Lancaster farming. (Lancaster, Pa., etc.) 1955-current, May 01, 1993, Image 106

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    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
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, ■ 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.
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DELAWARE
DrSnOS CnQlnf OIrVICI tfCMT
1751 Lincoln Way East JSHL
Chambersburg, PA 17201
717-264-49(5
BERKS CO.
Charlaa E. Woolf
Rte 501, PO Box 234
Bethal, PA 19507
717-93W7U
nSBL
Small Englna
Satvlca It Salaa
Elvarson. 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.
Lawn Cart of PA
PO Box 25
Martmdale, PA 17549
215-445-4541
Wat Stauffer Englnaa -
I Equipment
23 PtoMint Valley Rd.
Ephrata, PA 17522
717-23M21S
UNION CO.
J.L, Peachy And Sona
Rl 1 Box 172 Route 304
WMatyfA 17880
7174N-04W
Clark!*'* Gang* of Smyrna
552 South DuPont Hwy.
Smyrna, DE 19977
302-653-7031
NEW JERSEY
MONMOUTH
Gravaly Tractor Aganey
RD #4 Box 12. Rt. 9
Freehold, NJ 07728 '
908-462-0743
NEW YORK
SENACA
Zlmmarman'a Small
Engine Repair
Aaron B. Zimmerman
3680 Walla Row)
Waterloo, NY 1316$
315.515-6382