FINPACK 2001: FINLRB Long Range Plan Risk Management 2001 Case Farm Center for Farm Financial Management Roger Betz Dist Ext Farm Mgt Agnt (C)2000 University of Minnesota MEDIUM Debt to Asset Farm User: Roger Betz File: Risk2001 MSU Extension 2/2/2001 9:00:00 AM Base Plan Cn-Soy Moderate PLAN DESCRIPTION Debt/Ast Total crop acres 2,000 Total labor hours 6,000 Change in farm assets - Change in farm liabilities - Crop Plan Yield/Acre Share Cash Corn, Y2K 128.5 bu. 100 % 1,000.0 Soybeans, Y2K Risk Mgt 43.0 bu. 100 % 1,000.0 2/2/2001 FINLRB Long Range Plan Page 2 PROFITABILITY Base Plan Cn-Soy Moderate INCOME STATEMENT (Typical Year) Debt/Ast Corn, Cash $ 2.10/bu. 269,850 Soybeans $ 5.30/bu. 227,900 Other farm income 65,534 (A) Gross farm income 563,284 Seed 51,400 Fertilizer 67,800 Crop chemicals 39,100 Drying fuel 14,000 Crop fuel & oil 16,850 Crop repairs 43,800 Crop utilities 3,900 Crop hauling and trucking 20,580 Crop marketing 1,715 Interest 68,714 Hired labor 25,000 Land rent 82,500 Real estate taxes 14,100 Farm insurance 12,000 Utilities 1,200 (B) Total cash farm expense 462,659 (C) Net cash farm income 100,625 Depreciation 60,000 (D) Net farm income 40,625 2/2/2001 FINLRB Long Range Plan Page 3 Base Plan Cn-Soy Moderate PROFITABILITY MEASURES (Market) Debt/Ast Net farm income (D) 40,625 Labor & management earnings (D-E) -26,068 Rate of return on farm assets (H/I) 3.2 % Rate of return on farm equity (J/K) -0.5 % Operating profit margin (H/N) 11.3 % Asset turnover (N/I) 27.9 % (E) Interest on farm net worth (K* 6%) 66,693 (F) Farm interest paid 68,714 (G) Value operators labor & mgt 45,664 (H) Return on farm assets (D+F-G) 63,675 (I) Total farm assets 2,021,000 (J) Return on farm equity (D-G) -5,039 (K) Total farm net worth 1,111,550 (N) Value of farm production 563,284 LIQUIDITY CASH FLOW (Typical Year) Net cash farm income (C) 100,625 Nonfarm income (+) - Net cash available (=) 100,625 Family living (-) 30,000 Income taxes and social security (-) 11,369 (R) Cash available for principal payments (=) 59,256 Farm interest paid (+) 68,714 Cash avail. for principal and interest (=) 127,970 Implement Dealer 55,827 Commercial AgBus Bank 40,603 Farm Service Agency/FmHA 19,394 Farm Credit System 53,604 Operating loan interest 15,000 (S) Total scheduled principal and interest (-) 184,428 Cash available after loan payments (=) -56,458 Annual capital replacement 60,000 Principal paid on intermediate debts 68,038 (T) Cash required for replacement (-) - (U) Cash surplus or deficit (=) -56,458 2/2/2001 FINLRB Long Range Plan Page 4 Base Plan Cn-Soy Moderate LIQUIDITY MEASURES Debt/Ast Cash available for principal payments (R) 59,256 Annual farm long term principal pymts (-) 47,676 (V) Cash available for farm intermed. debt (=) 11,579 (W) Farm intermediate debt to be served 344,906 Years to turnover farm intermed. debt (W/V) 29.8 Surplus as a percent of payments (U/(S+T)) -30.6 % Cash farm expense as % of income (B/A) 82.1 % Farm interest as % of value of prod. (F/N) 12.2 % Farm debt payments as % of value of prod. 32.7 % SOLVENCY BALANCE SHEET (Market) Current farm assets 431,000 Intermediate farm assets (+) 616,000 Long term farm assets (+) 974,000 Nonfarm assets (+) - (X) Total assets (=) 2,021,000 Current farm liabilities 317,516 Intermediate farm liabilities (+) 253,300 Long term farm liabilities (+) 338,634 Nonfarm liabilities (+) - (Y) Total liabilities (=) 909,450 Net worth (X-Y) 1,111,550 SOLVENCY MEASURES Current percent in debt 73.7 % Current & intermediate pct in debt 54.5 % Long term percent in debt 34.8 % Nonfarm percent in debt - % Total percent in debt (Y/X) 45.0 % NET WORTH CHANGE (Typical Year) Net farm income 40,625 Nonfarm income (+) - Family living (-) 30,000 Income taxes and social security (-) 11,369 Net worth change per year (=) -744 2/2/2001 FINLRB Long Range Plan Page 5 Base Plan Cn-Soy Moderate FINANCIAL STANDARDS MEASURES Debt/Ast Liquidity Current ratio 1.36 Working capital 113,484 Solvency Farm debt to asset ratio 45.0 % Farm equity to asset ratio 55.0 % Farm debt to equity ratio 81.8 % Profitability Rate of return on farm assets 3.2 % Rate of return on farm equity -0.5 % Operating profit margin 11.3 % Net farm income 40,625 Repayment Capacity Term debt coverage ratio 66.7 % Capital replacement margin -56,458 Efficiency Asset turnover 27.9 % Operating expense ratio 69.9 % Depreciation expense ratio 10.7 % Interest expense ratio 12.2 % Net farm income ratio 7.2 % CROP AND LIVESTOCK PRODUCTION Corn, Cash bu. 128,500 Soybeans bu. 43,000 SENSITIVITY ANALYSIS Effect Of A 2 % Decrease In All Enterprises Net farm income 30,670 Cash surplus or deficit -62,939 Net worth change per year -7,225 Effect Of A 10 % Decrease In All Enterprises Net farm income -9,150 Cash surplus or deficit -94,864 Net worth change per year -39,150