Agriculture Reference
In-Depth Information
Plate 10.3
Nursery
Graphing fi nancial information can help a manager determine underlying trends and patterns.
This approach can enhance the evaluation of performance across time periods. Photo courtesy
of USDA.
earnings on sales (the dashed line in
Figure 10.2)
decreased as a percentage. If another
factor, ROE, was compared, BF&G could measure visually the net effect of price changes,
and plan its sales strategy accordingly. Monthly reassessment by means of these ratios would
allow BF&G to see whether its plans were still on target.
Graphing increases comprehension by presenting a visual picture and it allows for com-
parison of separate aspects of fi nancial information in a very clear manner. A graph also can
be widely distributed to less sophisticated members of the management team for use in
decision-making, since it is easier to conceptualize than a set of numbers.
Summary
Financial statements provide a wealth of information for a variety of persons and organiza-
tions interested in evaluating the agribusiness. Owners, managers, lenders, and government
agencies all look at fi nancial statements from a different perspective.
Analysis of fi nancial statements is often comparative: over time, against budget, or rela-
tive to similar fi rms. Ratios show important fi nancial relationships in the business. These
ratios must be understood and used carefully or they will be misleading. If ratios are used
properly, they are indicators of strengths and weaknesses in the business.
Ratios generally measure the important criteria of profi tability, liquidity, solvency, and
effi ciency. There are important ratios for each area that provide useful indicators of perform-
ance. Return on the owner's investment (return on equity or ROE) is the most fundamental
