CIO-UncMUr Farmino. Saturday. Hav 1. 1993 Financial Analysis From A Lender’s Perspective Editor’s Note: This is the third of a seven part series to explain how Farm Credit analyzes farm and ranch businesses. A different aspect of financial analysis is addressed in each issue. Liquidity - The key to weathering the storm When analyzing the financial health of an agricultural business, one of the first items a lender will measure is liquidity. Assessing liquidity or working capital will tell how well a producer can withstand or recover from a bad year. Measuring liquidity Lenders consider a current ratio of 1.5:1 and above acceptable. That indicates the producer has enough current assets to cover expenses and still have a buffer for capital purchases or unseen problems. When the ratio falls to 1:1 or below, a producer must rely on other parts of the balance sheet to recover from a bad year. Often this requires restructuring debt to replace working capital to have the means to operate. Assessing risk The amount of working capital needed to maintain a financially sound operation varies depending on the nature and volatility of the commodity produced. Generally, the more frequent the opportunity to sell the commodity and the more stable the market, the less risky, and the less working capital needed. For example, a dairy that sells products monthly doesn't need as much working capital as a farm that sells products once a year, such as a potato grower. Monitoring trends While measuring the working capital at one point in time does give an indication of the health of the operation at the time, it's more revealing to compare that to the level of previous years And if there has been change, it's important to understand what caused the change. For example, your working capital position is directly affected by your earnings STRIKE IT RICH! SELL IT WITH A LANCASTER FARMING CIASSIHED SmE& horseshoes, close doesn’t count in fitting workshoes! Thafs why this popular comes this wide range of sizes. MADE 101 101 SIZES I AAA [TaIAI B I C ~ D E EE H I 1015 | 915 I 7ft 16 1716 | 6*6 15 516 615 6-14 5Vt U 4'/i-l6 aennn * l eB g f s : EEE free EEE Red Wing Catalog That’s our answer to the man who says "I can't find a Pecos pull-on that fits" 1155 AAA lAAIAIBIC I P I E [ EE [ EEE I 10-14 »15 H 5 W 7-14 |wB| S-15 SI4 7-t«~| HOURS: Daily 8:30 A.M. to 6 P.M.; Fri. 'til 8 P.M. mhhh* , ■ v I MSP VW'WT?/ Wayne’s Dry Goods \W/,J 271 W. Main St. ■■ \\w w// Kutztown, Pa. Phone (215) 683-7686 LIQUIDITY OR WORKING CAPITAL: The amount by which your current assets (CA) exceeds your current liabilities (CL). CA/CL = Current ratio. Example: CA = $150,000 and CL = $lOO,OOO. the current ratio is 1.5:1. CURRENT ASSETS: Items owned that will either be used up within the next year or can be easily converted to cash without affecting the operation of the business. Examples: Checking account balance, crops on hand, invest ment in growing crops, calves to be sold. CURRENT LIABILITIES; Obligations that must be paid within the next 12 months, including pnncipal payments on term and real estate loans. Examples: Operating loan balance, principal and accrued interest on tractor payment, accounts payable for supplies. (positive or negative), capital purchases made with non-borrowed funds, or by refinancing short- or intermediate-term debt to longer term, That's why it’s critical that your lender under stands the history of your operation as well as your plans for the future. ♦ Next week we will look at cash flow planning. Nutrena Markets Heifer Early Calving MINNEAPOLIS, Minn. The Nutrena Feed Division of Cargill has introduced a three-phase feed ing program for dairy heifers designed to help shorten the time to first calving and improve milk production. Called the Herd-Builder prog ram, it features starter, grower, and developer feeds geared to each phase of heifer development Dr. Steve Smith, Nutrena's dairy research nutritionist said the feeds address the sometimes ignored opportunity to help improve dairy production by bet ter nutritional management of replacement heifers. “Our research shows that when combined with other proper man agement practices this feeding program makes it possible to reduce the time required to first calving and initial lactation to 22 months, which is six months less than the national average of 28 months. This is accomplished by improving the amino-acid profiles in the feed,” said Smith. Get The THE ONLY a -if OUT FRONT ZERO P rijMIA TURNING RADIUS MOWER MADE IN 30” /f I TO 50” CUTTING WIDTH u AT AFFORDABLE PRICES Increase production with a new Spirit. 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PA 19520 215-2M4781 asroa Salaa & Sarvlca 1781 Main St (Uabum) Maehaniobum, PA 17055 Tl7*H-ni4 Feeds For The Herd-Builder feeds provide a specific set of amino acids, not just a specific amount of protein, Smith said. This provides the nutrition for optimum growth and reduces the time needed for heif ers to become productive. The feeds also contain a carefully designed mix of vitamins, miner als and energy-supplying nutrients. The Herd-Builder program means producers can increase milk production and explore man agement options such as cutting back on the number of replace ment heifers that are needed. They also can be more selective in their replacement choices or accelerate genetic improvements in their herds. Smith said. The research also showed that faster-developing heifers arc big ger at calving, increasing milk production. For every extra 50 pounds of body weight at lacta tion, a heifer has the capacity to produce 200 extra pounds of milk, Smith said. LANCASTER CO. 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Significant historical Pennsylvania newspapers