Running Head: FINANCIAL STATEMENT SCENARIO

Financial Statement Scenario

Emily Ward
Baker College
Ag Business 1

FINANCIAL STATEMENT SCENARIO

Financial Statement Scenario
Looking at Bounty Farms numbers from 1999 through 2007 we learned how they have
grown as a business. With changing from a sole partnership to partnership with their two oldest
sons. We looked at all different ratios to see how the company is doing and recommending three
things that Bounty farms could do better on.
Current Ratio
The current ratio is a measure of liquidity, and determines the ability of the business to
meet short-term debt and other obligations from available cash. The current ratio is figured out
by taking total current assets divided by total current liabilities, for Bounty Farms is was 914,967
divided by 137,948 to equal 6.63:1 ratio. The strong ratio is an average of 1.50 so they are doing
very well with their current ratio. When beginning back in 1999 they have a very weak current
ratio of .96:1. Then in 2000 raised up to 1.55 and drop down to 1.06 in 2001. As years went on
their numbers increased and decreased, By the looks of it they have had a strong current ratio
since 2004, which was 1.92 and now it is at 6.63.
Working Capital
Working capital is measure of the amount of cash available input, and inventory items
after the sale of current farm asset and payment of all current farm liabilities. Working capital is
figured out by taking total current assets minus total current liabilities, for Bounty Farms is was
914,967 minus 137,948 to equal 777,019. Begin in 1999 they were in the red of $8,292. Then
2000-2002 they were clear from the red and had wiggle room if needed. Then 2003 hit and their
numbers hit red again with $3,378. From 2004 to present (2007) they have increased their
numbers every year. By hundreds of thousands and are currently at 777,019.

FINANCIAL STATEMENT SCENARIO

Debt to Asset Ratio
Debt to asset compares total dollars of debt to total dollar of asset. Debt to Asset is
figured out by taking the total Farm Liabilities divided by the total Farm Asset. For Bounty
Farms is 1,439,661 divided by 3,989,819 which equals 36% and the ratio is .36:1. In the
Solvency of debt to asset ratio Bounty farms have been stable from 1999 to 2007. They even
have reached the strong side of debt to asset ratio. But they have got lower as years past. From .
69 (1999) to .58 (2000) was a drop of .11. Over all they have dropped .30 in their debt to asset
ratio to date, and they have also keep the .36 for two years now.
Debt to Equity
Debt to equity is measured of solvency, and shows the relationship between owned and
borrowed capital. To figured out the debt to equity we must take total farm equity (Net Worth)
divided by total farm assets. In Bounty Farms, it is 2,550,158 divided by 3,989,819 that equals .
56:1. Their debt to equity over the years has been high, but they are stable, which isnt good. It
started at 2.27 steadily decreased to .81 in 2003. Then rose again in 2004 to .94 and now it has
steadily decreased to .56 in 2007. Which it is stable now, and is very close to be strongly stable
on the benchmark charts.
Rate of return in Asset (ROA)
Rate of return in Asset shows the percentage return on investment of the business. To
figure out ROA you take Net Farm Income from Operations add Farm Interest Expenses and
then divided that number by Average Total Farm Assets. In Bounty Farms, it would be 275,102
plus 84,083 equals 359,185. Then divided that 3,989,819 which equals 9%. Bounty Farms over

FINANCIAL STATEMENT SCENARIO

the years have been high, and then in, then in 2003 they drop to -11.59% and have been
increasing and then dropped this year, but they are still in the strong side of their benchmarks.
Rate of return on Equity (ROE)
Rate of return on Equity represents the interest rate being earned on the farm business. To
figure out ROE you take Net Farm divide it by Total Farm Equity (Net Worth). In Bounty Farms,
is 275,102 divided by 2,550,158 that equal 11%. Bounty Farms over the years their ROE was
over 50% for the first two years and then dropped under 27% for two. Then when 2003-2004 hit
they dropped into the negatives. Then they got back up to 28% and slowly decrease to 11% it is
now in 2007.
Operating Expense Ratio
Operating Expense Ratio is the total operating expenses divided by operating receipts. To
figure out Operating Expense Ration you take Total Operating expense (take the number that
includes the depreciation value, which comes to be total expenses) divided by Gross Revenue.
Bounty Farms number include 1,642,960 divided by 1,962,417 which equals .84:1 ratio. Their
operating expense is very weak and it need to go up.
Net Farm Income from Operations
Net Farm Income from operations compares profit to farm income. To figure out Net
Farm Income from Operations you take Net Farm Income from Operations (NFIFO) divided by
gross revenue. For Bounty Farms numbers include 275,102 divided by 1,962,417 which equals .
14:1 ratio.
Recommendations

FINANCIAL STATEMENT SCENARIO

The first recommendation I would make for Bounty Farms is to try and decrease their
Opportunity Cost of Labor and Management. Because between 1999 2006 it was 112,000 or
either 118,000, and now its up to 259,859. I can see how they went together as a family, and
they are trying to change things. But if it was lower back when their Dad and Mom were running
it and could keep it low, then it would help them keep cost down. To use the money in other
places. They need to find out how the Dad and Mom could keep it low, and continue that or find
another way to make it getter.
The second recommendation I have for Bounty Farms they need to lower their operatingexpense ratio, because it is 84%. The stable number is 65-80% and they are over by 4%. They
are spending more money than they are making money. Which would put them into trouble in the
future if they need to take out loans. So, if they lowered the number to the stable range and
continue to work on it, they should be able to lower expenses and start making money soon. If
they could charge raise rent on land rented it would help.
The last recommendation I have for Bounty Farms is their debt to asset ratio which is
36%. They are in the stable range right now, but to become better they need to lower this number
by 7%, if they want to become a stronger business. So, if they lower their asset, if they could
make more money by getting more cows to milk they could help lower this number done.
Bounty Farms is doing well now they are stable in most areas, but if they lower the debt
to asset ratio, lower operating-expense ratio, and lastly lower their Opportunity Cost of Labor
and Management, they would become a better business. They have a lot different trends from
1999-2007 with Bounty Farms, but overall they seem like a successful farm with many years to
come.