Beef I Q - 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 - 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.
Purpose ofFinancial Analysis
Maximizing our customers’ financial success.
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.
Balance Sheet
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.
Balance Sheet (Cont.)
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.
Capital - Liquidity
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
Maximizing our customers’ financial success.
Current Ratio (optional)
• 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.
Capital - Solvency
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.
Maximizing our customers’ financial success.
Net Worth
Net Worth Total Assets
• Measures portion of business financed by owners.
• Core Standard: Cattle Operation > 50%
Maximizing our customers’ financial success.
Owner Equity
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 capital structure and earnings.
Maximizing our customers’ financial success.
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 capital structure and earnings.
Maximizing our customers’ financial success.
Capital Debt Repayment Capacity
• Four basic components:
CDRC - Capacity
Demands on CDRC
CDRC Margin
CDRC Percentage
Maximizing our customers’ financial success.
Capital Debt Repayment Capacity
(continued)
Net Earnings + Depreciation + Interest on capital debt
Measures total capital available for debt service, capital asset replacement, and building working capital.
Earnings StatementEarnings Statement
FARM INCOME
FARM EXPENSES
NET FARM INCOME
NFIFO
NET INCOME
NET EARNINGS
Gross Revenue +/- Accruals -Purchases for Resale = Value ofFarm Production (VFP)
Cash Expenses +/- Accruals +Depreciation = Total Farm Expenses
VFP - Total Farm Expenses
NFIFO - Gain/Loss on Sale of Capital Assets
Net Farm Income + Non-FarmIncome - Taxes - Deferred Taxes
Net Income - Owner Withdrawal
Maximizing our customers’ financial success.
Capital Debt Repayment Capacity
Earnings Statement
FARM INCOME
FARM EXPENSES
NET FARM INCOME
NET INCOME
NET EARNINGS
Gross Revenue +/- Accruals -Purchases for Resale = Value of Farm Production (VFP)
Cash Expenses +/- Accruals + Depreciation = Total Farm Expenses
VFP - Total Farm Expenses
Net Farm Income + Non-Farm Income - Taxes - Deferred Taxes
Net Income - Owner Withdrawal
+ Principal on capital debt (TACO)
+ Interest on capital debt
+ Capital Asset Replacement (CAR)
+ Working Capital Deficiency
Maximizing our customers’ financial success.
Demands on Capital Debt Repayment
(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.
Capital Asset Repayment Capacity (CAR)
or Use Cost
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.
Working Capital Deficiency
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.
CDRC Margin
CDRC
Demands on CDRC
• Measures overall repayment capacity as a percentage.
• Core Standard: > 115%
Maximizing our customers’ financial success.
CDRCPercentage
We appreciate your participation and hope you’ll consider making
Farm Credit your lender for all your farm financing needs!
800-444-3276 800-444-3276 www.myaglender.com www.myaglender.com www.myaglender.com Maximizing our customers’ financial success.