FFSC - Day 2 Session 4
Aug 01, 2012
The 4th session was presented by Todd Doehring of Centrec Consulting Group on Using the standards with producers and lenders to analyze operations.
The top 5% of farmers are now producing about 75% of total crop production or about 120 thousand farmers.
The last three years we have been able to insure a profit for our farms. Before that period we were unable to insure a profit.
Working capital as a percent of revenues has become more important than the current ratio.
The DuPont Financial Analysis Model is comprised of return on assets which is has been updated for return on equity. By understanding how all of the ratios going into this analysis interacts is important for a farmer to understand how leverage and returns affect their operation. If your return on assets is less than your cost of borrowing you should not be doing more leverage.
The more your return on assets exceeds your cost of liabilities the more leverage you can afford (not necessarily want).
Need to make sure to account for owner's compensation on an actual equivalent to what the operation would have paid for those services not necessarily what was withdrawn.