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Assessing Financial Performance: How Am I Doing?

Assessing Financial Performance: How Am I Doing? Financial assessment worksheets Topics Data required Calculation worksheet Interpretation Data required Balance sheets Beginning of the accounting period Ending of the accounting period Schedule F and Form 4797 from federal tax return

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Assessing Financial Performance: How Am I Doing?

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  1. Assessing Financial Performance: How Am I Doing?

  2. Financial assessment worksheets Topics • Data required • Calculation worksheet • Interpretation

  3. Data required • Balance sheets • Beginning of the accounting period • Ending of the accounting period • Schedule F and Form 4797 from federal tax return • Miscellaneous information

  4. Worksheet 1- Schedule F Data

  5. Worksheet 1- Balance Sheet Data

  6. Worksheet 1- Miscellaneous Data

  7. Worksheet 1- Miscellaneous Data

  8. Worksheet 1- Case Problem Data

  9. Worksheet 1 - Net Farm Income Calculations

  10. Net Farm Income Calculations for Case Problem

  11. Worksheet 2

  12. Worksheet 2 - Case Problem

  13. Diagnosis • Assessment in four areas • Profitability • Liquidity • Solvency • Financial efficiency

  14. Indicators of Financial Strength • Values larger than benchmark • ROA • ROE • Operating profit margin • Asset turnover ratio • Revenue per full-time worker • Net farm income ratio

  15. Indicators of Financial Strength • Values smaller than benchmark • Debt-to-asset ratio • Operating expense ratio • Depreciation expense ratio • Interest expense ratio

  16. Worksheet 2 - Assessing Financial Performance

  17. Source of problems • Scale • Employment • Efficiency • Debt structure

  18. …………. …………. Diagnostic factors Courses of action Efficiency Scale Debt structure OK OK Not OK OK OK Not OK Not OK OK OK Not OK Not OK OK Not OK Not OK Diagnostic tree Source:Financial Troubleshooting

  19. Courses of action to improve efficiency • Increase analysis of production records looking for clues that will lead to improved efficiency • Use advisory services to help focus on productivity and thruput • Work at improving production skills • Improve marketing skill and performance • Devote more time to management

  20. Courses of action to improve scale • Examine whether management ability is sufficient to handle business of the current size or an expansion • Use fixed resources fully by adding enterprises and/or custom work • Expand existing enterprises with low-capital requirements • Merge with another farming unit

  21. Courses of action to improve employment • Increase off-farm employment • Eliminate hired family employees • Add labor intensive enterprises with low capital requirements (increase the scale) • Reduce family withdrawals to a level that is consistent with efficiency or part-time employment

  22. Courses of action to improve debt structure • Restructure debt • Sell unproductive assets to reduce debt • Reduce debt through write-off • Scale back farm to allow significant increases in off-farm employment • Don’t own what you can control through leases • Evaluate the rate of return expected from capital investments and compare to interest rate

  23. Summary • Utilize existing data • Identify appropriate benchmarks • Assess efficiency, scale, employment, and debt structure to identify actions that will improve performance

  24. Strategic Business Planning for Commercial Producers

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