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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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Assessing financial performance how am i doing l.jpg

Assessing Financial Performance: How Am I Doing?


Topics l.jpg

Financial assessment worksheets

Topics

  • Data required

  • Calculation worksheet

  • Interpretation


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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


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Worksheet 1- Schedule F Data


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Worksheet 1- Balance Sheet Data


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Worksheet 1- Miscellaneous Data


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Worksheet 1- Miscellaneous Data


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Worksheet 1- Case Problem Data


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Worksheet 1 - Net Farm Income Calculations


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Net Farm Income Calculations for Case Problem


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Worksheet 2


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Worksheet 2 - Case Problem


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Diagnosis

  • Assessment in four areas

    • Profitability

    • Liquidity

    • Solvency

    • Financial efficiency


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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


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Indicators of Financial Strength

  • Values smaller than benchmark

    • Debt-to-asset ratio

    • Operating expense ratio

    • Depreciation expense ratio

    • Interest expense ratio


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Worksheet 2 - Assessing Financial Performance


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Source of problems

  • Scale

  • Employment

  • Efficiency

  • Debt structure


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………….

………….

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


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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


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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


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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


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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


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Summary

  • Utilize existing data

  • Identify appropriate benchmarks

  • Assess efficiency, scale, employment, and debt structure to identify actions that will improve performance


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Strategic Business Planning for Commercial Producers


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