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RUNNING HEAD: FINANCIAL STATEMENT ASSESSMENT

Financial Statement Assessment

Donna Guerra
Baker College

FINANCIAL STATEMENT ASSESSMENT

Financial Statement Assessment

Bob and Betty Bounty are the owners of B&B Bounty Dairy Farm. They have both
been in the diary business their whole lives. They also have a new partnership they created with
their sons a few years back. Over the years they have added acres and more dairy cows to their
farm. They started out with 30 cows now they have over 550 dairy cows. I had the opportunity to
figure out there financial analysis for their dairy farm for the year of 2007.
Current ratio is when you use the total current farm asset divided by total current farm
liabilities. To receive the 2007 current ratio I used the total current farm asset, 914,967 divided
by total current farm liabilities, 137948 which then totaled into 6.6:1. The current ratio 6.6:1 is a
pretty strong value isnt anything over a 1.50 is strong. Between 1999 through 2004 the ratio had
been pretty low around 1. In 2005 through 2007 it has increase drastically up to 6 and 7.
Working capital is when you use the total current farm asset minus by total current
farm liabilities. To receive the 2007 working capital I used the total current farm asset, 914,967
minus the total current farm liabilities, 137948 which then totaled into 777,019. 2007 is the
highest working capital so far which is great, mean they are gaining more profit. The working
capital throughout the years has been all over the place. From being in the negatives to now it
has been pretty stable for the past three years.
Debt to asset ratio is when you use the total farm liabilities divide by total farm asset.
To receive the 2007 debt to asset ratio I used the total farm liabilities, 1,439,661 divided by total
farm assets, 3,989,819 which then totaled into 0.36:1. As a percent thats 36% which is a strong

FINANCIAL STATEMENT ASSESSMENT

debt to asset ratio. Over the year the ratio has been decreasing from the highest being .69 to .36
which is great.
Debt to equity ratio is when you use the total farm liabilities divide by total farm
equity. To receive the 2007 debt to equity ratio I used the total farm liabilities, 1,439,661 divided
by total farm equity, 2,550,661 which then totaled into 0.56:1. The Debt to equity for 2007 is a
stable number. Throughout the years the ratio has been getting better because it has been
decreasing.
Rate of return on equity is the net farm income minus operator management fee then
divided by the total farm equity. To receive the rate of return on equity from 2007 I used the net
farm income, 275,102 minus operator management fee, 0 then divided by the total farm equity,
2550661 which gave me 10% or .10. The rate seems decent. Its hard to tell since the trend has
been pretty crazy over the years.
Rate of return on assets is the net farm income from operations plus farm interest
expense minus operator management fee then divided by the average total farm asset. To receive
the rate of return on assets from 2007 I used the net farm income from operations, 275,102 plus
farm interest expense, 84083 minus operator management fee, 0 then divided by average total
farm assets, 3,989,819 which gave me 9% or .09. The rate is a strong rate. The years have had
their ups and downs there isnt really a consistent trend.
Operating expense ratio consist of operating expenses divided by gross revenue. To
get the operating expense ratio I used the operating expenses, 1,526,329 divided by gross
revenue, 1,918,062 then equaled .79 or 79%. The operating expense ratio is stable.

FINANCIAL STATEMENT ASSESSMENT

Net income from operation ratio consist of net farm income from operations divided
by gross revenue. To get the net income from operations ratio I used the net income from
operations, 275102 divided by gross revenue, 1,918,062 then equaled .14 or 14%. There arent
any trends or information to know how stable it is because its based on agriculture prices.
Overall the farm has really developed over the years. The trends in the years past are
really incredible to see because there business come a long way and they are starting to get more
profit than ever. A recommendation I have is the operating expense ratio is a bit off. Which is
based off of what the business has to spend money on to operate the business. The company
spends the most on labor and costume hire. Figuring out ways to cut back on those would help.
Also feed purchase is really high, look for more options that might not cost as much but still
receiving good nutrition. Other than that the farm is in pretty good shape.