Reports Decision-Making • Organizing, Analyzing, & Reporting • - Financial Position • - Financial Performance • Financial Statements • BALANCE SHEET • Income Statement • Statement of Cash Flows • Statement of Owner Equity Planning - Feasibility - Profitability - Risk-ability 5. Cash Budget Partial Budget Enterprise Budget Collecting & Organizing Accounting System

9. Balance Sheet – a “balance” concept Assets are everything in the businessLiabilities are the claims upon the assetsEquity is the part the farmer owns • Financial position at a point in time • Liquidity- measured by current ratio and working capital • Solvency- measured by net worth and equity/asset ratio or debt/asset ratio or debt/equity ratio

10. Balance Sheet • Also known as a “Net Worth Statement” • Measures position…not performance • A snapshot In time • Usually compared on an annual basis • Reveals liquidity and solvency • Five of sixteen FFSTF measurements

11. Balance Sheet Components • Assets – Everything in place that is needed to run the business • Liabilities – The portion of Assets claimed by a lender • Equity or Net Worth – The portion of the assets contributed or owned by the business owner

12. Balance Sheet Categories(Assets and Liabilities) • Current – 12 months or less • Non-current • Intermediate – 1 to 10 years • Long-term – Over 10 years

13. Current Items Non-Current Items • Cash on hand (Business • Savings (Business) • Prepaid items • Purchased inventories • Raised crops • Growing crops • Accounts receivable • Intermediate (1-10 years) • Machinery • Farm Vehicle • Kitchen Equipment • Long-term (over 10 years) • Buildings • Land

14. The Balance Assets = Equity + Liabilities

15. Examples of Assets

16. Time for Active Learning…practice makes better.

17. Input the Balance Sheet Items onto the blank balance sheet Calculate Total assets, Liabilities Equity (net worth) Let’s Help Blue and Straw Berries Farm With Their Balance Sheet

18. The Answers!

19. Current Assets and Liabilities

21. Blue and Straw Berries Farm Balance Sheet

24. Why is EQUITY important ? Equity… • is the portion of the business assets contributed by the owners • growth is part of the annual business profit • trends over time help measure the overall health and profitability of the business

25. Liquidity Current Ratio Working Capital Solvency Debt to asset ratio Equity to asset ratio Debt to equity ratio Liquidity and Solvency*(As determined from the Balance Sheet) *First Five FFSTF (Farm Financial Standards Task Force) Measures

26. Liquidity The ability of your farm business to: • Meet financial obligations when they come due. • Generate enough cash to pay your family living expenses and taxes, and make debt payments on time. “Can you pay your bills?” Equity Rich Cash Poor

28. Measuring Liquidity • Current ratio • Compares current assets with current liabilities • Current assets/current liabilities • Should be at least 1.5 (2.0 preferred) • Working capital • Current assets minus current liabilities • Needs to be a positive dollar amount

29. Solvency(Leverage) The ability of your farm business to pay all its debts if it were sold tomorrow. Measured as ratios of: Debt, Equity, Assets. How are you funding your Assets? “Can you sell your business?

30. Measuring Solvency • Debt-to-asset ratio • Total debt/total assets • Equity-to-asset ratio • Total equity (net worth)/total assets • Debt-to-equity ratio • Total debt/total equity (net worth)

31. Farm Financial Score Card • Developed by Universities of Vermont and Minnesota • Is found at: www.cffm.umn.edu/pubs/vermont.pdf • Scores financial condition of your farm business with 16 measures, with the first 5 result from the Balance Sheet!

32. Assignment • Compute the following for the Blue and Straw Berries Farm: • Current ratio • Working capital • Debt-to-asset ratio • Equity-to-asset ratio • Debt-to-equity ratio • Mark them on the Farm Finance Scorecard

33. Assignment Answers • Current Ratio • Current Assets / Current Liabilities • $1900 / $17,413 = .11 • Working Capital • Current Assets minus Current Liabilities • $1,900 - $17,413 = - $15,513 • Debt-to-Asset Ratio • Total Liabilities / Total Assets • $131,500 / $187,900 = 70% • Equity-to-Asset Ratio • Total Equity (net worth) / Total Assets • $56,400 / $187,900 = 30% • Debt-to-Equity Ratio • Total Debt (liabilities) / Total Equity (net worth) • $131,500 / $56,400 = 233% How would you assess the financial position of the Blue and Straw Berry Farm, at this point in time?

34. Balance Sheets…Take Home Stuff! • About position…not performance • Net worth = equity • Assets =Equity + Liabilities • Liquidity…Can you pay your bills? • Solvency…Could you sell your business? • Gives you 5 of 16 FFSTF measurements

35. INFORMATION ISPOWER

36. Survivor…The Balance Sheet Challenge Presented by: Carol Roth, Outreach Specialist, Program on Agricultural Technology Studies (PATS) Rose Skora, UWEX Agricultural Educator, Racine & Kenosha Counties Power Point Content Developed by Bob Cropp, Agriculture Agent, UWEX-Pepin County Balance Sheet Challenge Developed by: UW-Extension Building a Vision Team