Case Study - Answer Sheet
March 15, 2014
Financial Ratios
• Equity Position
– Before Purchase
– After Purchase
40%
31%
• Liquidity
– Before Purchase
– After Purchase
25%
10%
• Efficiency Ratio
– Before Purchase
– After Purchase
70%
63%
2
Management Benchmarks
• Knows Cost of Production
Green/Yellow
(Green if just hay/Yellow after purchase)
• Credit Score
Green/Yellow
• Risk Management
Some
• Business Plan
Red
3
S.W.O.T
Strengths
Weaknesses
Knowledgeable about the industry
Money set aside for college?
Family’s insurance is paid by Jane’s
job
Operation may need to support
additional family members
They have off-farm income
Do not have much liquid cash,
especially after down payment
They use family for labor
No business plan
Jane’s knowledge of record keeping
Seeking 90% financing
Good credit scores
Open Market sales
Budgets
May not be knowledgeable about the
corn industry
Operation is profitable
Crop Insurance
Corn allows diversity
4
S.W.O.T
Opportunities
Threats
New purchase close to their operation
No diversification
Children want to return to the
operation – new ideas
Commodity down turn
More owned vs. rented ground
Weather related conditions
Ability to diversify with more ground
Increased input costs
Current high cattle market
Volatile overseas markets
Potential exposure to more markets
with more product available to sell
Local market competition
Environmental contaminants
5
Financial & Management
Benchmark
Benchmark
Measure
Green
Yellow
Red
Tom & Jane
Before
Purchase
Tom & Jane
After
Purchase
Equity Position
>65%
35-65%
<35%
40%
31%
Liquidity
>50%
20-50%
<20%
25%
10%
Efficiency Ratio
<70%
70-80%
>80%
70%
63%
Knows cost of
Production
By Enterprise
Overall
None
Yes
Overall
Credit Score
>700
650-700
<650
690
690
Risk Management
All Components
Some
None
Some
Some
Business Plan
Written
Verbalized
None
None
None
6