Developing Your Equity
Redemption Budget
Leon Stejskal
The Triangle Companies
Advanced OCCD March 30, 2005
Debt/Equity Mix
Questions:
Does co-op have the ability to repay the debt
incurred?
Does co-op have adequate financial flexibility?
Does the rate of return on additional assets
justify additional debt?
Are management and board comfortable with
the debt/equity level?
Equity Management Process
1. Determine equity redemption program
a. Age of patron
b. Revolving fund
c. Pool
d. Combination
2. Determine equity redemption budget
a. Wish list
b. What can we afford
Developing An Equity Redemption
Budget
 Considerations:
Fixed Assets needed in the next 5 years
Goals for Stock retirement plan
 Establish priority to be used to develop budget:
Working Capital
Debt to Equity
Members Equity
Local Profits Needed
Purchase of Fixed Assets
Payment of Term Debt
Stock Retirement
Purchase of Investment
Other
Improve Working Capital
Total Funds Needed
Less Depreciation
Less Other
Total Cash Needed
Divided by % Cash Retained
Total Savings Required from Local Operations
$200,000
$120,000
$175,000
$25,000
$520,000
$275,000
0
$245,000
75%
$326,667
Anytown Coop
Balance Sheet
January 1, XXXX
MEMBER EQUITY %
Member Equity
Total Assets
ASSETS - Current Assets
2,795,000 =
65%
4,300,000
LIABILITIES - Current Liabilities
Cash
200,000
Accounts Payable
450,000
Accounts Receivable
800,000
Grain Contracts Payable
100,000
Storage Receivable
175,000
Notes Payable
120,000
Other Receivable
255,000
Seasonal Note Payable
430,000
Inventory
950,000
Accrued Expenses Payable
100,000
Prepaid Expenses
Current Assets
Investments
20,000
2,400,O00
400,000
Property, Land & Equipment
Land, Bldg & Equipment
Accumulated Depreciation
Net Fixed Assets
TOTAL ASSETS
Total Current Liabilities
Long Term Notes Payable
1,200,000
305,000
Members Equity
Allocated Equities
1,677,000
Retained Earnings
Total Members’ Equity
1,118,000
2,795,000
TOTAL LIABILITIES AND
EQUITY
4,300,000
6,000,000
(4,500,000)
1,500,000
4,300,000
Year End Results
Local Profit
Patronage Refunds
TOTAL PROFIT FOR YEAR
200,000
50,000
250,000
ALLOCATION OF PROFITS:
10% to Retained Earnings
25%Cash Patronage to Members
ALLOCATION WOULD BE:
Retained Earnings
25,000
Cash Patronage
56,250 (25% of $225,000)
Allocated Equities
168,750 (75% of $225,000)
250,000
Anytown Coop
Balance Sheet
December 31, XXXX
ASSETS - Current Assets
MEMBER EQUITY %
Member Equity
Total Assets
2,988,750 =
66%
4,528,409
LIABILITIES - Current Liabilities
Cash
300,000
Accounts Payable
500,000
Accounts Receivable
825,000
Grain Contracts Payable
100,000
Storage Receivable
200,000
Notes Payable
120,000
Other Receivable
333,409
Seasonal Note Payable
484,659
Accrued Expenses Payable
150,000
Inventory
Prepaid Expenses
Current Assets
1,000,000
20,000
Total Current Liabilities
2,678,409
Long Term Notes Payable
Investments
Accumulated Depreciation
Net Fixed Assets
TOTAL ASSETS
185,000
435,000
Property, Land & Equipment
Land, Bldg & Equipment
1,354,659
6,200,000
(4,785,000)
1,415,000
4,528,409
Member Equities
Allocated Equities
1,845,750
Retained Earnings
1,143,000
Total Members Equity
2,988,750
TOTAL LIABILITIES & EQUITY
4,528,409
Redemption Budget Calculation
Worksheet
Beginning Equity Balance – January 1, XXXX
Plus: New Equity Investment
Retained Earnings
Allocated Equities
Total New Equity
2,795,000
25,000
168,750
193,750
Ending Equity Balance – December 31, XXXX
2,988,750
Ending Equity Desired
2,888,750
EQUITY REDEMPTION BUDGET
100,000
Balance Sheet – December 31, XXXX
Members Equity
2,988,750
Total Assets
Member Equity %
4,528,409
66%
If Stock Retirement of $100,000 is Paid:
Members Equity
Total Equity
Member Equity %
2,888,750
4,428,409
65%