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Developing a farm/ranch business plan Debt Repayment.

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Presentation on theme: "Developing a farm/ranch business plan Debt Repayment."— Presentation transcript:

1 Developing a farm/ranch business plan Debt Repayment

2 U.S. National Debt Clock

3 Debt Debt is that which is owed; usually referencing assets owed. In the case of assets, debt is a means of using future purchasing power in the present before income has been earned. A debt is created when a creditor agrees to loan a sum of assets to a debtor. Debt is usually granted with expected repayment; in most cases, plus interest.

4 Little Professor Moment

5 Management of Debt Crucial for maintaining financial liquidity and avoiding undue risk.

6 Little Professor Moment

7 Borrowing For most farmers, borrowing is essential and provides a major source of funds for operating the business. Can work to your advantage at times Should be avoided at other times

8 Little Professor Moment

9 Financial Leverage Expressed as a ratio of debt to net worth. –Borrowing (Increasing leverage) can be effective during periods when: Earnings are relatively good Interest rates are low Rate of inflation is high –Under opposite conditions, it’s best to wait for a more opportune time to buy land, expand an enterprise, or make other capital expenditures

10 Little Professor Moment

11 Leverage The use of borrowed capital to increase the potential return of an investment. The amount of debt used to finance a businesses assets. A business with significantly more debt than equity is considered to be highly leveraged.

12 Little Professor Moment

13 The End

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