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Farm Business Analysis
Locating and correcting economic problem areas “Control” function of management General steps: Establish standards for comparison Measure farm business performance Identify problem areas Take corrective action AGEC 407
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Farm Business Analysis
Standards for comparison Budgets Meeting your expectations? Other farms Effected by the same price and weather conditions Historic data Improving over time? AGEC 407
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Farm Business Analysis
Areas of investigation Profitability Financial Farm size Efficiency Enterprises AGEC 407
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Farm Business Analysis
Diagnosing the problem Profitability problems Is the farm large enough? Over-capitalized? Volume of inputs? Economic efficiency Input/output analysis Selling prices Input prices AGEC 407
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Farm Business Analysis
Profitability measures Net Farm Income Return to Farm Assets Return to Farm Equity Return to labor and management Operating Profit Margin Ratio AGEC 407
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Farm Business Analysis
Financial measures Debt/Asset Ratio Change in Equity Current Ratio Inventory accumulation/depletion Repayment of operating loans Re-finance some current debt? AGEC 407
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Farm Business Analysis
Farm size measures Quantity of sales Gross Revenue Value of farm production Subtract feed and livestock purchases Acres Head AGEC 407
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Farm Business Analysis
Efficiency = production / resources used = value of production / cost of resources = (output * selling price) / (amount of resources * resource price) AGEC 407
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Farm Business Analysis
Efficiency measures – Economic Asset Turnover Ratio Efficiency of capital investment Gross revenue / total farm assets Years to produce revenue equal to investment Higher for dairy, hog, poultry Lower for crop farms AGEC 407
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Farm Business Analysis
Efficiency measures – Economic Expense Ratios (divide by Gross Revenue) Operating expense ratio Depreciation expense ratio Interest expense ratio Net Farm Income from operations ratio AGEC 407
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Farm Business Analysis
Efficiency measures – Economic Production Ratios Feed costs per unit of output Crop Value per acre Gross Revenue per worker (FTE) Machinery costs per acre Can be too high or too low AGEC 407
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Farm Business Analysis
Efficiency measures – Physical Yield per acre (crops) Average daily gain Calving percent Pigs weaned per sow per year Milk production per cow per year Must include inventory adjustments AGEC 407
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Farm Business Analysis
Efficiency measures – Marketing Selling prices Other outlets? Different strategies? Input Prices Land, Machinery Operating inputs AGEC 407
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