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Beef I Q - Financial Analysis

Beef I Q - Financial Analysis. Purpose of Financial Analysis. The primary emphasis of financial analysis is to properly assess business risk in the lending decision. Financial analysis helps us measure: Financial position -

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Beef I Q - Financial Analysis

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  1. Beef I Q - Financial Analysis

  2. Purpose of Financial Analysis • The primary emphasis of financial analysis is to properly assess businessrisk in the lending decision. • Financial analysis helps us measure: • Financial position - • Total resources controlled by a business and total claims against those resources, at a given point in time; and • Financial performance - • Results of production and financial decisions over one or more periods. Maximizing our customers’ financial success.

  3. Balance Sheet Current Assets – items that will be liquidated in 12 months or less Intermediate Assets – Capital items with normal life span of 1 to 10-years. Fixed or Long Term Assets – Capital items with life span normally > 10-years. Maximizing our customers’ financial success.

  4. Balance Sheet (Cont.) Current Liabilities – Accounts , Loans, or Installments due within 12 months or less Intermediate Liabilities – Debt on loans with maturities > 1-yr but <10-years. Long Term Liabilities – Debt on loans with original maturities > 10-years. Maximizing our customers’ financial success.

  5. Capital - Liquidity Ability to meet financial obligations when due in the course of business, without disrupting normal operations • Working capital (WC) • WC / AGI Percent • Current ratio Maximizing our customers’ financial success.

  6. Total current farm assets Total current farm liabilities Expressed as 1:1 Ratio Indicates the extent to which current farm assets, if liquidated, would cover current farm liabilities. TACO is include on Liability side Higher ratio = greater liquidity Guideline: Stockers > 1.3 : 1 or Cow/calf > 1: 1 Current Ratio (optional) Maximizing our customers’ financial success.

  7. Capital - Solvency • Measures the amount of debt, commitments, and other expense obligations relative to the amount of assets • Measures ability to repay if all assets sold • Indicates the ability to continue operations as a viable business after financial adversity • Net Worth • Owner’s Equity % Maximizing our customers’ financial success.

  8. Total Assets - Total Liabilities The excess of assets over liabilities. The amount of an owner’s net worth in a business. Helps determine the borrower’s ability to withstand periods of financial stress. Net Worth Maximizing our customers’ financial success.

  9. Owner Equity Net Worth Total Assets • Measures portion of business financed by owners. • Core Standard: Cattle Operation > 50% Maximizing our customers’ financial success.

  10. Capital Debt Repayment Capacity What are CDRC and CDRC %? CDRC and CDRC % measure a borrower’s ability to repay capital debt (intermediate and long-term liabilities) based on analysis of the operation’s capitalstructure and earnings. Maximizing our customers’ financial success.

  11. Capital Debt Repayment Capacity What is CDRC and CDRC %? CDRC and CDRC % measure a borrower’s ability to repay capital debt (intermediate and long-term liabilities) based on analysis of the operation’s capitalstructure and earnings. Maximizing our customers’ financial success.

  12. Capital Debt Repayment Capacity (continued) • Four basic components: CDRC - Capacity Demands on CDRC CDRC Margin CDRC Percentage Maximizing our customers’ financial success.

  13. Capital Debt Repayment Capacity Net Earnings + Depreciation + Interest on capital debt Measures total capital available for debt service, capital asset replacement, and building working capital. Maximizing our customers’ financial success.

  14. Demands on Capital Debt Repayment + Principal on capital debt (TACO) + Interest on capital debt + Capital Asset Replacement (CAR) + Working Capital Deficiency Maximizing our customers’ financial success.

  15. Capital Asset Repayment Capacity (CAR) or Use Cost (10-15% x machinery value) + (5% x facilities value) • Measures financial resources needed to replace capital assets. • The amount of allowance needed for machinery/facility replacement less annual principal payments (TACO) on loans financing those assets. • The percentage for machinery can vary from 10-15%. Maximizing our customers’ financial success.

  16. Working Capital Deficiency Current Assets - Current Liabilities If Current Assets is less than Current Liabilities, a deficiency exists Working Capital Deficiency/4 years Allows customer four years to rebuild working capital to met requirements. Maximizing our customers’ financial success.

  17. CDRC Margin CDRC - Demands on CDRC + Principal on Capital Debt + Interest on Capital Debt + CAR + WC Deficiency CDRC or margin remaining after allowing for annual demands Maximizing our customers’ financial success.

  18. CDRC Percentage CDRC Demands on CDRC • Measures overall repayment capacity as a percentage. • Core Standard: > 115% Maximizing our customers’ financial success.

  19. We appreciate your participation and hope you’ll consider making Farm Credit your lender for all your farm financing needs! 800-444-3276 www.myaglender.com www.myaglender.com Maximizing our customers’ financial success.

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