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Find the key numbers that tell the tale

Using financial indicators and benchmarks gives you the straight goods on how your operation is doing

Some easy-to-calculate ratios can give you a quick idea of the health of your farm or ranch.

“The Simple Farm Ratio Analyzer is a shortcut 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,” said Rick Dehod, a provincial farm financial specialist. “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.

“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,” he said.

Compare your net worth statement for the beginning of 2017 to your closing net worth statement for the year, he added. This gives you valuable information on how you are doing financially.

“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 2018,” said Dehod.

The Agricultural Business Analyzer can be used to help develop a business plan for the year. This tool helps users review up to five years of historical financial data, and then prepare and analyze a financial plan for the upcoming year.

“Projections start with an opening net worth statement, and look forward for one year. Incomes and expenses are considered along with expected cash flows,” said Dehod. “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.”

Both tools can be found at the ‘Farm Management Decision Making Tools’ page on the Alberta Agriculture website.

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