1. Income Statement

2. Divide Yourselves According to What Your Are On An Income Statement. ► $2000.00 from sale of 4 calves ► $1000.00 Hay Bill ► $50.00 Vaccination Bill ► $600.00 from sale of cull cow ► $100.00 for rent on facilities. ► $5,000.00 crop sales ► $600.00 seed bill ► $1,000.00 fuel bill ► $1,666.00 rent for crop ground ► $2,000.00 for crop government payment

3. What is an income statement? An income statement is a list of incomes and expenses in a business that determine the profitability of a business. It allows an operator to evaluate or analyze the profitability of a business by utilizing equations and ratios. An income statement is a list of incomes and expenses in a business that determine the profitability of a business. It allows an operator to evaluate or analyze the profitability of a business by utilizing equations and ratios.

4. What is an income? ► Income is money received from the sales of services or products that a business provides. This may include items such as sales of crops, livestock, or even government payments.

5. What is an expense? ► An expense is money paid out to operate a business. This may include items such as fuel, hired labor, feed, seed, etc.

6. What is an adjustment? ► Some adjustments have to be made in order to give a clearer picture of the profitability of a business. These adjustments are made to incomes, expenses, and inventories. These adjustments are made by taking ending values on a balance sheet and subtracting beginning values. This converts a cash income statement to an accrual income statement.

7. Operating Expense Ratio  Determines what percent of total income is spent on operating expenses.  = Total expenses – depreciation and interest/Total Income

8. Depreciation Expense Ratio  Determines what percent of total income is spent on depreciation expenses.  = Depreciation/Total Income

9. Interest Expense Ratio  Determines what percent of total income is spent on interest expenses.  = Cash Interest Paid + Change in Interest Payable/Total Income

10. Net Farm Income From Operations Ratio  Determines what percent of total income is net farm income from operations.  = Net Farm Income From Operations/Total Income

11. Return to Equity Capital and Management Ratio  The portion of net farm income returned to equity capital and management after subtracting out operator and family allowance.  = Net Farm Income – Operator and family allowance

12. Rate of Return on Farm Assets  Shows the percentage return on investment of the business.  Must use several equations to get the Rate of Return on Farm Assets. ► Net Farm Income + Total Interest Expense = Return to Unpaid Operator and Family Labor, Total Capital, and Management ► Return to Unpaid Operator and Family Labor, Total Capital, and Management – Operator and Family Labor Allowance = Return to Farm Assets. ► Return to Farm Assets/Average Total Farm Assets x 100 = Rate of Return on Farm Assets

13. Rate of Return On Farm Equity  Shows the percentage return on net worth.  = Return to Equity Capital and Management (Shown in V.)/Average Farm Net Worth

14. Rate of Return on Borrowed Capital  The value calculated from this should be compared with the average interest rate for borrowed capital from a lending institution to evaluate whether returns are great enough to pay the cost of borrowing those funds.  Return on Farm Assets (VI, B, 2) – Return to Equity Capital and Management (V)/Average Total Farm Assets – Average Net Worth. (Found by adding beginning and ending values from balance sheet together and dividing by 2)

15. Operating Profit Margin Ratio  Defines profit as a percentage of total revenue.  = Net Farm Income + Total Interest Expense – Withdrawals for Operator and Family Labor/Total Income