Tools to help prepare growers for
loan applications and beyond
Stan Moore, MSU Extension Educator
Three Tools
• Balance Sheet
• Income Statement
• Cash Flow Projection
• Why work with MSU:
• Now
• Later
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.
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
Balance Sheet Decisions
• Time Frame
• Scope
• Market Value of Intermediate and Long-term
Assets
• Cost value=purchase price-depreciation
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)
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:
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).
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:
Balance Sheet Example:
Balance Sheet Example:
Balance Sheet Example:
Balance Sheet Example:
Balance Sheet Example:
Balance Sheet Example:
Balance Sheet Example:
Balance Sheet Example:
Balance Sheet Example:
MSU Excel Balance Sheet
• Simple schedule based balance sheet
• Does the calculations for you
Excel Screen Shot
Excel Screen Shot
Excel Screen Shot
Income Statement
• Net Cash Farm Income
• Net Operating Profit
• Net Farm Income
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.
Income Statement
Income Statement
Income Statement
Income Statement
Other Income Statement Options:
• Finpack Software program from Minnesota
• Many others (farmdoc – University of Illinois) has
a cash to accrual income statement
spreadsheet.
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
needed
From 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
Financial ratios – General Guidelines
Finpack
Projecting Future Performance
• Two Options
• Spreadsheets that you can use on your own
• Finpack software to do FinFlo (Cash Flow projections)
Penn State Cash Flow Model
Penn State Cash Flow Model
Penn State Cash Flow Model
Penn State Cash Flow Model
Penn State Cash Flow Model
Penn State Cash Flow Model
Penn State Cash Flow Model
MSU Cash Flow Model
MSU Cash Flow Model
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
http://agbioresearch.msu.edu/nwmihort/disaster.html
For more information
• Stan Moore – moorest@msu.edu
• Phone: 231-533-8818
• Curtis Talley - talleyc@msu.edu
• Phone: 231-873-2129
• Adam Kantrovich Ph.D. akantrov@anr.msu.edu
• Phone: 616-994-4580