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Financial Statements Nebraska Farm and Ranch Financial Literacy Financial Statements Nebraska Farm and Ranch Financial Literacy

Financial Statements Nebraska Farm and Ranch Financial Literacy - PowerPoint Presentation

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Financial Statements Nebraska Farm and Ranch Financial Literacy - PPT Presentation

Two Hands on the Wheel 2016 Objectives Get you familiar with basic financial documentation Balance Sheet Cash Flow Statement of Cash Flow Cash Flow Budget Record Keeping Income Statement Net Farm Income ID: 672227

income cash statement flow cash income flow statement farm financial net sheet balance asset debt current inventory assets liabilities

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Slide1

Financial Statements

Nebraska Farm and Ranch Financial Literacy

Two Hands on the Wheel2016Slide2

Objectives

Get you familiar with basic financial documentationBalance SheetCash Flow

Statement of Cash FlowCash Flow BudgetRecord KeepingIncome StatementNet Farm IncomeUnderstand purpose for each Slide3

Balance Sheet #1

Cash Flow

Financial Snapshot

Financial Snapshot

Income Statement

Profitability

Meeting Financial Obligations

Balance Sheet #2

Working Capital

Debt/Asset Ratio

Net Worth

Working Capital

Debt/Asset Ratio

Net Worth

Statement of cash flow

Fund sources & uses

Statement of Owner Equity

Reconciles changes between Balance Sheet #1 & #2Slide4

Uses for a Balance Sheet

To know assets and liabilities on a regular basisRequired when applying for a loan

Help guides considering a major changeRisk assessmentSlide5

Building a Balance Sheet

1. Inventory assets and resources

2. Determine asset values3. Record liabilitiesSlide6

Taking an Inventory

1. Land

2. Buildings 3. Breeding livestock4. Machinery, equipment, implements, & tools5. Operating inputs purchased not yet used up6. Harvested crops in storage7. Market livestock

8. Financial assetsSlide7

Asset Valuation methods

• Cost

Net selling pricePurchase cost less depreciationReplacement cost less depreciation

Replacement cost for equivalent function less depreciation

• Income capitalization

• Market valueSlide8

Liability Information

1. Loan information2. Current portions of principal and interest payments

3. Accounts payable4. Unpaid, accrued interest5. Delinquent principal and interest payments6. Credit and debit card account information7. Personal liabilities (if using consolidated b.s.)Slide9

Balance Sheet as of [a single date] Consolidated / Personal / Business

Current Assets

Current Liabilities

Non Current Assets

Non Current Liabilities

Net Worth or Owner Equity

Current

Non Current

Net Worth = Assets - LiabilitiesSlide10
Slide11

Balance Sheet

Two pairs of columns due to two methods of asset valuation:• Cost basis (actual cash plus investment expenses) Examples:

new boundary fence cost basis =materials plus labor to build fenceNew equipment purchase + delivery & set up costs• Market value (what a willing buyer would pay you)Slide12
Slide13

Key RatiosFrom the Balance Sheet

Working Capital

Debt/Asset RatioNet Worth Slide14

Bankruptcy-A Financial Tool

Debt Relief outside of bankruptcy creates an income for which income tax must be paid.

Debt forgiven in bankruptcy wipes the slate clean, however impacts credit worthiness and takes a while to earn back.Chapter 7 is a dissolution plan.Chapters 11, 12 and 13 are plans to reorganize and work out debt under court supervision.Slide15

Part 2Cash FlowSlide16

Objectives

Get you familiar with basic financial documentationBalance SheetCash Flow

Statement of Cash FlowCash Flow BudgetRecord Keeping Income StatementUnderstand purpose for each Slide17

Cash Flow Budget

Spending plan for whole farm financial planningUsually created from past experience with minor adjustments

If major events have happened (lost leases, changed major enterprises, etc.) then reconstruct new planRefer to blank cash flow budget formSlide18

Statement of Cash FlowDivides cash flows and uses of cash by:

Operating activitiesInvesting activitiesFinancing activities

Historical document looking back on how cash moved through an operationTies into the Income StatementSlide19

Cash Flow Makes Your Business

GO!

No Cash Flow No Business!Slide20

Tips for Recordkeeping

Keep categories simpleTags (Quicken) or Asset Class (QuickBooks)

Work on records everyday (even for a few minutes)Run reports to catch errorsShare reports with key decision makers

Let the software do the work

Manage the paper trail as fits your needsSlide21

Demo SoftwareSlide22

How the Pieces Fit Together

http://www.montana.edu/softwaredownloads/documents/software/RDFinancial_MT_RepresentativeFarmRanch-Oct-2011.swfSlide23

Part 3Income StatementSlide24

Objectives

Get you familiar with basic financial documentationBalance SheetCash FlowStatement of Cash Flow

Cash Flow BudgetKeeping RecordsIncome StatementNet Farm IncomeUnderstand purpose for each Slide25

Use of Net Farm Income

Pay income taxesFamily living withdrawalsSource of investment dollarsPay principle portion of debt

Values managementSlide26

Income Statement

Income/revenue from products/commodities (cash)• Less costs incurred to produce a product to sell (cash)

Adjusting for changes in inventories (non cash)• Results in net farm income for a certain period of time (usually a year)Slide27

Accrual Accounting

• Accounts for changes in inventory

• More accurately measures income generated within one year• Is better for evaluating business results and plansSlide28

Structure of the Income Statement

Revenues

Operating expensesFinancing expensesNet Farm Income(FFSC’s gross revenue format) Refer to handoutSlide29

Building an Income Statement

1. Cash income and expenses from farm accounting

2. Inventory information from the inventory process3. Purchases and sales of inventory items4. Depreciation from the depreciation schedule5. Net Farm Income calculated

Gross revenues

Less operating expenses

Less financing expenses

Plus or minus inventory changes

Equals Net Farm IncomeSlide30

How the Pieces Fit TogetherSlide31

Statement of Owner Equity

Allocates how wealth was accumulated on balance sheet

Sources of wealthEarn it from productionInvestmentsGovernment/policyAssets appreciatingInheritanceOff farm income (cash infusion)

Change due to

retained earning (the business)

market asset values

policy changes

personal net worth.Slide32
Slide33

Wrap Up Discussions

InsuranceMarketingNon farm/ranch income

DiversificationBe a neighbor, lend an earKeep two hands on the wheel!