1. Financial Analysis Original Power Point created by Casey Osksa
Modified by Georgia Agricultural Education Curriculum Office
June 2002

2. Net Worth Statement (Balance Sheet) Net Worth = Assets - Liabilities
Net Worth (Owner's equity)

3. Current Assets can be converted to cash in less than one year
checking/savings
money owed you
inventory for sale
stocks, bonds, life insurance

4. Intermediate Assets
resources or production items with a life 1 to 10 years
equipment
machinery
breeding livestock
generally depreciable

5. Fixed Assets (long term) permanent items : real estate
improvements on buildings

6. Current Liabilities debts due within one year bank notes
accounts payable
rent, taxes, interest

7. Intermediate Liabilities
non real estate debt of 1 to 10 years

8. Long-Term Liabilities
Mortgages and land contracts on real estate minus principal due within 12 months

9. Financial Tools
Comparative Analysis - compare statements from one year to another
Projected Analysis - compare statements to expected statements
Ratio Analysis - compare statements to another farm

10. Financial Terms Liquidity - ability to generate cash
Current Ratio = Current Assets / Current Liabilities
Intermediate Ratio = (CA + IA) / (CL + IL)
Solvency - if assets exceed liability
Net Capital Ratio
Debt-Equity Ratio

11. Ratios Net Capital Ratio = Total Assets / Total Liabilities
Debt-Equity Ratio = Total Liabilities / Owners Equity

12. Terms Income Statement (Profit / Loss Statement)
list receipts and expenses
Receipts - money received from sales during year
all incomes
Expenses - money paid to operate a business

13. More Terms Net Cash Income = Gross Receipts - Expenses
Adjustments to Income:
Expenses Payable
Prepaid Expenses
Adjustments in Inventories
Products grown & used at home
Net Farm Income = Net cash income + Noncash adjustments

14. Ratios Operating Ratio = Total Operating Expenses / Gross Income
relates amount of gross income spent on operating expenses
Fixed Ratio = Fixed Expenses / Gross Income
relates amount of gross income spent on fixed expenses
Gross Ratio = Total Expenses / Gross Income
relates amount of gross income spent on all expenses

15. Even More Terms
Capitol Turnover = (Unadjusted Gross Income + Noncash Adjustment)/ Average Capitol Investment or (Total Assets)
higher rates mean a greater chance of profit or a quicker turnover of money invested
20% per year is good

16. Terms
Return to Equity Capital = Net Farm Income - Operator Labor Allowance
amount of income for your labor

17. Return to Equity Capital
Return On Total Capital = Net Farm Income + Interest Paid - Operator Allowance Return to Total Capital
Return on Equity Capital = Return to Equity Capital / Avg Net Worth

18. Return to Equity Capital
Compare this rate to the cost of borrowing money
if interest rate is lower, it may be profitable to borrow money
if interest rate is higher, do NOTborrow money