A Farm Historical Performance Analysis Overview

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agrisolutions 15 things to know about farm finances ebook

AgriSolutions Inc is entering its fifth decade of service to the North American farmer. Throughout this near half-century of service, the focus has been to help producers access, understand and apply the insights hidden in their financial records. Our premier offering and most effective tool in pursuit of this goal throughout our long history has been the Farm Historical Performance Analysis report (HPA).

What a Farm Historical Performance Analysis Means to You

While the HPA is a historical analysis tool first, it is really designed to help ag-businesses think about their futures. It has been said that math is the best crystal ball mankind was given. In other words, the historical trends exhibited by a business, when extrapolated into the future, are the best indicator of future performance – they forecast your future successes, challenges, and opportunities.

An HPA starts with five (5) years of financial results. This includes both income statement and balance sheet information. Fifty-four (54) numbers are actually all that are needed to paint a clear picture of where your business has been, how healthy it is, and where it is likely to go. The key thing to note is that 54 numbers is a relatively attainable goal. Without getting overwhelmed in detail, these numbers give a comprehensive picture of the business. There are always opportunities to go deeper into the details, but if a business owner is struggling to understand the financial health and performance trends of his or her enterprise at the comprehensive level, then exploding into more data points will only deepen the confusion. The HPA serves the purpose of providing key management perspective and feedback without overwhelming detail and obfuscating complexity.

Your Income Statement & Balance SheetFarm analysis

As mentioned above the HPA draws information from two sources: your income statement, and your balance sheet. Producers vary in their degree of financial record keeping sophistication, but since you can also find these details through formal records like your tax return, that isn’t a major issue. Overall you’ll want to make sure you have your profit and loss statements to match production expenses and the associated revenue that was generated. From there you’ll want to make sure your balance sheet’s asset valuations are at market. This can differ from tax return statements so be sure to double check that info before you proceed.

After you’ve found the necessary information from your income statement and balance sheet you’ll need to focus on five key sections to see the risks, opportunities, and insights your ag-business has ahead of itself. These five sections are comprised of Operations Management, Capital Management, Liquidity, Equity, and Asset Performance. When focusing on each section, you’ll encounter different metrics that give you insight into how you can improve your operation. Items like capital trends, operating profit percent, and the measure of cash assets will be items you’ll want to focus on. These items will give you the best look at where your business may be performing well, and other areas where leaks need to be plugged.

Overall the Historical Performance Analysis will give you back what you put into it, so be diligent in your analysis. The HPA is the best tool for looking at your business as a whole to identify how to optimize your growth moving forward. 

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Written By

Sam Bachman

Sam Bachman

Business Analyst sbachman@agrisolutions.com

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