Credit Analysis Solutions AGRICULTURE

Transcription

1 Credit Analysis Solutions AGRICULTURE

2 FINPACK University of Minnesota 130 Ruttan Hall 1994 Buford Avenue St. Paul, Minnesota Phone: (612) Toll-Free: (800) Fax: (612) Online:

3 What does FINPACK do for you? Used by lenders since 1980, FINPACK sets the industry standard for superior credit analysis tools, training and technical support. Simply enter tax returns and balance sheets and FINPACK will generate reports displayed on the following pages. Helps you accomplish your work more efficiently than ever before It is fast and easy to learn. You will be amazed at how much time it can save you. Delivers better information about your customers financial situation Balance sheets, cash flows, consolidations, global cash flow analysis, accrual financial analysis, and historic spreads provide an accurate picture of borrower performance. Lets you do the banking while we do the technical work No need to double check spreadsheet formulas Gives you an edge in building better customer relations Provides financial information your customers can understand and use to manage their businesses Offers you the most cost effective credit analysis available When compared to other systems or maintaining your own spreadsheets, FINPACK saves you money period 1

4 The Flexibility to Meet All Your Customer Needs FINPACK lets you choose the reports you need for each borrower whether it s basic reports for low-risk credit customers or detailed reports to analyze complex customers. About This Book The FINPACK Sample Guide provides an overview of the entire set of tools and reports that FINPACK can give you. If you have wondered what exactly FINPACK does or how it presents financial information, this book will give you the answers. The book gives you a quick overview for each FINPACK tool. Each section includes a short description of the financial tool and then shows you a sample report. Will you ever use all of FINPACK s tools? Probably not, so take a look at the tools that you regularly use. You may also want to look at other tools that you would like to use but haven t had an easy way to implement at your institution. FINPACK has been upgraded annually for over 30 years based on comments from lenders who use the software. With this history of field testing and refinement, we think it will serve your needs well. 2

5 FINPACK Agriculture at a Glance Balance Sheets Detailed Balance Sheet Summary Balance Sheet Balance Sheet Trend Reports Financial Analysis Tax Forms/Income Statement Schedule F Accrual Analysis Global Cash Flow Projections Annual Cash Flow Monthly Cash Flow Credit Analysis Collateral Analysis Credit Decision Scorecard Risk Rating Loan Presentation FSA Forms Package Portfolio Risk Analyst Training and Support Customer Support FINPACK Training FINPACK Commercial About CFFM 3 p. 5 p. 11 p. 13 p. 15 p. 19 p. 29 p. 33 p. 39 p. 47 p. 49 p. 51 p. 53 p. 61 p. 67 p. 71 p. 73 p. 75 p. 77

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7 Balance Sheets Balance Sheets Balance sheet data entry is simple and straightforward. Once the first balance sheet is complete, it is easy to copy and revise for the next renewal season. FINPACK provides two balance formats detailed or summary. Detailed Balance Sheet: Generate ratio analysis, including working capital, current ratio, and debt to asset ratio Automatically create trend reports Balance sheet data flows directly into cash flow to minimize data entry Consolidate balance sheets from multiple entities Input forms can be used to gather customer data or use forms with last year s values displayed Or get customer data electronically using FINPACK Lite, a free balance sheet only version of FINPACK available to your customers Summary Balance Sheet: Input simple, single column balance sheets Quick and easy balance sheet format for small or low risk customers Useful to enter historical balance sheets for a new customers Both Balance Sheet formats provide data directly to FINPACK s Schedule F analysis, risk rating and the loan presentation manager. 5

8 Balance Sheets 6

9 Current Assets Value Cash and checking (Schd A) 26,034 Prepaid exp. & suppl. (Schd B) 2,422 Growing crops - Accounts receivable - Hedging accounts - Other current assets - Crops (Schd G) Quantity Value/Unit Corn 69, /bu. 280,919 Corn Silage /ton 17,250 Alfalfa Hay /ton 756 Soybeans 19, /bu. 221,693 Crops under gov't loan - Current Liabilities Slim Jim Sample 1/1/2008 Balance Accrued interest 19,359 Accounts payable and other accrued expenses - Int P & I Principal Current loans (Schd T) Rate Due Balance 5thNB-Operating , ,100 5thNB-Cattle , ,513 Government crop loans - Principal due within 12 months on term liabilities 45,482 Detailed Balance Sheet Mkt lvst (Schd H) No. Value/Unit Finish Beef /cwt. 599,144 Total Current Assets 1,148,218 Total Current Liabilities 851,455 Intermediate Assets Intermediate Liabilities (Schd U) Cost Market Int Principal P & I Principal Intermed Value Value Loan Rate Balance Due Due Balance Breeding livestock - - FSA-Bin Loan ,989 15,586 14,128 29,861 Machinery (Schd J) 305, ,500 John Deere Credit ,282 6,670 5,918 4,364 Titled vehicles (Schd K) 1,053 1,450 John Deere Credit-Combine ,406 19,038 14,768 33,638 Other intermediate assets - - 5thNB-Chopper - 12,028 4,009 4,009 8,019 Total Intermediate Assets 306, ,950 Total Intermediate Liabilities 75,882 Long Term Assets Cost Market Land (Schd M) Acres Value Value Home site 15 5,000 30,000 Long Term Liabilities (Schd V) Int Principal P & I Principal Lg Term Loan Rate Balance Due Due Balance Fifth National Bank-Barn ,500 32,778 6, ,841 Bldgs & improve. (Schd N) 436, ,700 Other long term (Schd O) 2,401 2,401 Total Long Term Assets 443, ,101 Total Long Term Liabilities 291,841 Total Farm Assets 1,898,548 2,147,269 Personal Assets (Schd P) 153, ,930 Total Farm Liabilities 1,219,177 Personal Liabilities (Schd W) 43,744 Total Assets (a)(b) 2,052,478 2,301,199 Cost Market Total Liabilities (d)(e) 1,262,921 1,262,921 Retained Earnings/Contributed Capital [a-d] 789,557 Market valuation equity [b-a] 248,720 Net Worth [b-e] 1,038,277 I certify that my statements on this balance sheet are true, complete, and correct to the best of my knowledge and belief. Signature(s) Date 7

10 Detailed Balance Sheet Slim Jim Sample Balance Sheet: 1/1/2008 Page 2 1/29/2009 2:15:16 PM Schedule J: Machinery and equipment Model Year Pct. Cost Market Make/Model Year Serial No./VIN Purchased Ownership Value Value TRACTOR LOADER % - 3,500 SNOWBLOWER % - 1,500 SPRAY MONITOR % SILO UNLOADER % GL WATER TANK % AUGER 8x % BULK BIN % RC 8R % CIH Tractor % 1,728 12,500 LOADER % 167 1,000 Generator % 216 1,750 BUFFALO ROLLER MILL % 2,165 6,000 FEED WAGON % 4,872 7,500 JD 7230 Tractor % 43,752 65,000 RIPPER % 8,987 12,500 JD 6430 Tractor % 36,647 50,000 SPREADER % 10,487 15,000 GRAIN CART % 10,487 15,000 COMPUTER % 1, SPRAYER SPECIALTIES % 11,416 15,000 MONITOR % 3,693 4,000 JD 7210 Tractor w loader % 33,872 55,000 MOWER 50 BU % 5,677 8,500 TRAILER % 1,782 2,000 WAGON % 6,075 8,500 BLOWER % 871 1,000 JD 9610 COMBINE % 50,220 85,000 30FT FLEX HEAD % 10,530 15, CORN HEAD % 4,860 19,500 20' CHOPPER % 9,315 13,000 SPRAYER CONTROL % 3,716 5,000 ROUND BALE RACK % 2,336 4,000 WAGON % 2,953 10,000 10X61 AUGER % 3,870 5,000 Wagon % 3,096 10, Ton Gear % 1,665 2,000 Chopper % 13,045 20,000 Hay Buster (33%) % 5,700 6,000 Hay Buster % 9,315 20,000 Total machinery and equipment 305, ,500 8

11 Slim Jim Sample Balance Sheet: 1/1/2008 Page 3 1/29/2009 2:15:16 PM Schedule Q: Personal vehicles Model Year Pct. Cost Market Make/Model Year Serial No./VIN Purchased Ownership Value Value Dodge Pickup (25%) % Chev VAN (50%) % 1,000 1,000 Ford Taurus % 3,500 3,500 Lexus % 9,280 9,280 Detailed Balance Sheet Total personal vehicles 13,930 13,930 Schedule T: Current loans Interest Principal Accrued Normal Past Due Month Rate Balance Interest P & I P & I Due Balance 5thNB-Operating 8.00 % 207,100 3, , ,100 5thNB-Cattle % 579,513 4, , ,513 Total current loans 786,613 7, , ,613 Schedule U: Intermediate loans Interest Principal Accrued Normal Past Due Month Final Principal Intermed Rate Balance Interest P & I P & I Due Year Due Balance FSA-Bin Loan % 43, , ,128 29,861 John Deere Credit % 10, , ,918 4,364 John Deere Credit-Combine 8.75 % 48, , ,768 33,638 5thNB-Chopper - % 12,028-4, ,009 8,019 Total intermediate loans 114, ,303-38,823 75,882 Schedule V: Long term loans Interest Principal Accrued Normal Past Due Month Final Principal Lg Term Rate Balance Interest P & I P & I Due Year Due Balance Fifth National Bank-Barn 8.75 % 298,500 10,519 32, , ,841 Total long term loans 298,500 10,519 32,778-6, ,841 Schedule W: Personal loans Accrued interest 171 Personal accounts payable FED & STATE TAX DUE 2,600 Principal due within 12 months on term loans 3,815 Interest Principal Accrued Normal Past Due Month Final Principal Current Loans Rate Balance Interest P & I P & I Due Year Due Balance Intermediate Long Term Mutual Insurance-House % 40, ,000 - multiple ,815 37,158 Total personal loans 40, ,000-3,815 37,158 9

12 Detailed Balance Sheet Slim Jim Sample Balance Sheet: 1/1/2008 Page 4 1/29/2009 2:15:16 PM Schedule Y: Ratio analysis Cost Market Current ratio Working capital 296, ,763 Current percent in debt 74 % 74 % Intermediate percent in debt 25 % 15 % Long term percent in debt 66 % 59 % Personal percent in debt 28 % 28 % Total debt to asset ratio 62 % 55 % Total equity to asset ratio 38 % 45 % Total debt to equity ratio

13 11 Summary Balance Sheet

14 Summary Balance Sheet 12

15 Jan 1, 2006 Jan 1, 2007 Jan 1, 2008 Current Assets Cash and checking 12,247 9,576 26,034 Prepaid expenses and supplies 44, ,516 Crop inventory 228, , ,618 Livestock held for sale 501, , ,144 Total current assets 786, ,011 1,148,312 Slim Jim and Sarah Sample Summary Balance Sheets (market) Balance Sheet Trend Reports Intermediate Assets Machinery and equipment 467, , ,500 Titled vehicles - 2,600 1,450 Total intermediate assets 467, , ,950 Long Term Assets Land 5,000 15,000 30,000 Buildings and improvements 60, , ,700 Other long term assets 2,231 2,231 2,401 Total long term assets 67, , ,101 Total farm assets 1,321,165 1,799,392 2,147,363 Total personal assets 114, , ,930 Total assets 1,435,715 1,946,092 2,301,293 Current Liabillities Accounts payable and other accrued exp. 21, Accrued interest 6,728 14,334 19,619 Principal due within 12 months on term loans 32,369 53,509 44,545 Current loans 579, , ,613 Total current liabilities 639, , ,777 Intermediate & Long Term Liabilities Intermediate loans 169, ,100 76,819 Long term loans 0 293, ,841 Total farm liabilities 808,891 1,109,337 1,219,437 Personal liabilities 70,507 47,567 41,140 Total Liabilities (including deferreds) 879,398 1,156,904 1,260,577 Annual Noncurrent Debt Payments Farm P & I payments 37,366 91,951 78,081 Personal P & I payments 6,000 6,000 6,000 Equity Net worth 556, ,188 1,040,716 Net worth change 0 232, ,528 Ratio Analysis Current ratio Current ratio (farm and personal) Working capital 147,386 88, ,535 Working capital (farm and personal) 147,386 88, ,535 Current pct in debt 81 % 89 % 74 % Intermediate pct in debt 36 % 20 % 15 % FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 13

16 Balance Sheet Trend Reports Slim Jim and Sarah Sample Historic Report: Summary Page 2 1/30/ :56:48 Jan 1, 2006 Jan 1, 2007 Jan 1, 2008 Current & interm. % in debt 65 % 63 % 56 % Long term pct in debt - 59 % 59 % Total debt to asset ratio 61 % 59 % 55 % Total equity to asset ratio 39 % 41 % 45 % Total debt to equity ratio Loan to value % % Collateral margin ,567 Collateral coverage ratio % FINPACK Center For Farm Financial Management University of Minnesota 14 Prepared by: Wynn Richard University of Minnes

17 Tax Forms and Income Statement Tax Forms and Income Statement When you need a quick and easy source of historical financial performance, FINPACK s tax database is the answer. You can enter data for Schedules F, C, E, or Form 1040, Form 1065, Partnerships, Form 1120 Corporate, or Form 1120-S. You can also enter accountant prepared income statements. With Tax Forms and Income Statement, you can: Using any of the tax databases or the income statement, you can spread historical income and expenses Automatically import last year s or the average of several past year s historic income and expenses into your cash flow projections Use the Schedule F data to develop cash-to-accrual Schedule F Analysis Consolidate income statements and tax databases from multiple entries 15

18 Tax Forms and Income Statement 16

19 Slim Jim Sample Sch F - Farming Tax year Average Statement type Tax Return Tax Return Tax Return Tax Return Tax Return Principal product Beef Cattle Beef Cattle Beef Cattle Beef Cattle Beef Cattle Activity code Accounting method Cash Cash Cash Cash Cash PART I: Farm Income -- Cash Method 1. Sales of livestock & other items bought for resale 1,196, , , ,937 1,816, , Cost or other basis of items on line 1 821, , , ,051 1,242, , Subtract line 2 from line 1 374, , ,479 84, , , Sales of livestock, produce, grains, etc. 79, , , ,232 42, ,045 5a. Cooperative distributions b. Cooperative distributions, taxable amount a. Agricultural program payments 29,304 24,214 91,972 39,913 20,028 41,086 6b. Agricultural program payments, taxable amount 29,304 24,214 91,972 39,913 20,028 41,086 7a. CCC loans reported under election b. CCC loans forfeited c. CCC loans forfeited, taxable amount a. Crop insurance proceeds / Disaster payments - 24, ,899 8b. Crop insurance / Disaster payments, taxable amount - 24, ,899 8d. Amount deferred from previous year Custom hire (machine work) income 2, Other income - - 3,368 68,700-14, Gross income 485, , , , , ,487 Tax Forms and Income Statement PART II: Farm Expenses -- Cash and Accrual Method 12. Car and truck expenses Chemicals 26,297 24,359 23,983 11,879 15,650 20, Conservation expenses Custom hire (machine work) 6,819 2,568 6,395 2,496 2,310 4, Depreciation 95,572 45, , ,691 47, , Employee benefit programs Feed purchased 74,832 49,080 31,927 40, ,268 69, Fertilizers and lime 33,730 28,379 38,132 37,640 34,606 34, Freight and trucking - 2,825 2,658 10,988 23,068 7, Gasoline, fuel, and oil 10,174 19,898 25,208 23,310 25,405 20, Insurance (other than health) 10,797 14,648 11,540 13,720 19,877 14,116 23a. Interest, mortgage ,964 26,707 7,134 23b. Interest, other 34,313 25,148 27,123 27,168 74,075 37, Labor hired 10,357 6,095 5,918 7,200 11,506 8, Pension and profit-sharing plans a. Rent or lease: vehicles, machinery, equipment b. Rent or lease: land, animals, etc. 90,543 85,759 86,150 84, ,276 89, Repairs and maintenance 18,516 19,884 15,307 11,779 17,275 16, Seeds and plants purchased 38,772 80,071 45, ,128 42, Storage and warehousing Supplies purchased 7,279 6,152 4,923 10,261 26,271 10, Taxes Utilities 4,214 4,246 3,405 3,337 4,078 3, Veterinary, breeding, and medicine 2,511 6,088 3,781 9,779 8,314 6, Other expenses 18,072 13,181 8,128 7,627 11,238 11,649 FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson University of Minnesota University of Minnesota 17

20 Slim Jim Sample Tax Form / Income Statement: Sch F Page 2 1/31/ :36:27 AM Tax year Average 35. Total expenses 482, , , , , , Net farm profit or loss 3, ,278 24,872 46,043-8,303 47,384 Tax Forms and Income Statement PART III: Farm Income -- Accrual Method 38. Sales of livestock, produce, grains, etc a. Cooperative distributions b. Cooperative distributions, taxable amount a. Agricultural program payments b. Agricultural program payments, taxable amount a. CCC loans reported under election b. CCC loans forfeited c. CCC loans forfeited, taxable amount Crop insurance proceeds Custom hire (machine work) income Other income Total, lines Beginning inventory of livestock, produce, grains, etc Cost of livestock, produce, grains, etc. purchased Add lines 46 and Ending inventory of livestock, produce, grains, etc Cost of livestock, produce, grains, etc. sold Gross income Cash Flow for Debt Service Net farm profit or loss 3, ,278 24,872 46,043-8,303 47,384 + Other non-taxable income Depreciation 95,572 45, , ,691 47, ,332 + Interest paid on term debt 14,012 13,647 6,669 4,997 38,442 15,553 - Non-recurring income Non-recurring expense = Cash available for debt service 112, , , ,731 77, ,269 Farm Term Debt Coverage (cash basis) Cash available for debt service 112, , , ,731 77, ,269 + Cull income Personal income 21,473 25,488 33,201 28,889 46,660 31,142 - Family living expense 74,564 83,312 82,710 77,164 75,382 78,626 - Income and social security tax 53,342 42,684 26,270 19,397 8,167 29,972 = Capital debt repayment capacity (cash basis) 6, ,461 97, ,059 40,834 88,813 Annual P & I payments on term debt 76,111 91,579 51,641 37,366 91,951 69,730 Term debt coverage ratio (cash basis) Efficiency Ratios Operating expense ratio Depreciation expense ratio Interest expense ratio Net farm income ratio FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 18

21 Schedule F Accrual Analysis At a minimum, most lenders ask borrowers for a balance sheet and a Schedule F tax return each year. The challenge is analyzing these documents to determine credit worthiness. An analysis of Illinois farms found that there is a 66 percent difference between Schedule F cash net income and accrual net income. So how can you use Schedule F information to make informed loan decisions? FINPACK s Schedule F Accrual Analysis makes this job easy. Schedule F Accrual Analysis FINPACK s Schedule F Accrual Analysis: Requires only the beginning and ending balance sheets and a Schedule F tax return With a little additional information, FINPACK generates an accrual analysis Spreads the net farm income, financial ratios, and earned net worth change over multiple years Compare individual farm ratios to industry averages 19

22 Schedule F Accrual Analysis 20

23 Slim Jim Sample Schedule F Analysis Analysis type Sch F Sch F Sch F Income Statement Gross cash farm income 914, ,782 1,878,456 Total cash farm expense 795, ,155 1,866,530 Net cash farm income 119, ,627 11,926 Inventory change 60,498 32, ,893 Depreciation -40,766-56,378-56,858 Net farm income from operations 139, , ,961 Net farm income 139, , ,961 Financial Standards Measures Liquidity (ending) Current ratio (farm only) Working capital (farm only) 147,386 88, ,763 Working capital to gross revenues 14.8 % 8.3 % 13.5 % Solvency (market) Debt to asset ratio 61 % 61 % 56 % Equity to asset ratio 39 % 39 % 44 % Debt to equity ratio Profitability (cost) Rate of return on assets 11.9 % 8.2 % 18.7 % Rate of return on equity 29.1 % 16.3 % 38.5 % Operating profit margin 26.6 % 24.2 % 41.4 % Net farm income 139, , ,961 EBITDA 205, , ,627 Repayment Capacity Capital debt repayment capacity 104,873 99, ,422 Capital debt repayment margin 53,232 61, ,471 Replacement margin 53,232 47, ,097 Term debt coverage ratio Replacement margin coverage ratio Efficiency Asset turnover rate (cost) 44.7 % 33.8 % 45.3 % Operating expense ratio 79.4 % 80.1 % 80.1 % Depreciation expense ratio 4.1 % 5.3 % 2.6 % Interest expense ratio 2.5 % 4.1 % 4.8 % Net farm income ratio 14.0 % 10.5 % 12.5 % Schedule F Accrual Analysis Net Worth Growth Earned net worth change 59,588 60, ,115 Earned net worth change (%) 14 % 16 % 44 % Market net worth change 77, , ,039 Market net worth change (%) 22 % 64 % 23 % Accuracy Checks Cash discrepancy Cash discrepancy to gross revenues 0.0 % 0.0 % 0.0 % FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 21

24 Slim Jim Sample : Schedule F Analysis Page 2 1/31/2012 9:56:05 AM 2007 Income Statement Income Expense Schedule F Accrual Analysis Sale of livestock purchased for resale 1,816,151 Feeder livestock purchases 1,269,418 Sales of raised crops and livestock 42,186 Chemicals 15,650 Government payments 20,028 Custom hire (machine work) 2,310 Cooperative distributions 91 Feed purchased 149,268 Fertilizers and lime 34,606 Freight and trucking 23,068 Gasoline, fuel, and oil 25,405 Insurance (other than health) 19,877 Interest, mortgage 26,707 Interest, other 74,075 Labor hired 11,506 Rent or lease: land, animals, etc. 101,276 Repairs and maintenance 17,275 Seeds and plants purchased 46,128 Supplies purchased 26,271 Taxes 60 Utilities 4,078 Veterinary, breeding, and medicine 8,314 Other expenses 11,238 Gross cash income 1,878,456 Total cash expense 1,866,530 Net cash income 11,926 Beginning Purchases/ Sales/ Ending Inventory Inventory Changes Inventory Deposits Withdrawals Inventory Change Prepaids and supplies 859 2,422 1,563 Hedging gains or losses - 3, ,000 Crops and feed 223, , ,191 Market livestock 569, ,144 29,995 Other assets 2, , Accrued interest 14,334 19,359-5,025 Total inventory change 320,893 Net operating profit 332,819 Beginning Ending Depreciation Inventory Purchases Sales Inventory Depreciation Machinery and equipment 301,794 36, ,435-33,826 Titled vehicles 1, , Buildings and improvement 448,629 9, ,410-22,916 Total depreciation -56,858 Net farm income 275,961 FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 22

25 Slim Jim Sample : Schedule F Analysis Page 3 1/31/2012 9:56:05 AM Profitability Measures Cost Market Statement of Owner's Equity (A) Net farm income from operations 275, ,905 (a) Beginning net worth 701,284 Rate of return on assets (E/F) 18.7 % 16.8 % Rate of return on equity (G/H) 38.5 % 27.7 % Net farm income 275,961 Operating profit margin (E/I) 41.4 % 42.5 % Personal income (+) 46,660 Asset turnover rate (I/F) 45.3 % 39.5 % Family living expense (-) 75,332 Income taxes (-) 8,167 (B) Change in market valuation - 8,944 Change in personal assets (+) -3,036 (C) Interest expense 105, ,807 Change in nonfarm accounts payable (+) 29 (D) Value of operator labor & mgt 57,356 57,356 (b) Total change in retained earnings (=) 236,115 (E) Return on farm assets (A+C-D) 324, ,357 (F) Average farm assets 1,732,516 1,986,205 Change in market value of capital assets 8,944 (G) Return on farm equity (A-D) 218, ,549 Change in deferred liabilities - 81,021 (H) Average farm net worth 568, ,948 (d) Total change in market valuation = -72,076 (I) Value of farm production 784, ,126 (e) Total change in net worth (b+d) 164,039 Liquidity Measures Begin End Ending net worth calculated (a+e) 865,323 Ending net worth reported 865,103 (J) Current assets 803,011 1,148,218 Discrepancy 220 (K) Current liabilities 714, ,455 Current ratio (J/K) Statement of Cash Flows Working capital (J-K) 88, ,763 Working capital to gross revenues 4.0 % 13.5 % (f) Beginning cash balance (farm & personal) 9,576 Gross cash farm income 1,878,456 Solvency Measures (Market) Begin End Cash farm expenses (-) 1,866,530 Net cash from hedging transactions (+) -3,000 (L) Total assets 1,961,092 2,311,949 (g) Cash provided by operating activities (=) 8,926 (M) Total liabilities 1,259,808 1,446,846 Net worth (L-M) 701, ,103 Sale of capital assets - Net worth change 163,819 Purchase of machinery and equipment (-) 36,467 Purchase of farm buildings (-) 9,697 Current debt to assets (K/J) 89 % 74 % Purchase of personal assets (-) 10,266 Intermediate debt to assets 20 % 15 % (h) Cash provided by investing activities (=) -56,430 Long term debt to assets 57 % 59 % Personal debt to assets 32 % 28 % Net money borrowed less repaid (-) 101,021 Total debt to assets ratio (M/L) 64 % 63 % Personal income (+) 46,660 Family living expense (-) 75,332 Income taxes (-) 8,167 Repayment Capacity (i) Cash provided by financing activities (=) 64,182 Schedule F Accrual Analysis Net farm income from operations 275,961 Net change in cash (g+h+i) 16,678 Depreciation (+) 56,858 Ending cash balance (farm and personal) 26,034 Personal income (+) 46,660 Discrepancy 220 Family living expense (-) 75,332 Payments on personal debt (-) 6,000 Income taxes (-) 8,167 Interest on term debt (+) 38,442 (N) Capital debt repayment capacity (=) 328,422 (O) Scheduled term debt payments 91,951 (P) Capital debt repayment margin (N-O) 236,471 (Q) Cash replacement allowance 1,374 Replacement margin (P-Q) 235,097 Term debt coverage ratio (N/O) 3.57 Replacement coverage ratio (N/O+Q) 3.52 FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 23

26 Slim Jim Sample : Schedule F Analysis Page 4 1/31/2012 9:56:05 AM Cash Accuracy Check Beginning cash balance 9,576 Ending cash balance 26,034 Gross cash farm income 1,878,456 Total cash farm expense 1,866,530 Personal income 46,660 Family living expense 75,332 Hedging account withdrawals - Hedging account deposits 3,000 Capital sales - Capital purchases 56,430 Net money borrowed 101,021 Net principal payments - Gifts and inheritances - Gifts given - Income taxes 8,167 Total inflows 2,035,713 Total outflows 2,035,493 Discrepancy (inflows - outflows) 220 Discrepancy to gross revenues 0.0 % Schedule F Accrual Analysis FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 24

27 Slim Jim Sample : Schedule F Analysis Page 5 1/31/2012 9:56:05 AM Current Ratio Current Ratio The extent to which current farm assets, if liquidated, would cover current farm liabilities. 1 Total current farm assets divided by total current farm liabilities Strong Greater than 1.7 Caution 1.7 to 1.1 Vulnerable Less than 1.1 FINBIN My Farm Working Capital to Gross Revenues Working Capital to Gross Revenues Measures operating capital available against the size of the business FINBIN My Farm Debt to Asset Ratio (mkt) Working capital dividied by gross revenues. Strong Greater than 25 Caution 25 to 10 Vulnerable Less than 10 Debt to Asset Ratio (mkt) The proportion of total farm assets owed to creditors. Total farm debt divided by total farm assets. Schedule F Accrual Analysis Strong Less than 30% Caution 30% to 60% Vulnerable Greater than 60% FINBIN My Farm 4 Debt to Equity Ratio (mkt) Debt to Equity Ratio (mkt) The relative amount of money borrowed as a percentage of equity capital. 3 2 Farm debt divided by equity Strong Less than 0.43 Caution 0.43 to 1.5 Vulnerable Greater than 1.5 FINBIN My Farm FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 25

28 Slim Jim Sample : Schedule F Analysis Page 6 1/31/2012 9:56:05 AM Rate of Return on Assets-cost Rate of Return on Assets-cost The rate earned on the total business investment, equity and borrowed capital. Net farm income + interest - value oper labor & mgmt divided by average farm assets. Strong Greater than 8% Caution 8% to 4% Vulnerable Less than 4% FINBIN My Farm 50 Rate of Return on Equity-cost Rate of Return on Equity-cost The rate earned on equity capital invested in the business Net farm income - value oper labor & mgmt divided by average farm net worth. Schedule F Accrual Analysis FINBIN My Farm Operating Profit Margin (cost) Strong Greater than 10% Caution 10% to 3% Vulnerable Less than 3% Operating Profit Margin (cost) Measures the operating efficiency of the business in terms of return as a percentage of gross income. Net farm income + interest - value of labor & mgmt divided by the value of farm production Strong Greater than 25% Caution 25% to 15% Vulnerable Less than 15% FINBIN My Farm 350, , , , , ,000 50,000 0 Net Farm Income (cost) Net Farm Income (cost) The net income from the farm that is available for owner withdrawals, income taxes and equity growth. Cash income - cash expense + inventory change - depreciation. FINBIN My Farm FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 26

29 Slim Jim Sample : Schedule F Analysis Page 7 1/31/2012 9:56:05 AM Term Debt Coverage Ratio Term Debt Coverage Ratio The ability of the business to generate enough income to cover all scheduled intermediate and long term debt payments. Net farm oper income + net nonfarm income + interest on term debt - fam liv & taxes / term debt prin & int. Strong Greater than 1.5 Caution 1.5 to 1.2 Vulnerable Less than 1.2 FINBIN My Farm Replacement Margin Coverage Ratio FINBIN My Farm Asset Turnover Rate (cost) Replacement Margin Coverage Ratio A ratio below 1.0 indicates you did not generate enough income to cover term debt payments and unfunded capital purchases. Strong Greater than 1.4 Caution 1.4 to 1.1 Vulnerable Less than 1.1 Asset Turnover Rate (cost) Measures efficiency of capital invested in the business in terms of the gross revenue generated by each dollar of investment. Value of farm production divided by average farm assets. Strong Greater than 45% Caution 45% to 30% Vulnerable Less than 30% Schedule F Accrual Analysis FINBIN My Farm 80 Operating Expense Ratio Operating Expense Ratio The portion of gross revenue used to pay operating expenses Farm operating expense - interest expense divided by gross income Strong Less than 60% Caution 60% to 80% Vulnerable Greater than 80% FINBIN My Farm FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 27

30 Schedule F Accrual Analysis 28

31 Global Cash Flow Global cash flow is important when both business and personal cash flows need to be analyzed to determine a credit s true financial situation. A global cash flow allows a lender to look at the combined sources and uses of cash from multiple business entities along with cash flow from personal sources. The FINPACK Global Cash Flow calculates debt coverage for each individual business entity and for the individuals involved in the business. With Global Cash Flow, you can: Easy methodology to quickly present the entire cash flow position Analyze repayment ability from multiple businesses, multiple individuals, and guarantors Requires only tax returns from each entity Calculates debt coverage ratios for each entity and global debt coverage for the combined entities Global Cash Flow Easily add projected new or proposed debt payments and income to the analysis 29

32 Global Cash Flow 30

33 Slim Jim Sample Global Cash Flow Analysis Actual $ Average Sch F - Farming Net farm profit or loss 24,872 46,043-8,303 20,871 + Other non-taxable income Depreciation 141, ,691 47, ,348 + Interest paid on term debt 6,669 4,997 38,442 16,703 - Non-recurring income Non-recurring expense = Cash available for debt service 173, ,731 77, ,921 Debt payments 51,641 37,366 91,951 60,319 Debt coverage ratio Sch C - Trucking Net profit or loss 27,729 21,027 22,303 23,686 + Depreciation Interest 4,203 3,602 3,465 3,757 - Disallowed meals and entertainment (50%) Depreciation, depletion, interest in COGS Expenses for business use of your home Non-recurring income Non-recurring expense = Cash available for debt service 31,932 24,629 25,768 27,443 Debt payments 13,265 13,265 13,265 13,265 Debt coverage ratio Sch E - Houses Net profit or loss 5,902 7,145 6,229 6,425 + Depreciation, depletion 2,730 2,730 2,730 2,730 + Interest Non-recurring income Non-recurring expense = Cash available for debt service 8,632 9,875 8,959 9,155 Debt payments Debt coverage ratio Jim & Sarah Adjusted gross income 100, ,288 64,874 93,984 + Other non-taxable income Income tax 8,912 9,812 3,500 7,408 - Living expenses 45,000 45,000 45,000 45,000 - Non-recurring income Non-recurring expense = Cash available for debt service 46,877 61,476 16,374 41,576 Debt payments 23,332 23,332 23,332 23,332 Debt coverage ratio Global Cash Flow Global Debt Coverage Business and personal cash available for debt service 260, , , ,095 - Business income included in personal income 58,503 74,215 20,229 50,982 = Net global cash available for debt service 202, , , ,113 Total debt payments 88,238 73, ,548 96,916 Total debt coverage ratio FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 31

34 Slim Jim Sample Global Cash Flow Analysis: Global Page 2 1/31/2012 9:56:41 AM Proposed New Income & Debt New building Average Original total debt coverage ratio Adjusted Prior Three Years Business and personal cash available for debt service 260, , , ,095 - Business income included in personal income 58,503 74,215 20,229 50,982 + Proposed new income 50,000 50,000 50,000 50,000 = Adjusted net global cash available for debt service 252, , , ,113 Existing debt payments 88,238 73, ,548 96,916 + Proposed new debt payments 7,250 7,250 7,250 7,250 = Total debt payments 95,488 81, , ,166 Adjusted total debt coverage ratio Global Cash Flow FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Wynn Richardson University of Minnesota 32

35 Annual Cash Flow Don t need a monthly cash flow for all of your borrowers? The FINPACK Annual Cash Flow requires less time and data but provides a complete cash flow with pro-forma accrual analysis for the planning year. The Annual Cash Flow is a quick and easy annual cash flow plan that includes: Projected annual cash flow Projected change in working capital Projected debt coverage Pro-forma income statement Pro-forma balance sheet Links to past history for accurate and convenient data entry Your completed plan can be printed directly on FSA forms, using FINPACK s FSA Forms tool. 33 Annual Cash Flow

36 Annual Cash Flow 34

37 Slim Jim Sample 2008 Executive Summary Projected Cash Flow Summary Term Debt Coverage Total operating inflow 1,335,008 Net farm income from operations 94,573 Total operating outflow (-) 1,073,745 Depreciation (+) 74,605 Capital purchases (-) - Personal income (+) 48,000 Capital sales (+) - Family living expense (-) 78,000 New credit (+) 515,625 Personal loan payments (-) 6,000 Loan payments (-) 709,578 Income and social security tax (-) 25,000 Net cash flow (=) 67,309 Interest paid on term debt (+) 32,599 Capital debt repayment capacity (=) 140,777 Beginning cash balance (+) 26,034 Term debt payments 78,081 Operating loan borrowings (+) 292,400 Term debt coverage 1.80 Operating loan principal payments (-) 382,789 Ending cash balance (=) 2,954 Farm Financial Standards Measures Beginning operating loan balance 207,100 Liquidity Beginning Ending Ending operating loan balance 116,711 Current ratio Working capital 296, ,013 Projected Change in Working Capital Working capital to gross revenue 24.4 % 29.6 % Change in cash -23,080 Solvency (market) Change in current inventories (+) -68,501 Debt to asset ratio 56.5 % 51.2 % Change in operating loan balance (-) -90,389 Equity to asset ratio 43.5 % 48.8 % Change in other current loans (-) -63,888 Debt to equity ratio Change in princ due on term loans (-) -1,554 Estimated change in working capital (=) 64,250 Profitability (market) Rate of return on assets 5.7 % Projected Income Statement Rate of return on equity 4.1 % Operating profit margin 18.4 % Gross cash farm income 1,287,008 Net farm income 94,573 Inventory change - income items (+) -69,108 EBITDA 247,155 Gross revenue (=) 1,217,900 Repayment Capacity Cash farm operating expense 970,745 Capital debt repayment capacity 140,777 Interest expense (+) 78,583 Capital debt repayment margin 62,696 Depreciation (+) 74,605 Replacement margin 50,049 Inventory change - expense items (+) -606 Term debt coverage 1.80 Total farm expense (=) 1,123,327 Replacement margin coverage ratio 1.55 Net farm income 94,573 Efficiency Projected Earned Net Worth Change Asset turnover rate (market) 30.7 Operating expense ratio 79.7 % Net farm income 94,573 Depreciation ratio 6.1 % Personal income (+) 48,000 Interest expense ratio 6.4 % Family living expense (-) 78,000 Net farm income ratio 7.8 % Income & social security tax (-) 25,000 Personal loan interest expense (-) 2,014 Shocks to Term Debt Coverage Ratio Personal asset depreciation (-) 1,393 Earned net worth change (=) 36,166 10% decrease in gross income % increase in operating expenses % increase in interest rates 1.33 FINPACK Center For Farm Financial Management University of Minnesota 35 Prepared by: Dale Nordquist Center for Farm Financial Mgmt Annual Cash Flow

38 Slim Jim Sample Annual Plan: 2008 Page 2 1/30/2009 8:33:52 AM PROJECTED NET CASH FLOW Cash Inflows Quantity Price Inflow Cash Outflows Outflow Corn 35,000 bu. 4.00/bu. 140,000 Feeder livestock purchase 515,625 Soybeans 19,794 bu /bu. 221,693 Seed 60,948 Finish Beef 736 head /cwt. 908,960 Fertilizer 48,330 Direct & CC govt payments 16,094 Crop chemicals 18,216 Patronage dividends, cash 261 Crop insurance 22,248 Personal wages & salary 48,000 Drying expense 6,210 Total operating inflows 1,335,008 Crop purchases 11,425 Purchased feed 53,446 New Credit Veterinary 5,567 5thNB-Cattle 515,625 Supplies 18,558 Total new credit 515,625 Marketing 16,997 Fuel & oil 35,600 Repairs 18,000 Custom hire 3,000 Hired labor 12,000 Land rent 111,400 Real estate taxes 75 Farm insurance 6,000 Utilities 4,300 Dues & professional fees 1,300 Miscellaneous 1,500 Family living/owner draw 78,000 Income & social sec taxes 25,000 Total operating outflows 1,073,745 Loan Payments Fifth National Bank-Cattle 612,189 John Deere Credit ,670 Farm Service Agency-Bin Loan 15,586 Fifth National Bank-Chopper 4,009 John Deere Credit-Combine 19,038 Fifth National Bank-Barn 32,778 Mutual Insurance-House 6,000 Annual operating loan interest 13,308 Total loan payments 709,578 Total cash inflows 1,850,633 Total cash outflows 1,783,323 Net cash flow 67,309 Annual Cash Flow 36

39 Slim Jim Sample Annual Plan: 2008 Page 3 1/30/2009 8:33:52 AM CROP AND LIVESTOCK PRODUCTION Production Per Operator Enterprise Units Unit Share Production Corn Acres 165.0bu ,310 bu. Corn Silage 42.0 Acres 18.0ton ton Soybeans Acres 48.0bu ,752 bu. Total crop acres Acres CROP INVENTORY SUMMARY Beginning From To Ending Inventory Produced Purchased CCC Fed Sold CCC Inventory Corn (bu.) 69,707 68, ,591-35,000-67,426 Corn Silage (ton) Alfalfa Hay (ton) Soybeans (bu.) 19,794 22, ,794-22,752 LIVESTOCK INVENTORY SUMMARY Beginning Purchased / Sold / Ending Inventory Produced Trans In Died Trans Out Inventory Finish Beef (head) PROJECTED INVENTORY CHANGE Begin Begin Ending Ending Commodity Inventory $/Unit Value Inventory $/Unit Value Change Corn 69, ,919 67, ,991-44,928 Corn Silage , ,750-3,500 Hay, Alfalfa Soybeans 19, ,693 22, ,392-28,301 Finish Beef , ,500 8,356 Total income items 1,119,762 1,050,654-69,108 Prepaid exp. & suppl. 2,422 2,422 - Accrued interest (end) 18,753 (beg) 19, Total expense items 21,175 21, Total inventories 1,140,937 1,072,435-68, Annual Cash Flow

40 Slim Jim Sample Annual Plan: 2008 Page 4 1/30/2009 8:33:52 AM PROJECTED BALANCE SHEET Projected Beginning Ending Current Assets Cash and checking 26,034 2,954 Prepaid exp. & suppl. 2,422 2,422 Crops 520, ,154 Mkt lvst 599, ,500 Total current assets 1,148,218 1,056,030 Intermediate Assets Machinery 502, ,250 Titled vehicles 1,450 1,305 Total intermediate assets 503, ,555 Long Term Assets Land 30,000 30,000 Bldgs & improve. 462, ,565 Other long term 2,401 2,401 Total long term assets 495, ,966 Total farm assets 2,147,269 1,981,551 Personal assets 153, ,537 Total assets 2,301,199 2,134,088 Current Liabilities Accrued interest 19,359 18,753 Operating loan(s) 207, ,711 Fifth National Bank-Cattle 579, ,625 Principal due on term loans 45,482 43,928 Total current liabilities 851, ,017 Intermediate Liabilities John Deere Credit ,364 - Farm Service Agency-Bin Loan 29,861 15,733 Fifth National Bank-Chopper 8,019 4,010 John Deere Credit-Combine 33,638 18,870 Total intermediate liabilities 75,882 38,613 Long Term Liabilities Fifth National Bank-Barn 291, ,181 Total long term liabilities 291, ,181 Total farm liabilities 1,219,177 1,018,812 Personal liabilities 43,744 39,758 Total liabilities 1,262,921 1,058,570 Annual Cash Flow Net worth 1,038,277 1,075,519 Net worth change 37,241 Debt to asset ratio 55 % 50 % 38

41 Monthly Cash Flow Monthly Cash Flow FINPACK makes monthly cash flow planning easy and accurate. The monthly cash flow can project annual operating loan needs and repayment capacity for the year, any portion of a year, or multiple years (up to ten years). Monthly Cash Flow includes: Projected monthly cash flows Projected operating loan transactions and balances Projected debt coverage Pro-forma income statement Pro-forma balance sheets Your completed plan can be printed directly on FSA forms, using FINPACK s FSA Forms tool. 39

42 Monthly Cash Flow 40

43 Projected Cash Flow Summary Executive Summary Term Debt Coverage Slim Jim Sample 2008 Cash Flow Total operating inflow 1,335,062 Net farm income from operations 94,950 Total operating outflow (-) 1,073,685 Depreciation (+) 74,605 Capital purchases (-) - Personal income (+) 48,000 Capital sales (+) - Family living expense (-) 78,000 New credit (+) 515,625 Personal loan payments (-) 6,000 Loan payments (-) 707,647 Income and social security tax (-) 25,000 Net cash flow (=) 69,355 Interest paid on term debt (+) 32,082 Capital debt repayment capacity (=) 140,637 Beginning cash balance (+) 26,034 Term debt payments 78,081 Operating loan borrowings (+) 292,400 Term debt coverage 1.80 Operating loan principal payments (-) 382,789 Ending cash balance (=) 5,000 Farm Financial Standards Measures Monthly Cash Flow Beginning operating loan balance 207,100 Liquidity Beginning Ending Peak operating loan balance (Feb) 211,644 Current ratio Ending operating loan balance 116,711 Working capital 296, ,928 Working capital to gross revenue 24.4 % 29.6 % Projected Change in Working Capital Solvency (market) Change in cash -21,034 Debt to asset ratio 56.5 % 51.2 % Change in current inventories (+) -68,355 Equity to asset ratio 43.5 % 48.8 % Change in operating loan balance (-) -90,389 Debt to equity ratio Change in other current loans (-) -63,888 Change in princ due on term loans (-) 722 Profitability (market) Estimated change in working capital (=) 64,165 Rate of return on assets 5.7 % Rate of return on equity 4.2 % Projected Income Statement Operating profit margin 18.5 % Net farm income 94,950 Gross cash farm income 1,287,062 EBITDA 248,792 Inventory change - income items (+) -69,126 Gross revenue (=) 1,217,936 Repayment Capacity Capital debt repayment capacity 140,637 Cash farm operating expense 970,685 Capital debt repayment margin 62,556 Interest expense (+) 78,467 Replacement margin 49,906 Depreciation (+) 74,605 Term debt coverage 1.80 Inventory change - expense items (+) -771 Replacement margin coverage ratio 1.55 Total farm expense (=) 1,122,986 Net farm income 94,950 Efficiency Asset turnover rate (market) 30.7 Projected Earned Net Worth Change Operating expense ratio 79.7 % Depreciation ratio 6.1 % Net farm income 94,950 Interest expense ratio 6.4 % Personal income (+) 48,000 Net farm income ratio 7.8 % Family living expense (-) 78,000 Income & social security tax (-) 25,000 Shocks to Term Debt Coverage Ratio Personal loan interest expense (-) 2,015 Personal asset depreciation (-) 1,393 10% decrease in gross income 0.24 Earned net worth change (=) 36,542 10% increase in operating expenses % increase in interest rates 1.37 FINPACK Center For Farm Financial Management University of Minnesota Prepared by: Dale Nordquist Center for Farm Financial Mgmt 41

44 Monthly Cash Flow Slim Jim Sample Cash Flow Plan: 2008 Cash Flow Page 2 1/30/2009 8:18:49 AM CASH INFLOWS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Beg cash bal Corn Soybeans Finish Beef DCP payments Pat dividend Pers. wages Total inflow CASH OUTFLOWS Seed Fertilizer Chemicals Crop insur Drying fuel Pur. Silage Pur. Hay Feeder lvstk Purch. feed Veterinary Supplies L. Marketing Fuel & oil Repairs Cust hire Labor Land rent RE taxes Farm insur Utilities Dues & fees Misc Living/Draw Income taxes Min end bal Tot. outflow Opr. surplus

45 Slim Jim Sample Cash Flow Plan: 2008 Cash Flow Page 3 1/30/2009 8:18:49 AM NEW CREDIT Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 5thNB-Cattle Tot new cred Monthly Cash Flow LOAN PAYMENTS 5thNB-Cattle JDCC FSA-Bin Loan thNB-Chop JDCC-Combine thNB-Barn InsCo-House Tot loan pay Surp. or def ANNUAL OPERATING LOAN TRANSACTIONS & BALANCES Beg AO bal AO borrowing AO int. pay AO prin. pay End AO bal Accrued int End cash bal