Slide Show #14 AGEC 430 Macroeconomics of Agriculture Spring 2010.

Slides:

Advertisements

Similar presentations

Dr Debra Munsterman Minnesota West College

Advertisements

Chapter 3 Working with Financial Statements

Financial Statement Analysis

Your Net Income Statement Gerry Schwab, Barbara Dartt, Sherrill Nott, & Roger Betz FIRM AoE Team.

Basic Accounting Principles

Managing for Today and Tomorrow

FINANCIAL STATEMENT ANALYSIS. Statement Analysis - 2 FINANCIAL STATEMENT ANALYSIS Objectives Creditors Short term liquidity Long-term solvency Investors.

Slides Show Summary AGEC 432 Spring 2007 Basic Structure of the Balance Sheet Assets: Liabilities and Net Worth: Current assets Current liabilities plus.

Slide Show #15 AGEC 430 Macroeconomics of Agriculture Spring 2010.

Course Summary at Mid-Term LESE 306 Fall 2009 Slide Show #1.

2006 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash:

Assessing Business Performance Chapter 6. Structure of Balance Sheet Current assets$100 Other assets500 Total assets$600 Page 127.

Intro to Master Budget AGEC Spring Some Conclusions…. Indicators of growth/survival:Indicators of growth/survival: –Increasing liquidity.

Debt Service Analysis: Can I Repay? Objectives Measure term debt repayment capacity, margin, and coverage ratio on your farm Evaluate repayment margin.

1 Finance Basics Rania A. Azmi University of Alexandria, Department of Business Administration.

Key Financial Indicators. Measures of liquidity  See equations 1 and 2; page 12 of booklet Measures of solvency  See equations 3 – 6; page 13 of booklet.

1 © Copyrright Doug Hillman 2000 Analysis and Interpretation of Financial Statements.

BAGIAN 3 The Analysis of Financial Statements. 2(C) 2004 Prentice Hall, Inc. The Analysis of Financial Statements This chapter will develop tools and.

Financial Statement Analysis

AGEC 489/689 Spring 2009 Overview of Financial Statements Slide Show #2.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 13 Measuring and Evaluating Financial Performance.

Financial Check Up John B. Penson, Jr. Regents Professor and Stiles Professor of Agriculture Texas A&M University.

Financial Check Up Agribusiness Finance LESE 306 Fall 2009.

Accounting Fundamentals Accounting Fundamentals Structure of Financial Statements Agribusiness Finance LESE 306 Fall 2009.

Managerial Accounting Structure of Financial Statements.

AGEC 432 – Finance Spring 2007 Structure of Financial Statements.

Key Financial Indicators AGEC Spring 2010.

AGEC 489/689 Spring 2009 Detailed View of Financial Statement Linkages Slide Show #3.

Accounting Fundamentals Accounting Fundamentals Structure of Financial Statements.

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Your lender wants to know if your business will be financially.

Lecture 15-2 Building Financial Models Material for Lecture 15-2 –Read Chapters 13 and 14 –Lecture 15-2 Farm.xlsx.

Financial Check Up John B. Penson, Jr. Regents Professor and Stiles Professor of Agriculture Texas A&M University.

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP, PhD Chapter 20 Ratios Analysis.

Analyzing Financial Data and Ratios

- Brijesh Pitroda. The analysis of a Business' Health starts with Financial Statement Analysis.

Analyzing Year End Financial Reports to Evaluate the Business Objectives:  The student will describe five key factors of year end financial analysis 

Calculating Financial Ratios. Lesson Goals: Learn ratio analysis Calculate key ratios Calculating Financial Ratios.

Measuring & Analyzing Financial Performance. ANALYZING FINANCIAL POSITION AND PERFORMANCE Analyze Financial Statement information Learn two basic types.

Key Financial Ratios 1. Profitability Ratios Key ratios – Return on shareholders’ equity (ROE) – Return on assets (ROA) – Return on sales (ROS) – Gross.

Ch3. Analysis of Financial Statement

Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors CHAPTER 13 Analysis of Financial Statements.

©CourseCollege.com 1 26 Financial Statement Analysis Financial statement analysis should always involve the statement of cash flows from Chapter 17 Learning.

Financial Analysis Ag Management Chapter 3. Objectives Know the three kinds of financial analysis Be able to calculate liquidity, solvency, and equity.

Cash Flow Budget What is it?What is it? –It is a summary of the cash inflows and outflows over a given period of time. –It is an important forward planning.

Analyzing Financial Statements. Financial Statements enhance the decision making ability and offer a means to assess the status of a business. They are.

12-1 Chapter Twelve Financial Considerations Chapter learning objectives 12.1 Appreciate the potential benefits of accounting and financial analysis.

Chapter 18: FINANCIAL STATEMENT ANALYSIS Due date for summative is the last day, December 19.

Financial Management Returning To The Farm University of Nebraska- Lincoln.

Analyzing Financial Statements

FINANCIAL STATEMENT ANALYSIS

Financial Statement Analysis

Financial Statement Analysis. RATIO ANALYSIS Financial statements report both on a firm’s position at a point in time and on its operations over some.

Ratio Analysis Ratio analysis is a particular type of financial statement analysis where the relationship between two or more items from the financial.

Summary Of Previous Lecture  basic financial statements and their contents.  financial statement analysis and its importance to the firm and to outside.

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19 Financial Statement Analysis.

Financial statement analysis P.W.Sims Business Program LW Finance.

Essentials of Financial Statement Analysis Revsine/Collins/Johnson/Mittelstaedt: Chapter 5 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies,

Copyright © 2003 Center for Farm Financial Management, University of Minnesota Financial Plan Your lender wants to know if your business will be financially.

RELATIONSHIP BETWEEN FINANCIAL STATEMENTS FINANCIAL STATEMENTS AS A SYSTEM.

JO JITA WAHI SIKANDER. Financial Analysis By – Rahul Jain.

Purposes Evaluation of loan applicant “Big” picture view Variety of information and sources to help in evaluation of applicant.

Extending Credit. Agenda Underwriting 5 C’s of credit Needed Materials Financials Items you might look at What an underwriter does 2.

16 Lesson Plans to Prepare Small and Mid-scale Farmers to Enter Food Hubs, Groceries, Restaurants and Cooperatives.

Ratio analysis  Is a method or process by which the relationship of items or groups of items in the financial statements are computed, and presented.

Financial Statement Analysis

Analysis and Interpretation of Financial Statements

Financial Statement Analysis

FINANCIAL STATEMENT ANALYSIS

Presentation transcript:

Slide Show #14 AGEC 430 Macroeconomics of Agriculture Spring 2010

Handout #23 Supplemental Slides enhancing this slide show. I will point to specific text from Handout #23 at the end of this show

Measures of Liquidity Current ratio 1. Current ratio: Current assets divided by current liabilities. Demonstrates ability to cover scheduled current liabilities for the coming year out current assets and still have “cash” left over. exceed 1.0 Should exceed 1.0 to be technically liquid. Some firms fail despite exceeding this hurdle.

Measures of Liquidity Current ratio 1. Current ratio: Current assets divided by current liabilities. Demonstrates ability to cover scheduled current liabilities for the coming year out current assets and still have “cash” left over. exceed 1.0 Should exceed 1.0 to be technically liquid. Some firms fail despite exceeding this hurdle. Working capital 2. Working capital: Current assets minus current liabilities. Expresses liquidity in dollars rather than ratio. Should be positive. Cash is King!

Liquidity Trends Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Liquidity Trends Survived Failed Minimum Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Liquidity Trends

Measures of Solvency Debt ratio 1. Debt ratio: Total debt divided by total assets. Demonstrates ability to liquidate the firm, cover all liabilities out of all assets, and still have “cash” left over. not exceed 0.50 Should not exceed 0.50 to minimize financial risk exposure. Some firms fail however at lower levels.

Measures of Solvency Debt ratio 1. Debt ratio: Total debt divided by total assets. Demonstrates ability to liquidate the firm, cover all liabilities out of all assets, and still have “cash” left over. not exceed 0.50 Should not exceed 0.50 to minimize financial risk exposure. Some firms fail however at lower levels. Leverage ratio 2. Leverage ratio: Total debt divided by equity or net worth. Often a credit standard in loan approval decisions. not exceed 1.0 Should not exceed 1.0 to minimize financial risk exposure. Effects of rising interest rates.

Solvency Trends Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Solvency Trends Survived Failed Maximum Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Measures of Profitability Rate of return on assets 1. Rate of return on assets: Net income plus interest divided by total assets. Demonstrates the after-tax return to the total capital invested in the firm. positive Should be positive; the higher the better.

Measures of Profitability Rate of return on assets 1. Rate of return on assets: Net income plus interest divided by total assets. Demonstrates the after-tax return to the total capital invested in the firm. positive Should be positive; the higher the better. Rate of return on equity 2. Rate of return on equity: Net income divided equity. Demonstrates the after-tax return on owner equity invested in the firm. positive Should be positive; the higher the better.

Profitability Trends Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Profitability Trends Survived Failed Minimum Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Measure of Debt Coverage Term Debt and Capital Lease Coverage Ratio 1. Term Debt and Capital Lease Coverage Ratio: Cash available from operations to cover scheduled payments (net income plus depreciation and interest payments less withdrawals) divided by scheduled principal and interest payments on term loans and capital leases. After provision for taxes and withdrawals. greater than 1.0 Should be greater than 1.0. Non-farm income often factored in by lenders.

Measure of Debt Coverage Term Debt and Capital Lease Coverage Ratio 1. Term Debt and Capital Lease Coverage Ratio: Cash available from operations to cover scheduled payments (net income plus depreciation and interest payments less withdrawals) divided by scheduled principal and interest payments on term loans and capital leases. After provision for taxes and withdrawals. greater than 1.0 Should be greater than 1.0. Non-farm income often factored in by lenders. Debt Burden Ratio 2. Debt Burden Ratio: Total debt outstanding divided by net income. Number of years required to retire total debt if net income remains constant and used entirely for this purpose low Should be low; the lower the better.

Debt Repayment Capacity Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Inverse of debt burden ratio assuming use of depreciation allowances to retire debt.

Some Conclusions…. Indicators of growth/survival:Indicators of growth/survival: –Increasing liquidity –Increasing solvency –Increasing debt repayment capacity –Increasing profitability

Some Conclusions…. Indicators of potential failure:Indicators of potential failure: –Declining liquidity –Declining solvency –Decreasing debt repayment capacity –Decreasing profitability

Some Conclusions…. Indicators of growth/survival:Indicators of growth/survival: –Increasing liquidity –Increasing solvency –Increasing debt repayment capacity –Increasing profitability Indicators of potential failure:Indicators of potential failure: –Declining liquidity –Declining solvency –Decreasing debt repayment capacity –Decreasing profitability

Liquidity Trends Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Liquidity Trends Survived Failed Minimum Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Liquidity Trends

Solvency Trends Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Solvency Trends Survived Failed Maximum Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Profitability Trends Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Profitability Trends Survived Failed Minimum Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research

Debt Repayment Capacity Survived Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Inverse of debt burden ratio

Some Conclusions…. Indicators of growth/survival:Indicators of growth/survival: –Increasing liquidity –Increasing solvency –Increasing debt repayment capacity –Increasing profitability Indicators of potential failure:Indicators of potential failure: –Declining liquidity –Declining solvency –Decreasing debt repayment capacity –Decreasing profitability

Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Summary of Trends…

Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Summary of Trends…

Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Summary of Trends…

Failed Source: W. H. Beaver, “Financial Ratios and Predictors of Failure”, Journal of Accounting Research Summary of Trends…

#1:Historical Analysis A look backwards like the Beaver study. Comparison of current performance with past performance. Recommend doing this at the enterprise level as well as for the farm as a whole.

#1:Historical Analysis A look backwards like the Beaver study. Comparison of current performance with past performance. Recommend doing this at the enterprise level as well as for the farm as a whole. Why is ROA falling? Why is ROA falling?

#2:Comparative Analysis Comparing current performance with similar operations like the Beaver study. Your firm Benchmark

#2:Comparative Analysis Comparing current performance with similar operations like the Beaver study. Benchmark analysis at enterprise level when possible. Your firm Benchmark

#2:Comparative Analysis Comparing current performance with similar operations like the Beaver study. Benchmark analysis at enterprise level when possible. before it is too late Address reasons why your firm is performing more poorly than other comparable operations before it is too late. Your firm Benchmark

#2:Comparative Analysis Comparing current performance with similar operations like the Beaver study. Benchmark analysis at enterprise level when possible. before it is too late Address reasons why your firm is performing more poorly than other comparable operations before it is too late. Your firm Benchmark

#2:Comparative Analysis Comparing current performance with similar operations like the Beaver study. Benchmark analysis at enterprise level when possible. before it is too late Address reasons why your firm is performing more poorly than other comparable operations before it is too late. Your firm Benchmark

#2:Comparative Analysis Comparing current performance with similar operations like the Beaver study. Benchmark analysis at enterprise level when possible. before it is too late Address reasons why your firm is performing more poorly than other comparable operations before it is too late. Your firm Benchmark

#2:Comparative Analysis Comparing current performance with similar operations like the Beaver study. Benchmark analysis at enterprise level when possible. before it is too late Address reasons why your firm is performing more poorly than other comparable operations before it is too late. Your firm Benchmark

Presentation Model The model given to each presentation team will calculate these financial ratios for you. Your task will be to interpret these ratios for your business as conditions change in the Lower Slobovian economy.

Table appearing on one of the worksheets in the class model.

Four of the five graphs generated by the class model.

Impact of a tighter monetary policy…what do you see?

Weaker liquidity Weaker profitability Weaker debt coverage Weaker solvency Impact of a combination of tighter monetary and fiscal policy

Handout #23 Here is the text in this handout

Handout #23 contains an example income statement, balance sheet and cash flow information used to calculate these and other ratios.

Another measure is the debt burden ratio, or the ratio of debt outstanding to net cash income. The higher the ratio, the greater the stress on net cash income to retire debt outstanding.