Beef I Q - 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.

Purpose ofFinancial Analysis

Maximizing our customers’ financial success.

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.

Maximizing our customers’ financial success.

Balance Sheet

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.

Maximizing our customers’ financial success.

Balance Sheet (Cont.)

Ability to meet financial obligations when due in the course of business, without disrupting normal operations– Working capital (WC)– WC / AGI Percent– Current ratio

Maximizing our customers’ financial success.

Capital - Liquidity

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

Maximizing our customers’ financial success.

Current Ratio (optional)

• 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.

Capital - Solvency

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.

Maximizing our customers’ financial success.

Net Worth

Net Worth Total Assets

• Measures portion of business financed by owners.

• Core Standard: Cattle Operation > 50%

Maximizing our customers’ financial success.

Owner Equity

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

• Four basic components:

CDRC - Capacity

Demands on CDRC

CDRC Margin

CDRC Percentage

Maximizing our customers’ financial success.

Capital Debt Repayment Capacity

(continued)

Net Earnings + Depreciation + Interest on capital debt

Measures total capital available for debt service, capital asset replacement, and building working capital.

Earnings StatementEarnings Statement

FARM INCOME

FARM EXPENSES

NET FARM INCOME

NFIFO

NET INCOME

NET EARNINGS

Gross Revenue +/- Accruals -Purchases for Resale = Value ofFarm Production (VFP)

Cash Expenses +/- Accruals +Depreciation = Total Farm Expenses

VFP - Total Farm Expenses

NFIFO - Gain/Loss on Sale of Capital Assets

Net Farm Income + Non-FarmIncome - Taxes - Deferred Taxes

Net Income - Owner Withdrawal

Maximizing our customers’ financial success.

Capital Debt Repayment Capacity

Earnings Statement

FARM INCOME

FARM EXPENSES

NET FARM INCOME

NET INCOME

NET EARNINGS

Gross Revenue +/- Accruals -Purchases for Resale = Value of Farm Production (VFP)

Cash Expenses +/- Accruals + Depreciation = Total Farm Expenses

VFP - Total Farm Expenses

Net Farm Income + Non-Farm Income - Taxes - Deferred Taxes

Net Income - Owner Withdrawal

+ Principal on capital debt (TACO)

+ Interest on capital debt

+ Capital Asset Replacement (CAR)

+ Working Capital Deficiency

Maximizing our customers’ financial success.

Demands on Capital Debt Repayment

(10-15% x machinery value)

+ (5% x facilities value)• 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.

Capital Asset Repayment Capacity (CAR)

or Use Cost

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.

Working Capital Deficiency

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 Margin

CDRC

Demands on CDRC

• Measures overall repayment capacity as a percentage.

• Core Standard: > 115%

Maximizing our customers’ financial success.

CDRCPercentage

We appreciate your participation and hope you’ll consider making

Farm Credit your lender for all your farm financing needs!

800-444-3276 800-444-3276 www.myaglender.com www.myaglender.com www.myaglender.com Maximizing our customers’ financial success.