Risk Management for the Green Industry Dr. Robin G. Brumfield Dr. Robin G. Brumfield Rutgers Cooperative Rutgers Cooperative Extension Extension Risk Management Workshop Risk Management Workshop June 7, 2000 June 7, 2000
Risk Management for the Green Industry
Dr. Robin G. BrumfieldDr. Robin G. Brumfield
Rutgers Cooperative ExtensionRutgers Cooperative Extension
Risk Management WorkshopRisk Management WorkshopJune 7, 2000June 7, 2000
Distribution of Farms and Land in Farms By Region, 1998Distribution of Farms and Land in Farms By Region, 1998
Top 6 Commodity Groups in the US
BeefBeef DairyDairy CornCorn SoybeansSoybeans BroilersBroilers Green Industry 11% of crop cash receipts Green Industry 11% of crop cash receipts
for farm crops in 1998.for farm crops in 1998.
U.S. Floriculture
23.5 million sq. ft. of construction in 199723.5 million sq. ft. of construction in 1997 $37.2 billion in green industry expenditures$37.2 billion in green industry expenditures 9.8% growth 1986 - 909.8% growth 1986 - 90 3.4% growth 1991 - 953.4% growth 1991 - 95
Top 10 States in Cash Receipts 19961996 %% 19871987 %% CaliforniaCalifornia 2020 California California 2222 FloridaFlorida 1111 Florida Florida 1414 North CarolinaNorth Carolina 8 8 Texas Texas 7 7 TexasTexas 8 8 Pennsylvania Pennsylvania 4 4 OhioOhio 5 5 New York New York 3 3 OregonOregon 5 5 Michigan Michigan 3 3 MichiganMichigan 4 4 Oregon Oregon 3 3 PennsylvaniaPennsylvania 3 3 New Jersey New Jersey 3 3 OklahomaOklahoma 3 3 North Carolina North Carolina 3 3 New YorkNew York 2 2 Ohio Ohio 3 3
Source: Floriculture & Environmental Horticulture, Oct. 1997Source: Floriculture & Environmental Horticulture, Oct. 1997
Impressive green-industry growth
Total US growth has been extraordinaryTotal US growth has been extraordinary
Most states have expanded cash receiptsMost states have expanded cash receipts
Market shares - some states have increased Market shares - some states have increased cash receipts, but failed to keep up with the cash receipts, but failed to keep up with the growth in other statesgrowth in other states
U.S. Retail Expenditures
ItemItem Billion $Billion $ Per CapitaPer Capita Cut Flowers & GreensCut Flowers & Greens 6.56.5 $26.80$26.80 Flowering Potted PlantsFlowering Potted Plants 3.43.4 $12.80$12.80 Foliage PlantsFoliage Plants 2.92.9 $10.90$10.90 Bedding PlantsBedding Plants 2.62.6 $ 9.90$ 9.90 Env. Hort.Env. Hort. 21.2 21.2 $79.90$79.90 TotalTotal 37.2 37.2 $140 $140
Source: Floriculture & Environmental Horticulture, Oct. 1997.Source: Floriculture & Environmental Horticulture, Oct. 1997.
Percent of Households Buying Plants
PlantPlant %%
AnnualsAnnuals 25%25%
PerennialsPerennials 20%20%
Rose PlantsRose Plants 13%13%
Flowering TreesFlowering Trees 9%9%
Source: National Gardening Survey, 1994-95Source: National Gardening Survey, 1994-95
4343 out of everyout of every
100 100 householdshouseholds
do notdo not buy floricultural buy floricultural products!products!
Top 10 CropsCropCrop Share of ValueShare of ValueRosesRoses 9%9%Mums (cuts & pots)Mums (cuts & pots) 8%8%PoinsettiasPoinsettias 7%7%GeraniumsGeraniums 6%6%FernsFerns 5%5%CarnationsCarnations 3%3%ImpatiensImpatiens 3%3%PalmsPalms 3%3%Lilies (cuts & pots)Lilies (cuts & pots) 2%2%PetuniasPetunias 2%2%Source: 1987 Census of Ag.Source: 1987 Census of Ag.
Only 6Only 6 of every 100of every 100 householdshouseholds
buy poinsettias, the number one buy poinsettias, the number one potted crop!potted crop!
Percent of Households Buying Lawn & Garden Products
VendorVendor %% Garden CenterGarden Center 51%51% Mass MerchandiserMass Merchandiser 36%36% Home CenterHome Center 22%22% SupermarketSupermarket 17%17%
Source: National Gardening Survey, 1994-95Source: National Gardening Survey, 1994-95..
Factors Impacting Demand
IncomeIncome $35,000 vs. $30,000$35,000 vs. $30,000 Education - 54% have one year of collegeEducation - 54% have one year of college Age - 44% are over 18Age - 44% are over 18 Housing StartsHousing Starts
Source: Gineo and Omano, 1990, Waldrop, 1993.Source: Gineo and Omano, 1990, Waldrop, 1993.
Factors Influencing Outlet Selection
Plant qualityPlant quality SelectionSelection LocationLocation PricePrice Professional AssistanceProfessional Assistance
Source: Padgett et al., 1995.Source: Padgett et al., 1995.
Factors That Impact Determination of Price
Reduced Mkt. Share Increased Mkt. Share
1988 1993 1988 1993
Cost of production 1 1 1 1
Comparison to other growers 2 2 2 3
Market demand 3 3 3 2
Grade of plant 4 4 4 4
Last year's price 5 5 5 5
Inventory 6 6 6 6
Inflation 7 7 7 7
Time of year 8 8 8 8
Factors Limiting Overall Expansion of Nursery Business
Reduced Mkt. Share Increased Mkt. Share
1988 1993 1988 1993
Capital 2 3 1 2
Labor 1 2 2 3
Market demand 4 1 3 1
Land 3 4 5 7
Ability to hiremanagers 5 7 4 8
Own management 6 6 6 4
Water 7 10 8 10
Weather 9 9 9 9
Environmentalregulations 10 8 10 6
Factors Limiting Geographic Expansion of Nursery Business
Reduced Mkt. Share Increased Mkt. Share1988 1993 1988 1993
Production 1 5 1 5Transportation 2 4 2 4Personnel 3 1 4 2Marketing 4 2 3 1Capital 5 3 5 3
Limits to Expansion: Retail Firms
Market DemandMarket Demand Available CapitalAvailable Capital LaborLabor CompetitionCompetition
Source: Dole and Schnelle, 1993.Source: Dole and Schnelle, 1993.
Value of an Acre of Production
CropCrop $$ CornCorn $350-$400$350-$400 VegetablesVegetables $4,000-$8,000$4,000-$8,000 FruitFruit $8,000-12,000$8,000-12,000 Greenhouse flowers Greenhouse flowers $350,000$350,000
How Does the US Stack Up? RankRank
ShareShare
Size of Consumer MarketSize of Consumer Market 11 31%31% Value of ProductionValue of Production 33 14%14% Area in ProductionArea in Production 33 9% 9% ImporterImporter 11 29%29% ExporterExporter 1 1 29%29% Economic OutputEconomic Output 11 22%22%
Source: Floriculture & Environmental Horticulture, Oct. 1997Source: Floriculture & Environmental Horticulture, Oct. 1997
US Weaknesses
Not having a good handle on the financial Not having a good handle on the financial side of the businessside of the business
Not thinking internationallyNot thinking internationally
US Strengths
Next to the largest consumer marketNext to the largest consumer market Financially conservativeFinancially conservative Operate under a wide range of conditionsOperate under a wide range of conditions OptimisticOptimistic
Marketing/Advertising/MediaTrends
Market segmentationMarket segmentation Superstores and warehouse storesSuperstores and warehouse stores ConsolidationConsolidation
Marketing/Advertising/MediaImpact on the Industry
Low prices from large producersLow prices from large producers Decline of large, homogeneous, middle Decline of large, homogeneous, middle
classclass Not sure who the target market isNot sure who the target market is Many specialized production nichesMany specialized production niches
Marketing/Advertising/MediaSolutions
Promote quality, not pricePromote quality, not price Promote servicePromote service Try new ideas as well as proven winnersTry new ideas as well as proven winners Use cable TV to target local customersUse cable TV to target local customers Use 1-900 numbersUse 1-900 numbers Develop good signsDevelop good signs Get involved in the communityGet involved in the community
Social/Lifestyle/ConsumerTrends
Consumers are more sophisticatedConsumers are more sophisticated Growth of 2-income familiesGrowth of 2-income families Consumers want “shopping experience” or Consumers want “shopping experience” or
“event marketing”“event marketing”
Social/Lifestyle/ConsumerImpact on the Industry
Can’t shop 9-5Can’t shop 9-5 Limited time to work on landscapes Limited time to work on landscapes Limited time to shopLimited time to shop
Social/Lifestyle/ConsumerSolutions
Create “shopping experiences” and “event Create “shopping experiences” and “event marketing”marketing”
Market After HoursMarket After Hours Stand behind the productStand behind the product Give your 800 number to customersGive your 800 number to customers Sell processed and lightly processed items Sell processed and lightly processed items
to save consumers timeto save consumers time
Business/ManagementTrends
Global marketplaceGlobal marketplace Switch from producer-driven to consumer-Switch from producer-driven to consumer-
driven economydriven economy Information ageInformation age
Business/ManagementImpact on the Industry
Competition from low cost countriesCompetition from low cost countries Age of surplus rather than shortageAge of surplus rather than shortage Must offer quality prices to attract Must offer quality prices to attract
customerscustomers Producers are farmers who have difficulty Producers are farmers who have difficulty
thinking of marketing from the consumer’s thinking of marketing from the consumer’s perspectiveperspective
Business/Management Solutions Become computer literate and train employees Become computer literate and train employees
on the computeron the computer Learn to surf the internetLearn to surf the internet Consider a webpageConsider a webpage Make electronic sales tax paymentMake electronic sales tax payment Create value added products, don’t compete on Create value added products, don’t compete on
priceprice Do things in slow monthsDo things in slow months Make your farm a shopping destinationMake your farm a shopping destination
Political/Legislative/RegulatoryTrends
Government regulationGovernment regulation Deer overpopulationDeer overpopulation Increasing environmental/health concernsIncreasing environmental/health concerns
Political/Legislative/RegulatoryImpact on the Industry
Deer damageDeer damage Consumers reluctant to purchase plants that Consumers reluctant to purchase plants that
deer may eatdeer may eat Increasing demand for native, organic, and Increasing demand for native, organic, and
environmentally friendly plantsenvironmentally friendly plants Loss of minor use pesticidesLoss of minor use pesticides RecyclingRecycling Composting landscape wastesComposting landscape wastes
Political/Legislative/Regulatory Solutions
Deer fencing, human hair, relocate deer, etc.Deer fencing, human hair, relocate deer, etc. Sell and educate about biological pesticidesSell and educate about biological pesticides Start recycle programsStart recycle programs Chip trees and give away compostChip trees and give away compost Recycle waterRecycle water Proactively present producer concerns to regulatorsProactively present producer concerns to regulators Educate on recycling, environmentally friendly Educate on recycling, environmentally friendly
landscapes, etc.landscapes, etc. Be environmentally aware and responsibleBe environmentally aware and responsible
Workforce/WorkplaceTrends
Low unemploymentLow unemployment Declining work ethic. How do farmers Declining work ethic. How do farmers
find, train and retrain motivated employees find, train and retrain motivated employees with skills they need at affordable wages?with skills they need at affordable wages?
Improved communications technologyImproved communications technology
Workforce/WorkplaceImpact on the Greenhouse
Industry
Difficult to find part-time workDifficult to find part-time work Wages are increasingWages are increasing Difficult to find good helpDifficult to find good help
Workforce/WorkplaceSolutions
Set up a training program for employeesSet up a training program for employees AutomateAutomate Make daily lists of tasksMake daily lists of tasks Make shopping more self-serviceMake shopping more self-service
Financial Management is Critical to Success
BudgetingBudgeting Managing Cash FlowManaging Cash Flow Controlling CreditControlling Credit PricingPricing Obtaining CapitalObtaining Capital ProfitabilityProfitability PlanningPlanning
InvestmentInvestment Interest InterestLabors & ManagementLabors & Management Salary SalaryRiskRisk Profit Profit
Producers have returns to:
Income Statement Is Critical For Measuring
ProfitabilityProfitability
– Return on assetsReturn on assets
– Return on equityReturn on equity Financial efficiencyFinancial efficiency
– Ratio of operating expenses to value of Ratio of operating expenses to value of productionproduction
– Ratio of debt service to value of productionRatio of debt service to value of production
Income Statement
Total RevenueTotal Revenue Value of plants soldValue of plants sold $1,290,181 $1,290,181 Change in inventoryChange in inventory 40,125 40,125 Increase in suppliesIncrease in supplies 897 897 Misc. cash incomeMisc. cash income 14,601 14,601
Total RevenueTotal Revenue $1,345,803 $1,345,803
Less Cost of Goods SoldLess Cost of Goods Sold $$878,633878,633(Prefinished, cost of production)(Prefinished, cost of production)
____________Gross MarginGross Margin $$467,170467,170
Less Operating ExpensesLess Operating Expenses $392,924 $392,924____________
NET REVENUE (before taxes)NET REVENUE (before taxes) $74,246$74,246
Net Profit Margin Focus on Net Profit Margin Focus on Factors Affecting the Income Factors Affecting the Income
StatementStatement
Margin Management from Income Statement
less
Operatingless Profit
Operating $74,246 After-taxExpenses less Profit$392,924 Federal $74,246 Net ProfitExpense Taxes divided by Marginpercent $0 5.52%
29%Sales
$1,345,803
Sales $1,345,803
COGS $878,633
Gross Margin 35%
Gross Profit $467,170
Interpretation
Net profit margin = profit per dollar Net profit margin = profit per dollar
of sales after paying the owner’s salary of sales after paying the owner’s salary and accounting for opportunity cost and accounting for opportunity cost
of capital invested.of capital invested.
Common Problems With Profit Margin
Wrong pricing systemWrong pricing system Prices have not been increased as costs have Prices have not been increased as costs have
increasedincreased Costs are too high relative to size of businessCosts are too high relative to size of business Not enough sales for the resources allocatedNot enough sales for the resources allocated High overhead costsHigh overhead costs Wasteful spending on inputsWasteful spending on inputs Poor productionPoor production
If Costs Are Too High:
Are we over-mechanized?Are we over-mechanized? Is labor being used efficiently?Is labor being used efficiently? Do we have too much labor?Do we have too much labor? Do we have the right type of labor?Do we have the right type of labor? Is there too much labor in slack periods?Is there too much labor in slack periods? Is there a labor shortage in peak periods?Is there a labor shortage in peak periods?
If Costs Are Too High:
What Costs Are The Highest?What Costs Are The Highest? Are These Controllable?Are These Controllable? Are The Costs Necessary?Are The Costs Necessary? Can The Same Function Be Done A Better Can The Same Function Be Done A Better
Way?Way? Would mechanization reduce costs?Would mechanization reduce costs?
Every Dollar Saved By Cost Every Dollar Saved By Cost Control Equals A Dollar Of Control Equals A Dollar Of
ProfitProfit!!
Balance Sheet Or Net Worth Statement Is A Financial Snapshot
Of Business On A Specific Date
Shows:Shows: AssetsAssets - Valuables The Business - Valuables The Business
Owns Owns LiabilitiesLiabilities - Claims Of Outsiders- Claims Of Outsiders Net WorthNet Worth - Claims Of Owners- Claims Of Owners
Balance Sheet Segregates, Assets and Debts Into:
CurrentCurrent Non-CurrentNon-Current
Current Assets Will Become Cash Within One Year
CashCash InventoryInventory Accounts ReceivableAccounts Receivable Marketable SecuritiesMarketable Securities Prepaid ExpensesPrepaid Expenses
Non-Current Assets
VehiclesVehicles EquipmentEquipment SecuritiesSecurities BuildingsBuildings LandLand
Assets
Current AssetsCurrent Assets Cash on handCash on hand $35,502$35,502 Accts. ReceivableAccts. Receivable202,085202,085 Plant InventoryPlant Inventory818,389818,389 Supply InventorySupply Inventory 15,00415,004
Total CurrentTotal Current $1,070,980 $1,070,980
Long-term AssetsLong-term Assets Machinery/EquipmentMachinery/Equipment $214,885$214,885 Bldgs./FixturesBldgs./Fixtures430,107430,107 LandLand176,754176,754 Less depreciationLess depreciation ((357,423357,423))
Total Long-termTotal Long-term $464,323$464,323 _________ _________ Total AssetsTotal Assets $1,535,302$1,535,302
Current Liabilities Are Payable Within One Year
Notes PayableNotes Payable Accounts PayableAccounts Payable RentRent TaxesTaxes InterestInterest Portion Of Intermediate & Long Term Debt Due Portion Of Intermediate & Long Term Debt Due
Within 12 MonthsWithin 12 Months Loans Against Cash Value Of Life InsuranceLoans Against Cash Value Of Life Insurance
Non-Current Liabilities
Term LoansTerm Loans Mortgages On BuildingMortgages On Building Mortgages On LandMortgages On Land Less Principal Due In 12 MonthsLess Principal Due In 12 Months
Balance Sheet Is Critical For Measuring:
LiquidityLiquidity SolvencySolvency
LiabilitiesCurrent LiabilitiesCurrent Liabilities
Accts. PayableAccts. Payable$30,000$30,000 Short-term notesShort-term notes 28,32628,326 TaxesTaxes 11,08011,080
Total CurrentTotal Current $69,406 $69,406
Long-term LiabilitiesLong-term Liabilities MortgagesMortgages $120,000$120,000 Long-term notesLong-term notes146,000146,000
Total Long-termTotal Long-term $266,920$266,920 ____________Total LiabilitiesTotal Liabilities 336,376336,376Net WorthNet Worth $$1,198,9261,198,926 ________________Total Liabilities and Net Worth $Total Liabilities and Net Worth $1,535,3021,535,302
Asset Management Asset Management
Focuses on the asset side of the Focuses on the asset side of the Balance SheetBalance Sheet..
Asset Turnover RatioHow Well Do I Manage My Assets?
InventoryTurnover
1.61+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover55 $202,085 $1,070,980 Total 0.88
+ + AssetsFixes $1,535,303
Assets$464,323
Inventory $833,393
Cash $35,502
Sales $1,345,803
Interpretation
Asset turnover = income generated per Asset turnover = income generated per
dollar of assetsdollar of assets
Common Problems With Asset Turnover Ratio:
Too much equipment for the sales volumeToo much equipment for the sales volume Wrong type of equipmentWrong type of equipment Low pricesLow prices Poor productionPoor production
Return on AssetsHow Well Do I Manage the Farm?How Well Do I Invest My Money?
less
Operatingless Profit
Operating $74,246 After-taxExpenses less Profit$392,924 Federal $74,246 Net ProfitExpense Taxes divided by Marginpercent $0 5.52%
29%
Return ofAssets
Inventory 4.84%Turnover
1.61+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover55 $202,085 $1,070,980 Total 0.88
+ + AssetsFixes $1,535,303
Assets$464,323
Sales $1,345,803
COGS $878,633
Gross Margin 35%
Gross Profit $467,170
Sales $1,345,803
Inventory $833,393
Cash $35,502
Sales $1,345,803
Interpretation
Rate of return of firm assets measures Rate of return of firm assets measures profit generated by firm assets.profit generated by firm assets.
Measures managerial ability without Measures managerial ability without regard to how the firm is financed.regard to how the firm is financed.
Common Problems With Return On Assets
Low salesLow sales Low pricesLow prices Poor productionPoor production Too much equipment relative to size of firmToo much equipment relative to size of firm Too few enterprises relative to size of firmToo few enterprises relative to size of firm Wasteful spending for inputsWasteful spending for inputs High overhead costsHigh overhead costs
Leverage SituationHow Much of the Business Do I Own?
TotalAssets
Total $1,535,303 FinancialAssets divided by Leverage
Current $1,535,303 Net 1.28Liability less Worth
$69,406 Total $1,198,927+ Liability
Long-term $336,376Liability
$266,970
less
Operatingless Profit
Operating $74,246 After-taxExpenses less Profit$392,924 $74,246 Net ProfitExpense divided by Marginpercent 5.52%
29%
Return ofX Assets
Inventory 4.84%Turnover
1.61+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover Return on55 $202,085 $1,070,980 Total 0.88 X Equity
+ + Assets 6.19%Fixes $1,535,303
Assets$464,323
Total FinancialAssets divided by Leverage
Current $1,535,303 1.28Liability less$69,406 Total
+ LiabilityLong-term $336,376Liability
$266,970
Total Assets $1,535,303
Net Worth $1,198,927
Sales $1,345,803
Sales $1,345.803
COGS $878,633
Gross Margin 35%
Gross Profit $467,170
Inventory $833,393
Cash $35,502
Federal Taxes $0
Sales $1,345,803
BASE MODEL
Interpretation
Return on equity = how much return the Return on equity = how much return the owner’s money is generating in the owner’s money is generating in the business.business.
Highly leveraged firms are vulnerable to Highly leveraged firms are vulnerable to rapid losses in net worth or rapid gains if rapid losses in net worth or rapid gains if successful.successful.
Common Problems With Return On Equity
Return on assets is less than the cost cost of Return on assets is less than the cost cost of capitalcapital
Too much equipment for the size of the firmToo much equipment for the size of the firm Too few enterprises for the size of the firmToo few enterprises for the size of the firm Wasteful spending for inputsWasteful spending for inputs High overhead costsHigh overhead costs Low pricesLow prices Poor productionPoor production
Cut Overhead Expense as a Percent of Sales by 3 Percent
less
Operatingless Profit
Operating $117,261 After-taxExpenses less Profit$349,909 $117,261 Net ProfitExpense divided by Marginpercent 8.71%
26%
Return ofx Assets
Inventory 7.64%Turnover
1.61+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover Return on55 $202,085 $1,070,980 0.88 x Equity
+ + 9.78%Fixes
Assets
$464,323
Total FinancialAssets divided by Leverage
Current $1,535,303 1.28Liability less$69,406 Total
+ LiabilityLong-term $336,376Liability
$266,970
Total Assets $1,535,303
Net Worth $1,198,927
Federal Taxes $0
Sales $1,345,803
Inventory $833,393
Cash $35,502
Sales $1,345,803
Total Assets $1,535,303
Sales $1,345,803
COGS $878,633
Gross Margin 34.71%
Gross Profit $467,170
Increase Gross Margin by 2 Percent
less
Operatingless Profit
Operating $105,021 After-taxExpenses less Profit$392,924 $105,021 Net ProfitExpense divided by Marginpercent 7.80%
29%
Return ofx Assets
Inventory 6.84%Turnover
1.61+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover Return on55 $202,085 $1,070,980 0.88 x Equity
+ + 8.76%Fixes
Assets
$464,323
Total FinancialAssets divided by Leverage
Current $1,535,303 1.28Liability less$69,406 Total
+ LiabilityLong-term $336,376Liability
$266,970
Sales $1,345,803
COGS $878,633
Gross Margin 37%
Gross Profit $497,945
Inventory $833,393
Cash $35,502
Sales $1,345,803
Total Assets $1,535,303
Total Assets $1,535,303
Net Worth $1,198,927
Federal Taxes $0
Sales $1,345,803
Increase Inventory Turns By 1
less
Operatingless Profit
Operating $74,246 After-taxExpenses less Profit$392,924 $74,246 Net ProfitExpense divided by Marginpercent 5.52%
29%
Return ofx Assets
Inventory 6.09%Turnover
2.60+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover Return on55 $202,085 $755,203 1.1 x Equity
+ + 8.41%Fixes
Assets
$464,323
Total FinancialAssets divided by Leverage
Current $1,219,526 1.38Liability less$69,406 Total
+ LiabilityLong-term $336,376Liability
$266,970
Total Assets $1,219,526
Net Worth $883,150
Federal Taxes $0
Sales $1,345,803
Inventory $517,616
Cash $35,502
Sales $1,345,803
Total Assets $1,219,526
Sales $1,345,803
COGS $878,633
Gross Margin 34.71%
Gross Profit $467,170
Reduce Receivables to 30 Days
less
Operatingless Profit
Operating $74,246 After-taxExpenses less Profit$392,924 $74,246 Net ProfitExpense divided by Marginpercent 5.52%29.20%
Return ofx Assets
Inventory 5.14%Turnover
1.61+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover Return on30 $110,614 $979,509 0.93 x Equity
+ + 6.70%Fixes
Assets
$464,323
Total FinancialAssets divided by Leverage
Current $1,443,832 1.3Liability less$69,406 Total
+ LiabilityLong-term $336,376Liability
$266,970
Total Assets $1,443,832
Net Worth $1,107,456
Federal Taxes $0
Sales $1,345,803
Inventory $833,393
Cash $35,502
Sales $1,345,803
Total Assets $1,443,832
Sales $1,345,803
COGS $878,633
Gross Margin 34.71%
Gross Profit $467,170
Combined Effects1. INCREASE GROSS MARGIN 2%2. CUT OVERHEAD BY 3%3. INCREASE INVENTORY TURNS BY 1
less 4. REDUCE AGE OF ACCTS RECEIVABLES TO 30 DAYS
Operatingless Profit
Operating $148,038 After-taxExpenses less Profit$349,909 $148,038 Net ProfitExpense divided by Marginpercent 11%
26%
Return ofx Assets
Inventory 13.12%Turnover
2.60+
Age of Accts. Accts. Current Assetrec. Receivable Assets divided by Turnover Return on30 $110,614 $663,732 1.19 x Equity
+ + 18.70%Fixes
Assets
$464,323
Total FinancialAssets divided by Leverage
Current $1,128,055 1.42Liability less$69,406 Total
+ LiabilityLong-term $336,376Liability
$266,970
Total Assets $1,128,055
Net Worth $791,679
Federal Taxes $0
Sales $1,345,803
Inventory $517,616
Cash $35,502
Sales $1,345,803
Total Assets $1,128,055
Sales $1,345,803
COGS $878,633
Gross Margin 37%
Gross Profit $497,947
Conclusions
Market is now consumer driven rather than Market is now consumer driven rather than production drivenproduction driven
Producers can generally handle production, Producers can generally handle production, but are less confident about selling at a but are less confident about selling at a reasonable pricereasonable price
Producers are looking for help in marketing, Producers are looking for help in marketing, labor management and business labor management and business managementmanagement