Beef I Q - Financial Analysis
Purpose of
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.
Maximizing our customers’ financial success.
Balance Sheet
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.
Balance Sheet
Working
Capital
Line
Current
Liabilities
Current
Assets
Intermediate
Assets
Intermediate
Liabilities
Long Term
Liabilities
Total Liabilities
Fixed or
Long Term
Assets
Total Assets
Maximizing our customers’ financial success.
Net Worth
or
Owner’s
Equity
Working
Capital
Line
Balance Sheet (Cont.)
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.
Balance Sheet
Working
Capital
Line
Current
Liabilities
Current
Assets
Intermediate
Assets
Intermediate
Liabilities
Long Term
Liabilities
Total Liabilities
Fixed or
Long Term
Assets
Total Assets
Maximizing our customers’ financial success.
Net Worth
or
Owner’s
Equity
Working
Capital
Line
Capital - Liquidity
Balance Sheet
Ability to meet financial
obligations when due in the
course of business, without
disrupting normal
operations
– Working capital (WC)
– WC / AGI Percent
– Current ratio
Working
Capital
Line
Current
Assets
Intermediate
Assets
Current
Liabilities
Intermediate
Liabilities
Long Term
Liabilities
Total Liabilities
Fixed or
Long Term
Assets
Total Assets
Maximizing our customers’ financial success.
Net Worth
or
Owner’s
Equity
Working
Capital
Line
Current Ratio (optional)
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
Balance Sheet
Working
Capital
Line
Current
Assets
Intermediate
Assets
Current
Liabilities
Intermediate
Liabilities
Long Term
Liabilities
Total Liabilities
Fixed or
Long Term
Assets
Total Assets
Maximizing our customers’ financial success.
Net Worth
or
Owner’s
Equity
Working
Capital
Line
Capital - Solvency
• 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.
Net Worth
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.
Balance Sheet
Working
Capital
Line
Current
Assets
Intermediate
Assets
Current
Liabilities
Intermediate
Liabilities
Long Term
Liabilities
Total Liabilities
Fixed or
Long Term
Assets
Total Assets
Maximizing our customers’ financial success.
Net Worth
or
Owner’s
Equity
Working
Capital
Line
Owner Equity
Balance Sheet
Net Worth
Total Assets
• Measures portion of
business financed by
owners.
• Core Standard:
Cattle Operation >
50%
Working
Capital
Line
Current
Assets
Intermediate
Assets
Current
Liabilities
Intermediate
Liabilities
Long Term
Liabilities
Total Liabilities
Fixed or
Long Term
Assets
Total Assets
Maximizing our customers’ financial success.
Net Worth
or
Owner’s
Equity
Working
Capital
Line
Capital Debt
Repayment Capacity
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
(continued)
• Four basic components:
CDRC - Capacity
Demands on CDRC
CDRC Margin
CDRC Percentage
Maximizing our customers’ financial success.
Capital Debt
Repayment Capacity
Net Earnings
+ Depreciation
+ Interest on capital debt
Earnings
Statement
Earnings
Statement
FARM INCOME
FARM INCOME
FARM EXPENSES
FARM EXPENSES
NFIFO
Gross Revenue
+/- Accruals
Gross Revenue
+/- Accruals
- Purchases for Resale = Value of
Purchases
Resale =(VFP)
Value of
Farmfor
Production
Farm Production (VFP)
Cash Expenses +/- Accruals +
Depreciation = Total Farm Expenses
Cash Expenses +/- Accruals +
Depreciation
= Total
Expenses
VFP - Total
FarmFarm
Expenses
NFIFO
- Gain/Loss
on Sale of
NET FARMNET
INCOME
Farm
Expenses
FARM INCOMEVFP - Total
Capital Assets
Measures total capital
available for debt
service, capital asset
replacement, and
building working
capital.
NET INCOME
NET INCOME
NET EARNINGS
NET EARNINGS
Farm Income
+ Non-Farm
Net FarmNetIncome
+ Non-Farm
Income - Taxes - Deferred Taxes
Income - Taxes - Deferred Taxes
Net Income - Owner Withdrawal
Net Income - Owner Withdrawal
Maximizing our customers’ financial success.
Demands on Capital
Debt Repayment
+ Principal on capital debt (TACO)
+ Interest on capital debt
+ Capital Asset Replacement (CAR)
+ Working Capital Deficiency
Maximizing our customers’ financial success.
Capital Asset Repayment
Capacity (CAR)
(10-15% x machinery value)
+ (5% x facilities value)
or Use Cost
• 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.
Working Capital
Deficiency
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.
CDRC Margin
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
Percentage
CDRC
Demands on CDRC
• Measures overall repayment capacity as a
percentage.
• Core Standard: > 115%
Maximizing our customers’ financial success.
We appreciate your participation and hope you’ll consider making
Farm Credit your lender for all your farm financing needs!
800-444-3276
www.myaglender.com
www.myaglender.com
Maximizing our customers’ financial success.