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Review recordkeeping methods and retention standards in the new year
For many farmers, farming is widely viewed as a “way of life” rather than as a business. The Internal Revenue Service (IRS) considers an activity a trade or business if it is conducted with a profit motive. Profit is defined as income or receipts greater than expenses, where expenses include depreciation of capital assets. Just […]
Financial Statement and Analysis Spreadsheet Video Series
This video series will introduce you to the Financial Statement and Analysis Spreadsheet. In these videos, Kevin Bernhardt, Extension Farm Management Specialist with UW-Madison Division of Extension and Professor at UW-Platteville, provides information on completing the spreadsheet. The Extension Farm Financial Statement and Analysis Tools consists of Excel worksheets that: 1) provide a means and […]
Enterprise Budgeting: Review of a single enterprise in a farm business
Wisconsin farms will often have many different enterprises that contribute to their whole farm business. For example, a dairy farm may have enterprises for milk sales, calf or finished cattle sales, grain sales, and hay sales. It is important for farmers to understand the income and expenses associated with each enterprise, how equipment or other […]
Benchmarking: Three part process for financial analysis
Farmers can use multiple tools and methods for analyzing their farm financial statements. Some are very involved and take lots of time, while others don’t take much time at all. Benchmarking is making comparisons to assist the farmer with making the best financial management decisions for their farm business that will improve financial position and […]
Pro Forma: Future Farm Financial Statements
Farm financial statements, such as the balance sheet, income statement, statement of cash flows, and statement of owner equity provide a historical review of the farm business’s financial position and performance. This financial analysis provides a basis from which to plan for the future of the farm business and draft pro forma financial statements. What […]
Solvency: Relationship between total farm assets and liabilities
The second measure of financial position is solvency. Solvency is the ability of a farm business to pay all its farm debts if the business was sold tomorrow. Solvency is important in evaluating the financial risk and borrowing capacity of the farm business. Debt-to-Asset Ratio The Debt-to-Asset ratio compares a farm’s total assets with total […]
Profitability: Seed for a farm’s future
The first measure of financial performance is profitability. Profitability is the difference between the value of farm goods produced and the cost of the resources used in the production of those farm goods. In other words, profitability is what’s left after the farm business has paid all of its bills. Profitability measures the financial performance […]
Repayment and Replacement Capacity: A farm’s ability to repay debts
The second measure of financial performance is repayment and replacement capacity. Repayment capacity shows the farm’s ability to repay term debts on time and as they come due. It includes non-farm income so it is not a measure of the farm business performance alone. The two measures used to assess repayment and replacement capacity are […]
Financial Efficiency: A farm’s use of assets to generate income
The final measure of financial performance is financial efficiency. Financial efficiency shows how efficiently a farm business uses assets to generate income. It also indicates where each dollar of income generated in the farm business has been spent. The four measures used to assess financial efficiency are operating expense ratio, interest expense ratio, depreciation and […]
Liquidity: Relationship between current farm assets to current farm liabilities
The first measure of financial position is liquidity. Liquidity is the ability of a farm business to meet the financial obligations as they come due – to generate enough cash to pay family living expenses and taxes and make debt payments on time. The two measures used to assess liquidity are current ratio and working […]
Financial Measurement: Quantification of a farm’s financial position and performance
A farm business that has collected and organized their farm records will be able to complete management reports or financial statements. The Farm Financial Standards Council (FFSC – https://ffsc.org/) recommends farmers create four financial statements from which the financial position and performance may be analyzed. These statements include the balance sheet, income statement, statement of […]
DuPont System for Financial Analysis
Having financial statements (balance sheets and income statements) is a first step towards financial management decision-making. However, it is the next step that makes a difference in future profitability and that is analyzing the financial story being told by the financial statements and making decisions on where to spend management time to improve future profitability.
Find a good farm accounting software system
Selecting the best recordkeeping tool will assist in making management decisions for the future. At the end of the year, farmers may be reviewing their income tax obligations and marketing plans or completing a business or enterprise analysis. A successful farm manager is already keeping good, accurate records throughout the year. Selecting the best recordkeeping […]
Partial Budgeting
Whether on the tractor, in the barn, or at the farm office, farm managers are always mulling over some change to their operation that might improve profitability. It might be employing a new technology, launching a new enterprise, buying or leasing machinery, altering a production practice, or some other possible change. Occasionally, one of those ideas […]
Balance Sheet – Focus on Inventory
As people who live in rural areas, we are all use to the potholes that jar our vehicles and rattle our teeth. Likewise, the financial statements that measure the position and performance of our dairy businesses have potholes too that are sometimes difficult to navigate.
Balance Sheet Structure Details
The Balance Sheet is a financial statement that measures the financial position of the business at a point in time.