Survivor… The Balance Sheet Challenge Presented by: Carol Roth, Outreach Specialist, Program on Agricultural Technology Studies (PATS) Rose Skora, UWEX Agricultural Educator, Racine & Kenosha Counties Power Point Content Developed by Power Point Content Developed by Bob Cropp, Agriculture Agent, UWEX-Pepin County Balance Sheet Challenge Developed by: UW-Extension Building a Vision Team

Goals For This Workshop Participants will: Understand the value of balance sheets Why we create themWhy we create them Learn the components of balance sheets What goes inWhat goes in Learn what a balance sheet measures What comes outWhat comes out

INFORMATION = POWER The Right Amount of Information is Powerful What is Right for YOU?

Good Business Managers Make Good Decisions Manage Change Well –Rate of Change, Adaptability, Innovation Treadmill Confident Risk Takers – Knowledge and Skill Mission – Vision – Goals - Benchmarks Problem Solvers – Engineering Language

A Language of Business Who will you be Talking To? Financial Statements & Financial Analysis Tools Yourself Where are you Where do you want to be How will you get there

Financial Statements Serving Management’s Needs Records Management Reports Decision-Making

Financial Statements serving management’s needs Records Management Reports Decision-Making Collecting & OrganizingAccountingSystem Organizing, Analyzing, & Reporting - Financial Position - Financial Performance Financial Statements 1.BALANCE SHEET 2.Income Statement 3.Statement of Cash Flows 4.Statement of Owner Equity Planning - Feasibility - Feasibility - Profitability - Profitability - Risk-ability - Risk-ability 5. Cash Budget Partial Budget Enterprise Budget

Balance Sheet – a “balance” concept Assets are everything in the business Liabilities are the claims upon the assets Equity is the part the farmer owns  Financial position at a point in time  Liquidity- measured by current ratio and working capital  Solvency- measured by net worth and equity/asset ratio or debt/asset ratio or debt/equity ratio

Balance Sheet Also known as a “Net Worth Statement” Measures position…not performance A snapshot In time Usually compared on an annual basis Reveals liquidity and solvency Five of sixteen FFSTF measurements

Balance Sheet Components AssetsAssets – Everything in place that is needed to run the business LiabilitiesLiabilities – The portion of Assets claimed by a lender Equity or Net WorthEquity or Net Worth – The portion of the assets contributed or owned by the business owner

Balance Sheet Categories (Assets and Liabilities) –Current – 12 months or less –Non-current Intermediate – 1 to 10 years Long-term – Over 10 years

Current Items Cash on hand (Business Savings (Business) Prepaid items Purchased inventories Raised crops Growing crops Accounts receivable Non-Current Items Intermediate (1-10 years) –Machinery –Farm Vehicle –Kitchen Equipment Long-term (over 10 years) –Buildings –Land

The Balance Assets = Equity + Liabilities

Examples of Assets

Time for Active Learning …practice makes better.

Let’s Help Blue and Straw Berries Farm With Their Balance Sheet Input the Balance Sheet Items onto the blank balance sheet Calculate –Total assets, –Liabilities –Equity (net worth)

The Answers!

Current Assets and Liabilities

Blue and Straw Berries Farm Balance Sheet

Why is EQUITY important ? Equity… – is the portion of the business assets contributed by the owners –growth is part of the annual business profit –trends over time help measure the overall health and profitability of the business

Liquidity and Solvency* (As determined from the Balance Sheet) LiquidityLiquidity –Current Ratio –Working Capital SolvencySolvency –Debt to asset ratio –Equity to asset ratio –Debt to equity ratio *First Five FFSTF (Farm Financial Standards Task Force) Measures

Liquidity The ability of your farm business to: –Meet financial obligations when they come due. –Generate enough cash to pay your family living expenses and taxes, and make debt payments on time. “Can you pay your bills?” Equity Rich Cash Poor

Measuring Liquidity Current ratio –Compares current assets with current liabilities –Current assets/current liabilities –Should be at least 1.5 (2.0 preferred) Working capital –Current assets minus current liabilities –Needs to be a positive dollar amount

Solvency (Leverage) The ability of your farm business to pay all its debts if it were sold tomorrow. Measured as ratios of: Debt, Equity, Assets. How are you funding your Assets? “Can you sell your business?

Measuring Solvency Debt-to-asset ratio –Total debt/total assets Equity-to-asset ratio –Total equity (net worth)/total assets Debt-to-equity ratio –Total debt/total equity (net worth)

Farm Financial Score Card Developed by Universities of Vermont and Minnesota Is found at: Scores financial condition of your farm business with 16 measures, with the first 5 result from the Balance Sheet!

Assignment Compute the following for the Blue and Straw Berries Farm: –Current ratio –Working capital –Debt-to-asset ratio –Equity-to-asset ratio –Debt-to-equity ratio Mark them on the Farm Finance Scorecard

Assignment Answers Current Ratio –Current Assets / Current Liabilities –$1900 / $17,413 =.11 Working Capital –Current Assets minus Current Liabilities –$1,900 - $17,413 = - $15,513 Debt-to-Asset Ratio –Total Liabilities / Total Assets –$131,500 / $187,900 = 70% Equity-to-Asset Ratio –Total Equity (net worth) / Total Assets –$56,400 / $187,900 = 30% Debt-to-Equity Ratio –Total Debt (liabilities) / Total Equity (net worth) –$131,500 / $56,400 = 233% How would you assess the financial position of the Blue and Straw Berry Farm, at this point in time?

Balance Sheets…Take Home Stuff! About position…not performance Net worth = equity Assets =Equity + Liabilities Liquidity…Can you pay your bills? Solvency…Could you sell your business? Gives you 5 of 16 FFSTF measurements

INFORMATION IS POWER

Survivor… The Balance Sheet Challenge Presented by: Carol Roth, Outreach Specialist, Program on Agricultural Technology Studies (PATS) Rose Skora, UWEX Agricultural Educator, Racine & Kenosha Counties Power Point Content Developed by Power Point Content Developed by Bob Cropp, Agriculture Agent, UWEX-Pepin County Balance Sheet Challenge Developed by: UW-Extension Building a Vision Team