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What the Records Show

How did they land on your doorstep?They were probably referred to youBecause they couldn't get credit?They may know there is a problem but

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What the Records Show

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    1. What the Records Show

    2. How did they land on your doorstep? They were probably referred to you Because they couldn’t get credit? They may know there is a problem but… They rarely know how serious it is What the Records Show

    3. What do we want out of the records? Balance sheet Budgets Typical year plan Cash flow plan What the Records Show

    4. How much time have you got? What the Records Show

    5. The records are the ground truth Best – balance sheet, accrual income statement, and enterprise reports Better – computer printout of cash income, expenses, and other cash flows Common – tax forms and records Worst – shoe box of receipts What the Records Show

    6. Farm Financial Standards Measures Sweet 16+ Measure of financial position Liquidity Solvency Measures of financial performance Profitability Repayment capacity Efficiency Hand out scorecardHand out scorecard

    7. Tools Balance sheets Schedule Fs Other tax records Depreciation schedules Crop insurance information Operations Without Good Records

    8. Balance sheet If it is older than a couple of months, update it Or start from scratch – you will really know a lot about the operation (and operator) when you get done Market values vs. cost Try not to agonize over specific valuations – spending 30 minutes rather than 30 seconds debating a value rarely improves the results Operations Without Good Records

    9. Balances sheet analysis Current position Current ratio Working capital Balance sheet structure Total debt to asset ratio Net worth Net worth change!!! Operations Without Good Records

    10. Casey O’Farmer Balance Sheet

    11. Tax records Cash generation Section 179 and bonus depreciation Nonfarm income Taxes paid What else? Operations Without Good Records

    12. Casey O’Farmer Sched F

    13. Earned Net Worth Change (Retained Earnings)

    15. Earned Net Worth Change (Retained Earnings)

    16. Accrual income statements Ratio analysis Enterprise analysis Financial trends Operations With Good Records

    17. A cruel thing happened on the way to the Standards 16 of the 21 ratios require an accrual income statement

    18. The Schedule F Dilemma

    19. Percentage Difference Between Cash and Accrual Net Income

    20. Percentage Difference Between Cash and Accrual Net Income

    21. Which Way Did They Go? Source: FINBIN 2005-2008

    22. Casey O’Farmer 2007 Income Statement

    23. Casey O’Farmer’s Financial Performance

    25. Measures of Liquidity Current ratio Working capital

    26. Who Has More Liquidity?

    27. FINBIN Liquidity Measures by Profit Group, Minnesota, 2008

    28. Measures of Solvency Debt to Asset Ratio Equity to Asset Ratio Debt to Equity Ratio

    29. UDSA Farm Balance Sheet, 2004 Structure and Finances of US Farms, Family Farm Report, 2007 Edition ERA, USDA

    30. FINBIN Solvency Measures by Profit Group, Minnesota, 2008 Redo without deferred liabsRedo without deferred liabs

    31. Profitability Measures Net farm income Rate of return on assets Rate of return on equity Operating profit margin Asset turnover rate EBITDA (Earnings Before Interest, Taxes, Depreciations, and Amortizations)

    34. Dupont Relationship

    35. Flowchart for Assessing and Improving Farm Profitability Source: Purdue University

    36. FINBIN Profitability Measures by Profit Group, Minnesota, 2008

    37. Repayment Capacity Measures Capital debt repayment capacity Capital debt repayment margin Replacement margin Term debt coverage ratio Replacement margin coverage ratio

    38. Term Debt Coverage Ratio Net farm income (accrual) + Depreciation + Nonfarm income - Family living expense (apparent) - Income taxes + Interest paid on term debt = Available for term debt payments ÷ Scheduled term debt payments

    39. FINBIN Repayment Capacity Measures by Profit Group, Minnesota, 2007

    40. FINBIN Repayment Capacity Measures by Profit Group, Minnesota, 2008

    41. Financial Efficiency Measures Asset turnover rate Operating expense ratio Depreciation ratio Interest expense ratio Net farm income ratio

    42. Efficiency Ratios Operating Expense Ratio + Depreciation Expense Ratio + Interest Expense Ratio + Net Farm Income Ratio = 100 % of Gross Revenue

    43. FINBIN Efficiency Measures by Profit Group, Minnesota, 2008

    44. Casey O’Farmer, 2007

    45. Enterprise analysis Managerial accounting Operations With Good Records

    46. Corn, Cash Rented, 2008, FINBIN Database, So MN

    47. Corn, Southern Minnesota

    48. What the Records Show Make sure the data doesn’t get in the way of seeing the problem.

    49. FINBIN Key Ratios by Net Farm Income, 2008, Minnesota

    50. FINBIN Key Ratios by Age, Minnesota, 2008

    51. FINBIN Key Ratios by Crop Acres, Minnesota, 2008

    52. FINBIN Key Ratios by Crop Acres, 2008, Minnesota

    53. FINBIN Key Ratios by Crop Acres, Minnesota

    54. FINBIN Key Ratios Sorted by Crop Acres, 2008, Minnesota

    55. FINBIN Key Ratios by Gross Farm Income, 2008, Minnesota

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