Agriculture Reference
In-Depth Information
return generated on the funds she had invested in the stock of this company. She expected
her investment to equal or surpass alternative investment opportunities with similar risks.
Members of cooperatives, on the other hand, concentrate their interest on the effi ciency of
the fi rm and the savings accruing to them through their patronage. These represent the
implicit returns for patron members as discussed in
Chapter 4
.
Meanwhile, Mary Hartman, who heads the commercial loan department of Farmers'
Bank and Trust, is interested in not only a fi rm's profi ts, but also its cash fl ow, because it is
an important barometer of the fi rm's ability to repay loans. Because she is interested in pro-
tecting the loan against loss, the fi rm's assets versus liabilities are an additional focus for her,
as for all lenders.
Governmental units are interested in fi nancial statements from several points of view,
depending on their particular needs. For example, the Internal Revenue Service is interested
in profi ts, the tax assessor is interested in asset valuation, and the Labor Department is
interested in wages and employee information. Each of the many governmental units will
require certain kinds of information, and supplying it in proper form is mandatory for the
business.
The agribusiness manager must be aware of each of the perspectives in designing and
analyzing the fi nancial statements of the business. Construction of these statements in a
format useful to the agribusiness fi rm is the fi rst important step. This chapter outlines how
these statements may be used to evaluate agribusiness performance—the second important
step in effective fi nancial management.
Timely analysis
A successful agribusiness operation depends greatly on managerial planning. However,
since planning involves the consideration of an uncertain future, even the best management
plans can go astray. Therefore, the management team must monitor the fi rm's progress, or
lack of it, toward previously established goals. Many agribusinesses fail because manage-
ment discovered too late that goals were not being realized. Through continual evaluation of
fi nancial records, management might have recognized the problem as it was developing,
which would have allowed suffi cient time for corrective action. This assumes the records
were complete and accurate. Proper and timely evaluation allows management to begin to
implement contingency plans, when necessary.
Use of fi nancial data in fi rm evaluation is analogous to an automobile's oil level. There is
a pressure gauge to indicate when the oil level is dangerously low. However, the sensible
motorist will check the oil periodically to prevent potential problems. It is the same with
business records. These records should be timely enough to prevent serious problems from
developing. A spot-check of the business's health should be taken at regular intervals. In
most businesses, the fi nancial statements should be prepared and analyzed on a monthly
basis, or at the least on a quarterly basis, so that problems or opportunities can be determined
before they develop or pass by. The cost of the process is small compared to the risk of
discovering too late that problems or opportunities have been missed.
What areas require analysis?
The collection of data can become an unending process with increasing costs and diminish-
ing returns. Generally, data should be relevant to the decision-making process to be useful
for management.
