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Barclays Agriculture

Barclays Agriculture. Ratios and Affordability. Richard Thomas – Regional Agricultural Manager Steve Brown – Relationship Director Richard Freeman – Agricultural Manager. Non Confidential.  Internal Only. Balance Sheet

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Barclays Agriculture

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  1. Barclays Agriculture Ratios and Affordability • Richard Thomas – Regional Agricultural Manager • Steve Brown – Relationship Director • Richard Freeman – Agricultural Manager • Non Confidential •  Internal Only

  2. Balance Sheet Is a statement of all the assets & liabilities held by the business at a given date in time. It shows a snapshot in time as to the value/worth of a business and usually prepared on an annual basis. Profit & Loss Account Details the income and expenditure of a business and therefore profit or loss over a given period of time, usually prepared for a 12 month period. Forecast P&L As above but it details the projected income and expenditure of a business over a period of time. Farmers Balance Sheet An overview of the current position of the farm and assets. •  Internal Only

  3. Cash Flow Forecast A projected flow of cash in and out of the business over a given period of time. Often prepared on a month by month basis for a period of 12 months. Quick Figures Measures the liquidity of a business and is the relationship between current assets and current liabilities. This will give an indication as to whether a business can pay its liabilities quickly in cash. Aged Debtor/Creditor lists List of debtors (monies owed to a business) or creditors (monies owed by the business) and how long the debtors/creditors have been outstanding. Erosion Rate The rate as which security is being consumed by losses. •  Internal Only

  4. COLD Financial analysis • Understanding the • FINANCIALS • Capital structure • Debt service • Operating performance • Liquidity • FINANCIAL RISK •  Internal Only

  5. Capital Structure • Take a look at the Balance Sheet: • Snapshot of the Assets & Liabilities • Value of the Business • Profits retained in the business / Drawings • Borrowed money (Gearing) • Hidden Reserves / Deficits •  Internal Only

  6. Capital Structure Ratios • Net Tangible Assets – excludes intangibles • Gearing – Ratio of total loans & HP to net worth •  Internal Only

  7. Operating Performance • Take a look at the Profit & Loss A/C: • Sales • Contracted income • Other income • Profits / Losses • Gross / Net Profit Margins • Directors Remuneration • Dividend Policy •  Internal Only

  8. Operating Performance Ratios • Gross Profit Margin • Net Profit Margin • Sales Breakeven • Margin of Safety •  Internal Only

  9. Liquidity • Take a look at the Balance Sheet: • Focuses on solvency • How quickly profit turns to cash • Working capital / operating cycle • How cash is used / sources • Debtor turnover • Creditor turnover • Stock turnover •  Internal Only

  10. Liquidity • Working Capital Cycle • Cash • Purchase goods or raw materials • Collect cash from customers • Produce goods or services for sale • Sell goods or services •  Internal Only

  11. COLLECTION PERIOD • HOLDING PERIOD • CASH FLOW • TIMING DIFFERENCE • PAYMENT PERIOD •  Internal Only

  12. Liquidity Ratios • Current Ratio • Acid Test • Trade Debtor Turnover • Stock Turnover • Trade Creditor Turnover •  Internal Only

  13. Debt Service • Calculations to enable us to assess: • Ability to repay debt • Based on profits •  Internal Only

  14. Debt Service Cover • WHAT • HOW • 1. Start with: NET PROFIT • EBITDA – Dividends/Drawings • 2. Add: INTEREST • = X cover • 3. Add: TAX • 4. Add: DEPRECIATION / AMORTISATION • Total of ALL annual repayments • 5. Total = EBITDA • 6. Deduct: Dividends / Drawings • 7. Total = Adjusted EBITDA • 8. Divide by: All Annual Repayments • 9. Total = Number of times cover •  Internal Only

  15. Debt Service Practice • Bus makes annual Earnings of £29,500 after interest charges of £500 and depreciation of £250. • The proprietor draws £20,000 • An application is received for a loan with monthly repayments of £220 and has existing finance of £130 pm • NP Int Dep Draw • £29,500 + £500 + £250 - £20,000 = £10,250 • £220 + £130 x 12 £4,200 • Annual Repayments • = 2.4 times cover •  Internal Only

  16. RATIOS • C • Gearing = Total Liabilities x 100 • NTA • Gross Margin = Gross Profit x 100 • Net Sales • Net Profit Margin = Net Income before Tax x 100 • Net Sales • Breakeven Sales = Fixed Costs x Sales • Gross Profit • Margin of Safety = Sales – Breakeven Sales x 100 • Sales O • L • Debtors Days = Trade Debtors x 365 • Sales • Stock Days = Stock x 365 • COGS • Creditor Days = Trade Creditors x 365 • COGS • Current Ratio = Total Current Assets • Total Current Liabilities • Acid Test = Trade Debtors + Cash • Total Current Liabilities • D • Debt Service = EBITDA – Drawings / Dividends • All Loan & HP Annual Capital & Interest • Interest Cover = PBIT or EBIT • Interest • CASHFLOW • Reduction in • Assets and • Increase in • Liabilities are • Sources of Cash • Increasein • Assets and • Reduction in • Liabilities are • Uses of Cash • Risk Coaching & Training •  Internal Only

  17. Questions • Questions? •  Internal Only

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