1. Ratios and Affordability
Barclays Agriculture
Ratios and Affordability
Richard Thomas – Regional Agricultural Manager
Steve Brown – Relationship Director
Richard Freeman – Agricultural Manager
Non Confidential
 Internal Only
 Internal Only

2. An overview of the current position of the farm and assets.
Balance Sheet
Is a statement of all the assets & liabilities held by the business at a given date in time. It shows a snapshot in time as to the value/worth of a business and usually prepared on an annual basis.
Profit & Loss Account
Details the income and expenditure of a business and therefore profit or loss over a given period of time, usually prepared for a 12 month period.
Forecast P&L
As above but it details the projected income and expenditure of a business over a period of time.
Farmers Balance Sheet
An overview of the current position of the farm and assets.
Summary of Key Financial Information
Are BBMs comfortable with what these are and how to use them?
 Internal Only

3. Aged Debtor/Creditor lists
Cash Flow Forecast
A projected flow of cash in and out of the business over a given period of time. Often prepared on a month by month basis for a period of 12 months.
Quick Figures
Measures the liquidity of a business and is the relationship between current assets and current liabilities. This will give an indication as to whether a business can pay its liabilities quickly in cash.
Aged Debtor/Creditor lists
List of debtors (monies owed to a business) or creditors (monies owed by the business) and how long the debtors/creditors have been outstanding.
Erosion Rate
The rate as which security is being consumed by losses.
Summary of Key Financial Information
Are BBMs comfortable with what these are and how to use them?
 Internal Only

4. COLD Financial analysis
Understanding the
FINANCIALS
Capital structure
Debt service
Operating performance
COLD handouts
Liquidity
FINANCIAL RISK
 Internal Only

5. Capital Structure Take a look at the Balance Sheet:
Snapshot of the Assets & Liabilities
Value of the Business
Profits retained in the business / Drawings
Borrowed money (Gearing)
Hidden Reserves / Deficits
 Internal Only

6. Capital Structure Ratios
Net Tangible Assets – excludes intangibles
Gearing – Ratio of total loans & HP to net worth
 Internal Only

7. Operating Performance
Take a look at the Profit & Loss A/C:
Sales
Contracted income
Other income
Profits / Losses
Gross / Net Profit Margins
Directors Remuneration
Dividend Policy
 Internal Only

8. Operating Performance Ratios
Gross Profit Margin
Net Profit Margin
Sales Breakeven
Margin of Safety
 Internal Only

9. Liquidity Take a look at the Balance Sheet: Focuses on solvency
How quickly profit turns to cash
Working capital / operating cycle
How cash is used / sources
Debtor turnover
Creditor turnover
Stock turnover
 Internal Only

10. Liquidity Working Capital Cycle Cash Purchase goods or raw materials
Collect cash from customers
Produce goods or services for sale
Sell goods or services
 Internal Only
 Internal Only

11. COLLECTION PERIOD PAYMENT PERIOD
HOLDING PERIOD
CASH FLOW
TIMING DIFFERENCE
Discuss liquidity and the working capital cycle
Bring to life with examples e.g manufacturer and Tesco??
PAYMENT PERIOD
 Internal Only

12. Liquidity Ratios Current Ratio Acid Test Trade Debtor Turnover
Stock Turnover
Trade Creditor Turnover
 Internal Only

13. Debt Service Calculations to enable us to assess:
Ability to repay debt
Based on profits
 Internal Only

14. EBITDA – Dividends/Drawings Total of ALL annual repayments
Debt Service Cover
WHAT
HOW
1. Start with: NET PROFIT
EBITDA – Dividends/Drawings
2. Add: INTEREST
= X cover
3. Add: TAX
4. Add: DEPRECIATION / AMORTISATION
Total of ALL annual repayments
5. Total = EBITDA
6. Deduct: Dividends / Drawings
7. Total = Adjusted EBITDA
8. Divide by: All Annual Repayments
9. Total = Number of times cover
 Internal Only

15. Debt Service Practice
Bus makes annual Earnings of £29,500 after interest charges of £500 and depreciation of £250.
The proprietor draws £20,000
An application is received for a loan with monthly repayments of £220 and has existing finance of £130 pm
NP Int Dep Draw
£29, £ £ £20, = £10,250
£220 + £130 x £4,200
Annual Repayments
= 2.4 times cover
 Internal Only

16. C O L D RATIOS CASHFLOW Reduction in Assets and Increase in
Gearing = Total Liabilities x 100
NTA O
Gross Margin = Gross Profit x 100
Net Sales
Net Profit Margin = Net Income before Tax x 100
Breakeven Sales = Fixed Costs x Sales
Gross Profit
Margin of Safety = Sales – Breakeven Sales x 100
Sales L
Debtors Days = Trade Debtors x 365
Sales
Stock Days = Stock x 365
COGS
Creditor Days = Trade Creditors x 365
Current Ratio = Total Current Assets
Total Current Liabilities
Acid Test = Trade Debtors + Cash D
Debt Service = EBITDA – Drawings / Dividends
All Loan & HP Annual Capital & Interest
Interest Cover = PBIT or EBIT
Interest
CASHFLOW
Reduction in
Assets and
Increase in
Liabilities are
Sources of Cash
Increase in
Assets and
Reduction in
Liabilities are
Uses of Cash
Risk Coaching & Training
 Internal Only
 Internal Only

17. Questions
Questions?
 Internal Only