How's your Farm Business's Health?

  From the January 11, 2016 issue of Agri-News
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 Alberta Agriculture and Forestry’s Agricultural Business Analyzer, and Simple Farm Ratio Analyzer, can give users a quick idea of the financial status of their farm or ranch as well as a comparison of their businesses ratios to industry benchmarks.

“The Simple Farm Ratio Analyzer is a short cut Excel program that takes just eight key financial entries and calculates financial ratios for the farm/ranch and colour codes them in comparison to industry benchmarks,” says Rick Dehod, farm finance specialist, Alberta Agriculture and Forestry, Edmonton. “These eight key financial numbers can be taken from your accountant prepared financial statements for the past year and entered into the various open cells in the one page spreadsheet.”

The eight key numbers are farm gross revenue, farm gross expenses, depreciation, debt servicing payments, current assets, long term assets, current debt and long term debt.

“With these eight quick entries you will know how your farm is doing financially,” says Dehod. “You can then consult with your accountant or an agricultural finance specialist to come up with plans to mitigate and improve those areas where your financial ratios are weak.”

Compare your net worth statement for the beginning of the 2015, to your closing net worth statement for 2015, says Dehod. “You can generate the year-end financial ratios, and compare them to the ratios you generated from your beginning net worth statement. This will give an indication if your 2015 operating plan increased your farm business’s financial viability and the health of your farming operation. Benchmarking will give you valuable information on how you are doing financially and how your business plan affected your financial health.

“It all seems like a lot of work, but it will help you create an awareness that can help you make better decisions to increase the viability and success of your farm business in 2016.”

Dehod says the Agricultural Business Analyzer is another great tool to help develop an operation’s 2016 business plan. It is a financial analysis tool designed to aid users to do review up to five years of historical financial data and prepare and analyze a financial plan for the upcoming year.

“Projections done start with an opening net worth statement, and look forward for one year. Incomes and expenses are considered along with expected cash flows. From this data, the Agricultural Business Analyzer creates a closing financial statement illustrating what the financial situation of the farm operation will be at the end of one year based on the projections. In addition, the program calculates key ratios in the areas of liquidity, solvency, profitability and efficiency for both the past and projected income and financial statements, and compares them to industry benchmarks.”

The Simple Farm Ratio Analyzer and Agricultural Business Analyzer are avail;able from AF’s website.

For more information, contact Rick Dehod at 780-427-4466 or visit the Farm Manager homepage.

Rick Dehod

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For more information about the content of this document, contact Rick Dehod.
This document is maintained by Ken Blackley.
This information published to the web on December 21, 2015.