Stan Humphries, PhD Chief Economist stan@zillow 206.470.7127
Tools to help prepare growers for loan applications and beyond Stan Moore, MSU Extension Educator
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Transcript of Tools to help prepare growers for loan applications and beyond Stan Moore, MSU Extension Educator
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Tools to help prepare growers for loan applications and
beyondStan Moore, MSU Extension Educator
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Three Tools
• Balance Sheet• Income Statement• Cash Flow Projection
• Why work with MSU:• Now• Later
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Balance Sheet
A snapshot of the financial position of the farm business at a give point in time (aka Net Worth Statement).
Everything that you own and owe.
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Accurate and Detailed Balance Sheets
• Analyze the financial performance of the business.
• Secure credit and financing from lenders• Monitor financial progress over time• Make financial projections• Understand the financial risk position• Provide information for Estate Planning
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Balance Sheet Decisions
• Time Frame• Scope• Market Value of Intermediate and Long-
term Assets • Cost value=purchase price-depreciation
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Important Components of a Balance Sheet
• Assets: Everything owned or coming to the business as of the date of the statement.
• Current Farm Assets: Cash and other assets that are expected to be realized in cash or consumed in production during a business year.• Supplies• Growing Crops• Income due on previous year’s crops sold• Government payments on past activities (crop
loans)
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Important Components of a Balance Sheet
• Intermediate Farm Assets:• Assets that support production. Machinery,
Breeding Livestock, Securities not readily marketable.
• Long Term Farm Assets:• Farmland• Buildings and Improvements
• Non Farm Assets:
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Liabilities
• Obligations that are owed, related to assets on the balance sheet.• Classification does not change as a liability
matures.• Accrued, unpaid interest should be listed
separately and is added to current liabilities.
• Current Liabilities: those due and payable on demand or within the operating year (including CCC loans).
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Liabilities
• Intermediate Farm Liabilities: debts against intermediate assets. Typically start with a note of 2-10 years. Machinery, Breeding Livestock, Trees.
• Long Term Liabilities: debts against long term assets. Land, Buildings, Trees.
• Non-Farm Liabilities:
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Balance Sheet Example:
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Balance Sheet Example:
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Balance Sheet Example:
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Balance Sheet Example:
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Balance Sheet Example:
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Balance Sheet Example:
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Balance Sheet Example:
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Balance Sheet Example:
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Balance Sheet Example:
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MSU Excel Balance Sheet
• Simple schedule based balance sheet• Does the calculations for you
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Excel Screen Shot
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Excel Screen Shot
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Excel Screen Shot
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Income Statement
• Net Cash Farm Income
• Net Operating Profit
• Net Farm Income
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Net Farm Income
• Net farm income is summary of income, related expenses and the resulting profit or loss for a given time period (usually 1 year)• Net farm income = net cash farm income with
adjustments for inventory, depreciation, and other capital changes.
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Income Statement
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Income Statement
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Income Statement
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Income Statement
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Other Income Statement Options:
• Finpack Software program from Minnesota• Many others (farmdoc – University of
Illinois) has a cash to accrual income statement spreadsheet.
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Performance Measures to Know!
From the Balance Sheet• Debt to Asset ratio – Ability to borrow at all• Current ratio – Capacity to pay current
debt if neededFrom the Financial Statement• Operating Profit Margin – has the farm
showed the ability to make progress in the past 3-5 years
• Return on Assets• Return on Equity
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Financial ratios – General Guidelines
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Finpack
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Projecting Future Performance
• Two Options• Spreadsheets that you can use on your own• Finpack software to do FinFlo (Cash Flow
projections)
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Penn State Cash Flow Model
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Penn State Cash Flow Model
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Penn State Cash Flow Model
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Penn State Cash Flow Model
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Penn State Cash Flow Model
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Penn State Cash Flow Model
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Penn State Cash Flow Model
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MSU Cash Flow Model
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MSU Cash Flow Model
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So why should you consider working with the MSU FIRM team
• Now• Prepare for loan application
• Later• Farm Business Analysis• Farm Business Planning
• What’s in it for MSU Extension?• Farm Financial Analysis database
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http://agbioresearch.msu.edu/nwmihort/disaster.html
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For more information
• Stan Moore – [email protected]• Phone: 231-533-8818
• Curtis Talley - [email protected]• Phone: 231-873-2129
• Adam Kantrovich Ph.D. [email protected]• Phone: 616-994-4580