Income Statement
Divide Yourselves According to What
Your Are On An Income Statement.
► $2000.00 from sale of 4 calves
► $1000.00 Hay Bill
► $50.00 Vaccination Bill
► $600.00 from sale of cull cow
► $100.00 for rent on facilities.
► $5,000.00 crop sales
► $600.00 seed bill
► $1,000.00 fuel bill
► $1,666.00 rent for crop ground
► $2,000.00 for crop government
payment
What is an income statement?
An income statement is a list of incomes
and expenses in a business that determine
the profitability of a business. It allows an
operator to evaluate or analyze the
profitability of a business by utilizing
equations and ratios.
What is an income?
► Income
is money received from the sales of
services or products that a business
provides. This may include items such as
sales of crops, livestock, or even
government payments.
What is an expense?
►
An expense is money paid out to operate a
business. This may include items such as
fuel, hired labor, feed, seed, etc.
What is an adjustment?
► Some
adjustments have to be made in order
to give a clearer picture of the profitability
of a business. These adjustments are made
to incomes, expenses, and inventories.
These adjustments are made by taking
ending values on a balance sheet and
subtracting beginning values. This converts
a cash income statement to an accrual
income statement.
Operating Expense Ratio


Determines what percent of total income is
spent on operating expenses.
= Total expenses – depreciation and
interest/Total Income
Depreciation Expense Ratio


Determines what percent of total income is
spent on depreciation expenses.
= Depreciation/Total Income
Interest Expense Ratio


Determines what percent of total income is
spent on interest expenses.
= Cash Interest Paid + Change in Interest
Payable/Total Income
Net Farm Income From Operations
Ratio


Determines what percent of total income is
net farm income from operations.
= Net Farm Income From Operations/Total
Income
Return to Equity Capital and
Management Ratio


The portion of net farm income returned to
equity capital and management after
subtracting out operator and family allowance.
= Net Farm Income – Operator and family
allowance
Rate of Return on Farm Assets


Shows the percentage return on investment of the
business.
Must use several equations to get the Rate of Return
on Farm Assets.
►
►
►
Net Farm Income + Total Interest Expense = Return to
Unpaid Operator and Family Labor, Total Capital, and
Management
Return to Unpaid Operator and Family Labor, Total Capital,
and Management – Operator and Family Labor Allowance =
Return to Farm Assets.
Return to Farm Assets/Average Total Farm Assets x 100 =
Rate of Return on Farm Assets
Rate of Return On Farm Equity


Shows the percentage return on net worth.
= Return to Equity Capital and Management
(Shown in V.)/Average Farm Net Worth
Rate of Return on Borrowed Capital


The value calculated from this should be
compared with the average interest rate for
borrowed capital from a lending institution to
evaluate whether returns are great enough to
pay the cost of borrowing those funds.
Return on Farm Assets (VI, B, 2) – Return to
Equity Capital and Management (V)/Average
Total Farm Assets – Average Net Worth.
(Found by adding beginning and ending values
from balance sheet together and dividing by
2)
Operating Profit Margin Ratio


Defines profit as a percentage of total
revenue.
= Net Farm Income + Total Interest Expense
– Withdrawals for Operator and Family
Labor/Total Income