Measuring the Health of a Business Farm Business Planning– Lesson 3
Dec 25, 2015
A Project Funded by:USDA BFRDP
Grant #10506276Development Partners Include:
Mississippi State University
National Association of Agricultural Educators
Oklahoma State University• Agricultural Economics Department• Oklahoma Cooperative Extension
Service
• A balance sheet is a systematic listing of everything▫Owned (assets)▫Owed to others (liabilities)▫Owner’s equity (net worth)▫Basic identity: Assets = Liabilities + Owner equity▫Or, Assets – Liabilities = Owner equity
• A “snapshot” of the business’ financial health▫Several years’ balance sheets measure long-term
success of business• Current and Non-current assets and liabilities
What's in a balance sheet?
• Current assets--“liquid” assets▫Assets that can be sold without affecting long-term
profit-generating capacity▫Cash and near cash assets
Bank account balance, certificates of deposit▫Owned and sold within one year
Feeder livestock, crops, assets held for sale▫Assets to be used up in production process in less
than one year Inventories of fuel, chemicals, feed, parts,…
▫Other Cash invested in growing crops and feeder livestock
Current Assets
•Cannot be sold (liquidated) without harming long-term profit-generation capacity▫Land, breeding stock, machinery, buildings▫Stock in agricultural cooperatives
•Difficult to sell quickly and realize full market value▫How low would you need to price your
prized possession to sell it TODAY?
Non-current Assets
•Financial obligations that are payable (due) within 12 months▫Charge account balances (feed store,
chemical dealer)▫Operating note balance▫Accrued property taxes▫Accrued interest on long-term debt▫Loan payments due in next 12 months
Current portion of long-term debt
Current Liabilities
•Portion of long-term debt due in 12+ months
•Note, need to calculate▫Principal balance (i.e., total amount owed)
– amount owed in next 12 months (current portion)
•Example: $100,000 note▫Payment required in next 12 months =
$8,000▫Current liability = $8,000▫Non-current liability = $92,000
Non-current Liabilities
•Computed as▫Owner’s equity = Total assets – Total
liability•Sources of Owner’s equity
▫Contributed capital $s invested from outside the business
▫Retained earnings Profit that has not been taken out of the
business by the owner(s)▫Change in market value of assets
Land value trends up over time
Owner’s Equity or Net Worth
•Cost-basis balance sheet▫Non-current assets valued at
Cost – accumulated depreciation▫All other assets at market value▫Used to measure businesses performance over
time•Market-basis balance sheet
▫All assets valued at market value▫Used to measure liquidation value of the
business▫Use for class assignments
Two Types of Balance Sheets
Current assets Current liabilitiesCash, near-cash, supplies, accounts receivable, crops held for sale, livestock held for sale, cash invested in growing crops
$ Accounts payable, accrued taxes (property), operating note balance, accrued interest, current portion of long-term debt
$
Non-current assets Non-current liabilitiesMachinery, equipment, breeding livestock, fencing, land
$ Non-current portion of machinery and equipment notes, non-current portion of breeding stock notes, non-current portion of mortgages
$
Total assets $ Total liabilities $Owner’s equity $Total liabilities + Owner’s equity
$
Balance Sheet Format