1. What financial condition is your Agricultural Society in? “Understanding your financial performance” Presented to the Alberta Association of Agricultural Associations Yvonne Barthel, Senior Manager KPMG Lethbridge (403) 380 – 5744 Friday, February 10, 2006

2. Welcome!

3. Agenda The Budget – Do you have a plan? The Budget – Do you have a plan? What financial condition are you in? What financial condition are you in? Your financial statements – what do they say about you? Your financial statements – what do they say about you?

4. How many accountants does it take to change a light bulb? Two. One to change the bulb and one to check it was done within budget.

5. The Budget Planning for Success

6. The Budget – Your Financial Road Map A budget is the translation of strategic plans into measurable quantities that express the expected resources required and the anticipated returns over a period of time. A budget is the translation of strategic plans into measurable quantities that express the expected resources required and the anticipated returns over a period of time. A detailed estimate of future transactions, designed to provide a plan for and control over future operations and activities. A detailed estimate of future transactions, designed to provide a plan for and control over future operations and activities.

7. Budget Scope Budgets are normally developed for a specific program of activities Budgets are normally developed for a specific program of activities Budgets are prepared for: Budgets are prepared for:  Operations  Capital expenditures  Cash Flow

8. Budgets - The 4 Basic Functions Planning Planning Coordinating and communicating Coordinating and communicating Monitoring progress Monitoring progress Evaluating performance Evaluating performance

9. Planning Involves a process to ensure the organization will have the necessary resources to achieve its goals. Involves a process to ensure the organization will have the necessary resources to achieve its goals. It involves building assumptions to facilitate economic modeling It involves building assumptions to facilitate economic modeling Strength of the budget is dependent upon thorough planning Strength of the budget is dependent upon thorough planning

10. Coordinating & Communicating Coordination involves pulling the pieces together to achieve the Master Budget. Coordination involves pulling the pieces together to achieve the Master Budget. Expresses the organization’s overall financial objectives and strategic goals. Expresses the organization’s overall financial objectives and strategic goals. To achieve success, communication is essential. To achieve success, communication is essential.

11. Monitoring Progress Timely and periodic monitoring allows management to track progress by comparing actual results to expected or planned results. Timely and periodic monitoring allows management to track progress by comparing actual results to expected or planned results. Through the monitoring process we are able to identify variance. We can then take action to ensure we stay the course. Through the monitoring process we are able to identify variance. We can then take action to ensure we stay the course.

12. Tracking your budget To track your budget: Assess monthly revenue performance versus budget Assess monthly revenue performance versus budget Assess monthly expense performance versus budget Assess monthly expense performance versus budget Determine the effect variances will have on your overall bottom line Determine the effect variances will have on your overall bottom line

13. Evaluating Performance Managers are held accountable for the performance of their department and their contribution to the goals of the organization as a whole. Managers are held accountable for the performance of their department and their contribution to the goals of the organization as a whole. Performance is often evaluated against the budget or plan. Performance is often evaluated against the budget or plan.

14. Tips for Effective Budgeting Stay goal-oriented Stay goal-oriented Be realistic, achievable but with stretch Be realistic, achievable but with stretch Don’t try to do it alone Don’t try to do it alone A budget is not a substitute for regular communication A budget is not a substitute for regular communication Don’t use the budget to deny requests Don’t use the budget to deny requests  consider if part of your mandate

15. Where do we start? Analyze the organizational strategy Analyze the organizational strategy Understand the targets Understand the targets Document your assumptions Document your assumptions Quantify your assumptions Quantify your assumptions Take a step back Take a step back

16. To some degree, preparing a budget involves crunching numbers – a process being left more and more to financial models, computers and technology. Behind the budget are people - like you - who develop the assumptions, people who know the operations and consider the strategic goals.

17. Analyzing Financial Performance What financial condition are you in? Accounting will prove anything. Even the truth!

18. Analyzing and Interpreting Financial Statements Financial Statements provide a wealth of information Financial Statements provide a wealth of information Analyzing and interpreting this information is key to making informed decisions and developing successful strategies Analyzing and interpreting this information is key to making informed decisions and developing successful strategies

19. Analysis and Interpretation What do the numbers tell us? What do the numbers tell us? How can we use the financial statements in financial forecasting? How can we use the financial statements in financial forecasting? Value of informed decision making. Value of informed decision making.

20. Tips for Analyzing Consider the context Consider the context Compare your department to your peers Compare your department to your peers Watch for trends Watch for trends

21. Financial Statement Analysis Comparison to budget Comparison to budget Comparison to prior years Comparison to prior years Trend analysis Trend analysis Peer group comparison Peer group comparison

22. Ratio Analysis Provides a means of digging deeper into the information contained in the financial statements. A financial Ratio is a means of expressing key components in relation to other components Value added when compared to peers or a predetermined benchmark

23. Ratio Analysis – normally four areas Liquidity Ratios Liquidity Ratios Profitability Ratios Profitability Ratios Operating Ratios Operating Ratios Leverage Ratios Leverage Ratios

24. Liquidity Ratios Current ratio Current ratio  Current assets / current liabilities Quick ratio Quick ratio  (Cash +short-term investments+A/R) / Current liabilities

25. Profitability Ratios Not as relevant for “NPO’s” Not as relevant for “NPO’s”  Return on assets (ROA)  Return on equity (ROE)  Return on revenue (ROR)

26. Operating Ratios Days in receivables Days in receivables Days in payables Days in payables

27. Leverage Ratios - what is the strength of your organization?

28. Strength of your organization Capital assets – what % is yours versus externally funded? Capital assets – what % is yours versus externally funded? Age of assets – accumulated depreciation as a % of total assets. Age of assets – accumulated depreciation as a % of total assets.  What is the age of your facilities?  will determine how much is required in reserves

29. Strength of your organization, cont’d: Interest coverage Interest coverage Net assets as a % of total assets Net assets as a % of total assets Debt to equity Debt to equity

30. What are your financial statements saying about you? What are your (future) plans? What are your (future) plans?  Have they been determined?  Are restricted net assets reflecting your goals?

31. What are your financial statements saying about you?  Are comparisons to budget reflected?

32. What are your financial statements saying about you? Statement of cash flows Statement of cash flows Prepared in accordance with generally accepted accounting principles Prepared in accordance with generally accepted accounting principles  Peer to Peer  i.e. depreciation

33. What is the definition of an accountant? What is the definition of an accountant? Someone who solves a problem you did not know you had in a way you don't understand. Someone who solves a problem you did not know you had in a way you don't understand.

34. Members are your users Members are your users What do they see? What do they see?  Their view of your organization may be affected

35. Questions?