Survivor…
The Balance
Sheet Challenge
Presented by:
Carol Roth, Outreach Specialist,
Program on Agricultural Technology
Studies (PATS)
Rose Skora, UWEX Agricultural
Educator, Racine & Kenosha Counties
Power Point Content Developed by
Bob Cropp, Agriculture Agent, UWEX-Pepin County
Balance Sheet Challenge Developed by:
UW-Extension Building a Vision Team
Goals For This Workshop
Participants will:
•
Understand the value of balance sheets
• Why we create them
•
Learn the components of balance sheets
• What goes in
•
Learn what a balance sheet measures
• What comes out
INFORMATION = POWER
The Right Amount of Information
is Powerful
What is Right for YOU?
Good Business Managers
• Make Good Decisions
• Manage Change Well
– Rate of Change, Adaptability, Innovation Treadmill
• Confident Risk Takers – Knowledge and Skill
• Mission – Vision – Goals - Benchmarks
• Problem Solvers – Engineering Language
A Language of Business
Financial Statements
&
Financial Analysis Tools
Who will you be Talking To?
Yourself
Where are you
Where do you want to be
How will you get there
Financial Statements
Serving Management’s Needs
Records
Management Reports
Decision-Making
Financial Statements serving
management’s needs
Records
Collecting &
Organizing
Management Reports
Decision-Making
Organizing, Analyzing, & Reporting
- Financial Position
- Financial Performance
Financial Statements
Accounting
System
1. BALANCE SHEET
2. Income Statement
3. Statement of Cash Flows
4. Statement of Owner Equity
Planning
- Feasibility
- Profitability
- Risk-ability
5. Cash Budget
Partial Budget
Enterprise Budget
Balance Sheet – a “balance” concept
Assets are everything in the business
Liabilities are the claims upon the assets
Equity is the part the farmer owns
 Financial position at a point in time
 Liquidity- measured by current ratio and working capital
 Solvency- measured by net worth and equity/asset ratio or
debt/asset ratio or debt/equity ratio
Balance Sheet
•
•
•
•
•
•
Also known as a “Net Worth Statement”
Measures position…not performance
A snapshot In time
Usually compared on an annual basis
Reveals liquidity and solvency
Five of sixteen FFSTF measurements
Balance Sheet Components
• Assets – Everything in place that is needed to
run the business
• Liabilities – The portion of Assets claimed by a
lender
• Equity or Net Worth – The portion of the
assets contributed or owned by the business
owner
Balance Sheet Categories
(Assets and Liabilities)
– Current – 12 months or less
– Non-current
• Intermediate – 1 to 10 years
• Long-term – Over 10 years
Current
Items
•
•
•
•
•
•
•
Cash on hand (Business
Savings (Business)
Prepaid items
Purchased inventories
Raised crops
Growing crops
Accounts receivable
Non-Current
Items
• Intermediate (1-10 years)
– Machinery
– Farm Vehicle
– Kitchen Equipment
• Long-term (over 10 years)
– Buildings
– Land
The Balance
Assets = Equity + Liabilities
Examples of Assets
Time for Active Learning
…practice makes better.
Let’s Help Blue and Straw Berries
Farm With Their Balance Sheet
• Input the Balance Sheet
Items onto the blank
balance sheet
• Calculate
– Total assets,
– Liabilities
– Equity (net worth)
The Answers!
Current Assets and Liabilities
Blue and Straw Berries
Farm Balance Sheet
Why is EQUITY important ?
Equity…
– is the portion of the business assets
contributed by the owners
– growth is part of the annual business
profit
– trends over time help measure the
overall health and profitability of the
business
Liquidity and Solvency*
(As determined from the Balance Sheet)
• Liquidity
– Current Ratio
– Working Capital
• Solvency
– Debt to asset ratio
– Equity to asset ratio
– Debt to equity ratio
*First Five FFSTF (Farm Financial Standards Task Force) Measures
Liquidity
The ability of your farm business to:
– Meet financial obligations when they come due.
– Generate enough cash to pay your family living
expenses and taxes, and make debt payments on time.
“Can you pay your bills?”
Equity Rich Cash Poor
Measuring Liquidity
• Current ratio
– Compares current assets with current liabilities
– Current assets/current liabilities
– Should be at least 1.5 (2.0 preferred)
• Working capital
– Current assets minus current liabilities
– Needs to be a positive dollar amount
Solvency
(Leverage)
The ability of your farm business to pay all its
debts if it were sold tomorrow. Measured as
ratios of: Debt, Equity, Assets.
How are you funding your Assets?
“Can you sell your business?
Measuring Solvency
• Debt-to-asset ratio
– Total debt/total assets
• Equity-to-asset ratio
– Total equity (net worth)/total assets
• Debt-to-equity ratio
– Total debt/total equity (net worth)
Farm Financial Score Card
• Developed by Universities of Vermont and Minnesota
• Is found at: www.cffm.umn.edu/pubs/vermont.pdf
• Scores financial condition of your farm business with 16
measures, with the first 5 result from the Balance Sheet!
Assignment
• Compute the following for the Blue and Straw
Berries Farm:
–Current ratio
–Working capital
–Debt-to-asset ratio
–Equity-to-asset ratio
–Debt-to-equity ratio
• Mark them on the Farm Finance Scorecard
Assignment Answers
• Current Ratio
– Current Assets / Current Liabilities
– $1900 / $17,413 = .11
• Working Capital
– Current Assets minus Current Liabilities
– $1,900 - $17,413 = - $15,513
• Debt-to-Asset Ratio
– Total Liabilities / Total Assets
– $131,500 / $187,900 = 70%
• Equity-to-Asset Ratio
– Total Equity (net worth) / Total Assets
– $56,400 / $187,900 = 30%
How would you
assess the financial
position of the Blue
and Straw Berry
Farm, at this point in
time?
• Debt-to-Equity Ratio
– Total Debt (liabilities) / Total Equity (net worth)
– $131,500 / $56,400 = 233%
Balance Sheets…Take Home Stuff!
• About position…not performance
• Net worth = equity
• Assets =Equity + Liabilities
• Liquidity…Can you pay your bills?
• Solvency…Could you sell your business?
• Gives you 5 of 16 FFSTF measurements
INFORMATION
IS
POWER
Survivor…
The Balance
Sheet Challenge
Presented by:
Carol Roth, Outreach Specialist,
Program on Agricultural Technology
Studies (PATS)
Rose Skora, UWEX Agricultural
Educator, Racine & Kenosha Counties
Power Point Content Developed by
Bob Cropp, Agriculture Agent, UWEX-Pepin County
Balance Sheet Challenge Developed by:
UW-Extension Building a Vision Team