Professional Documents
Culture Documents
Catfish Farms
OVERVIEW OF INTENSIVE TRAINING MODULE:
Financial Management on
Catfish Farms to Improve
Efficiencies and
Profitability
Carole R. Engle
Aquaculture/Fisheries Center
University of Arkansas at Pine Bluff
Engle, UAPB
1
Financial Analysis:
Key Statements
Financial Position
Balance Sheet
Profitability
Budgets
Income Statement
Cash Flow/Liquidity
Cash Flow Statement
Engle, UAPB
2
WHAT DOES IT TAKE TO
SURVIVE THE LONG RUN?
Adequate financial strength:
-Is my financial position
strong enough?
-Do I have too much debt to
pull out of this?
ADEQUATE FINANCIAL STRENGTH
DETERMINED FROM THE BALANCE
SHEET
Engle, UAPB
ADEQUATE PROFITABILITY
Enterprise budgets can be
used to evaluate new
management strategies to
see what the effect on
profitability might be.
3
WHAT DOES IT TAKE TO
SURVIVE THE SHORT RUN?
Essential Financial
Management
• Extensive planning.
• Controlling: implementing
actions needed to meet goals.
• Monthly monitoring of
Cash flow statement -
Deviations apparent.
Corrective actions can be
taken more quickly.
Engle, UAPB
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Balance Sheets:
a Management
Tool to Improve
Financial Position
of the Business
Carole R. Engle
Aquaculture/Fisheries Center
U. of Arkansas at Pine Bluff
Engle, UAPB
Financial Analysis:
Key Statements
Financial Position
Balance Sheet
Profitability
Budgets
Income Statement
Cash Flow/Liquidity
Cash Flow Statement
Engle, UAPB
5
Short & long-term
financial decisions:
• Can it generate enough value
over time to pay off the debts
(solvency)?
– Balance Sheets
• Is it profitable in the long run?
• Is it profitable in the short run?
• Can it generate enough cash
when needed to pay the bills
(liquid)?
Engle, UAPB
Balance Sheets:
Financial statement
that measures
Financial Position
of the business.
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Balance Sheet:
What is its bottom
line?
Net Worth!!
Same as
Owner Equity!!
What is your
business worth?
Engle, UAPB
Balance Sheet:
Structure
Divided into:
•Assets
–What is “owned”
–Land, buildings
–Equipment
–Fish in ponds
•Liabilities
–What is “owed”
–Debts, loans, bills due at
supply store.
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Balance Sheet:
How is it organized?
Assets divided into:
•Current
–Cash
–Items to be sold this
year
•Non-current
–Items used in
production
–Equipment
–Ponds
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Balance Sheet:
Organization
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Balance Sheet for 256-acre
Catfish Farm, December 31.
Assets
Current Assets
Checking account $15,849
Non-current Assets
Equipment $387,570
Balance
Not all Sheet
liabilities listed herefor
– not256-acre
enough room;
Catfish
Check other Farm, December
training files for more!31.
Liabilities
Current Liabilities
9
Balance Sheet for 256-acre
Catfish Farm, December 31.
Total Assets $1,285,851
Total Liabilities - $534,214
Net Worth = $751,637
10
Financial Ratios that Measure Solvency
Ratio Interpretation
Change in net Positive change shows business growth
worth
Debt/asset Compares value of debt to assets.
ratio Smaller values better. Less than 1 means
solvency.
Equity/asset Part of total assets financed by owner’s
ratio equity. Higher values preferred.
Debt/equity Compares proportion of financing by
ratio lenders with that from owner. Lower
values preferred.
Ratio Value
Change in net worth - $245,994
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Financial Efficiency: Liquidity
• Liquidity is the ability of a business to
meet cash flow obligations.
• It is important to keep financial
transactions of the business running
smoothly.
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Ratio Interpretation
Current ratio Quick indicator. The higher the value the
more liquid.
Working Difference between current assets and
capital current liabilities. In dollar values instead
of a ratio.
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Liquidity Measures for the
256-acre Catfish Farm
Ratio Value
Current ratio 2.55
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Spreadsheet Tutorials
are Available on this
site in another file.
Engle, UAPB
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Tutorials include:
• Exercise balance sheet, income
statement, cash flow budgets
• Correct versions, the financial
ratios, and
• A brief interpretation of each
ratio and how to improve.
Engle, UAPB
Carole R. Engle
Aquaculture/Fisheries Center
University of Arkansas at Pine Bluff
Engle, UAPB
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One use of a balance sheet is to
answer the question of:
Engle, UAPB
Year 1
Assets- 277,287
current
Non-current 475,213
Total 752,500
Liabilities- 242,168
current
Non-current 179,079
Total 421,247
Net Worth
Debt/asset
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Year 1
Assets- 277,287
current
Non-current 475,213
Total 752,500
Liabilities- 242,168
current
Non-current 179,079
Total 421,247
Net Worth 331,253
Debt/asset 0.56
Engle, UAPB
Year 1 Year 2
Assets- 277,287 217,868
current
Non-current 475,213
Total 752,500
Liabilities- 242,168
current
Non-current 179,079
Total 421,247
Net Worth 331,253
Debt/asset 0.56
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Year 1 Year 2
Assets- 277,287 217,868
current
Non-current 475,213 356,410
Total 752,500
Liabilities- 242,168
current
Non-current 179,079
Total 421,247
Net Worth 331,253
Debt/asset 0.56
Engle, UAPB
Year 1 Year 2
Assets- 277,287 217,868
current
Non-current 475,213 356,410
Total 752,500 574,278
Liabilities- 242,168
current
Non-current 179,079
Total 421,247
Net Worth 331,253
Debt/asset 0.56
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Year 1 Year 2
Assets- 277,287 217,868
current
Non-current 475,213 356,410
Total 752,500 574,278
Liabilities- 242,168 411,686
current
Non-current 179,079 179,079
Total 421,247
Net Worth 331,253
Debt/asset 0.56
Engle, UAPB
Year 1 Year 2
Assets- 277,287 217,868
current
Non-current 475,213 356,410
Total 752,500 574,278
Liabilities- 242,168 411,686
current
Non-current 179,079 179,079
Total 421,247 590,765
Net Worth 331,253
Debt/asset 0.56
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Year 1 Year 2
Assets- 277,287 217,868
current
Non-current 475,213 356,410
Total 752,500 574,278
Liabilities- 242,168 411,686
current
Non-current 179,079 179,079
Total 421,247 590,765
Net Worth 331,253 -16,487
Debt/asset 0.56 1.03
Engle, UAPB
Catfish inventory=
can affect balance sheet,
net worth, and financial ratios.
Pond inventory estimation not precise.
Depletion method.
Feeding response alone does not work well.
Very careful monitoring of all stocking,
feeding, & harvesting with continuous
analysis can get close.
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Experimental Trials: depletion
estimates by weight were within 0-8%
of actual and from 3.5-18% by number.
Commercial Pond Trials (19 ponds): 1-
14% by weight and 0.3-2.4% by
number (only 2 ponds estimated
number).
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The Trawl
Engle, UAPB
Year 1
431-acre Assets- 181,000
Catfish current
Farm Non-current 1,643,855
Total 1,824,855
Liabilities- 159,725
current
Non-current 1,068,506
Total 1,228,231
Net Worth 596,624
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Year 1
431-acre Current ratio 1.13
Catfish
Farm Working Capital 21,275
Equity/asset ratio 0.33
Debt/asset ratio 0.67
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Year 1 Year 2
862-acre Assets- 181,000 362,000
current
Merged
Catfish Non-current 1,643,855 3,588,710
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Year 1 Year 2
862-acre Current ratio 1.13 1.63
Merged
Catfish Working 21,275 140,448
Farm Capital
Equity/asset 0.33 0.60
ratio
Debt/asset 0.67 0.40
ratio
Debt/equity 2.06 0.67
ratio
Debt 0.13 0.14
structure
Engle, UAPB
Engle, UAPB
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Income
Statement
Carole R. Engle
Aquaculture/Fisheries Center
U. of Arkansas at Pine Bluff
Engle, UAPB
Engle, UAPB
24
Profitability Measures
• Profitability = Total revenues -
total costs
• A business that is both solvent
and liquid will not necessarily
be profitable.
Engle, UAPB
Financial Analysis:
Key Statements
Financial Position
Balance Sheet
Profitability
Budgets
Income Statement
Cash Flow/Liquidity
Cash Flow Statement
Engle, UAPB
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Income Statement (P&L)
Profit & Loss Statement
Bottom line =
Net Farm Income
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Income Statement:
How is it structured?
Item Value
Revenue $806,400
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Income Statement:
How is it structured?
Item Value
Revenue $806,400
Cash expenses $610,322
Engle, UAPB
Income Statement:
How is it structured?
Item Value
Revenue $806,400
Cash expenses $610,322
Depreciation $42,707
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Income Statement:
How is it structured?
Item Value
Revenue $806,400
Cash expenses $610,322
Depreciation $42,707
Total operating $653,029
expenses
Engle, UAPB
Income Statement:
How is it structured?
Item Value
Revenue $806,400
Cash expenses $610,322
Depreciation $42,707
Total operating $653,029
expenses
Cash interest paid $150,579
Engle, UAPB
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Income Statement:
How is it structured?
Item Value
Revenue $806,400
Cash expenses $610,322
Depreciation $42,707
Total operating $653,029
expenses
Cash interest paid $150,579
Total expenses $803,608
Engle, UAPB
Income Statement:
How is it structured?
Item Value
Revenue $806,400
Cash expenses $610,322
Depreciation $42,707
Total operating expenses $653,029
Cash interest paid $150,579
Total expenses $803,608
Net farm income from $2,792
operations
Engle, UAPB
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Profitability Measures
• Primary measure of farm profitability is :
Net Farm Income
• Net Farm Income is a measure of the
return to operator’s equity, capital,
unpaid labor, and management.
• Net Farm Income can be distributed
among the four principal factors of
production: land, labor, capital, and
management
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Financial Indicators of How Much of
Net Farm Income is Earned by Each
Factor of Production
Ratio Interpretation
Return to labor Residual return to owner for labor &
& management management input
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Ratio Interpretation
Rate of Return Can be compared to rates of return from
to Assets other investments. Independent of
financing.
Rate of Return Measures percent return to owner’s net
on Farm Equity worth or equity.
Operating Measures the proportion of gross
Profit Margin revenues left after paying expenses
Ratio (OPMR)
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Financial Indicators from Income
Statement for the 256-acre Catfish Farm
Ratio Value
Return to labor & management $24,786
ROE -2%
OPMR 16%
Engle, UAPB
Spreadsheet Tutorials
are Available on this
site in another file.
Engle, UAPB
32
Using Enterprise Budgets and
Income Statements to Improve
Efficiencies and Profitability
of Catfish Farms
Carole R. Engle
Aquaculture/Fisheries Center
University of Arkansas at Pine Bluff
Income Statement:
Cash-based Accounting
Item Value
Revenue $403,200
Cash expenses $610,322
Depreciation $42,707
Total operating expenses $653,029
Cash interest paid $150,579
Total expenses $803,608
Net farm income from - $400,408
operations
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Income Statement:
Cash-based Accounting
Item 2010 2011
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Income Statement:
Accrual-based Accounting
Item 2010 2011
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What does it take to
survive the short run?
•Must be able to sell fish at a
price that covers its variable
costs, not necessarily all its
total costs.
•Must have adequate liquidity.
•Enough cash revenue to make
payments when due.
•Must have adequate cash flow.
Engle, UAPB
$450
$400
$350
$/ton
$300
$250
$200
$150
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Realities of $300/ton Feed
UAPB Base Budgets:
431-acre farm ($300/ton feed)
Farm Size Cost/ Cost/
VC TC
131-acre farm $0.63/lb $0.83/lb
256-acre farm $0.64/lb $0.79/lb
431-acre farm $0.64/lb $0.78/lb
1,007-acre farm $0.64/lb $0.78/lb
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Engle, UAPB
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Breakeven Prices (based on
budgets for 256-acre farm; $300/ton)
Above total cost $0.79
Above variable cost $0.64
Above cash costs $0.60
(no debt capital)
Above cash costs $0.65
(100% debt op. capital)
Above cash costs $0.70
(50% debt long-term, no land;
100% debt op. capital)
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To maximize profits:
37
Effects of Higher Fish Prices &
Higher Feed Prices
Engle, UAPB
Profit-maximizing stocking
densities at different fish &
feed prices.
9,000
8,000
7,000
6,000
5,000
fish/acre
4,000
3,000
2,000
1,000 $0.70/lb $0.75/lb $0.80/lb
0
$/ton
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How low should you go?
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Higher stocking rates produce higher
yields of smaller fish.
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Difficult to make
5,500/acre debt payments on
ponds
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With High Feed Prices,
Essential to get as much
gain out of every pound
of feed as possible.
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Breakeven prices across farm
sizes, 2009 feed costs.
Farm size 32% protein 28% protein
($343/ton) ($322/ton)
BEP/VC BEP/TC BEP/VC BEP/TC
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What About Every Other
Day Feeding?
UAPB study:
Yield of carryover fish was 757
lb/ac less when fed every other
day.
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What’s the Down Side to
Every Other Day Feeding?
Understocked fish grow
very poorly.
Every other day feeding
better strategy for ponds
with fish that are closer to
market size.
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THERE ARE EXERCISES
AVAILABLE ON THIS SITE IF
YOU WISH TO PRACTICE
WHAT YOU HAVE LEARNED
ABOUT INCOME
STATEMENTS BEFORE
MOVING ON TO THE LAST
SEGMENT IN THIS MODULE.
Engle, UAPB
Carole R. Engle
Aquaculture/Fisheries Center
U. of Arkansas at Pine Bluff
45
Overview of Structure
and Interpretation of
Cash Flow Budgets
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Engle, UAPB
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Financial Analysis:
Key Statements
Financial Position
Balance Sheet
Profitability
Budgets
Income Statement
Cash Flow/Liquidity
Cash Flow Statement
Engle, UAPB
Engle, UAPB
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Cash Flow Analysis: What Can
It Be Used For?
Engle, UAPB
• Entire farm
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Cash Flow Analysis:
How Can It Help?
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New borrowing 0 0
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Cash Flow Analysis: Sructure
Item January February
New borrowing 0 0
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Cash Flow Analysis:
Operating cash expenses
Fingerlings 0 $36,416
51
Cash Flow Analysis:
Summary of Debt Outstanding
Item January February
Real estate 0 0
Equipment 0 0
Operating 0 0
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Cash Flow Analysis:
Summary of Debt Outstanding
Item July August
Real estate 0 0
Equipment 0 0
Engle, UAPB
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53
Measures of Cash Flow Risk
for 256-acre Catfish Farm
Cash flow risk measure
Percent farm revenue can decline and still meet
cash flows
Engle, UAPB
Engle, UAPB
54
Measures of Cash Flow Risk
for 256-acre Catfish Farm
Cash flow risk measure Value
Percent farm revenue can decline 0.45
and still meet cash flows
Engle, UAPB
Engle, UAPB
55
Using Cash Flow
Budgets to Improve
Cash Flow and
Liquidity in the Catfish
Business
Carole R. Engle
Aquaculture/Fisheries Center
U. of Arkansas at Pine Bluff
Engle, UAPB
56
Cash Flow Scenarios
Farm A Farm B
Sept. $60,000 Feb. $60,000
Oct. $90,000 April $60,000
Nov. $60,000 July $60,000
Dec. $60,000 Sept. $60,000
Nov. $30,000
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Adequate Cash Flow:
Determined from Cash Flow Budget
• Cash flow budget must show realistic
projections of cash revenue for the year,
by month.
• Any month with a negative cash flow is a
cash flow problem that needs to be
resolved.
• Must identify a production/financial plan
that generates the revenue when needed.
• If there is a problem, may need to sell
off some stock, reduce densities,
allow for better growth = better cash
flow.
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58
What should I look at this
winter?
• Do detailed cash flow budget and know
when you need to make payments.
• Using Fishy, project different harvest
dates at different stocking & feeding rates.
• Choose feeding and stocking rates that
allow farmer to make necessary
payments.
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59
Fish grow faster at lower
densities.
Engle, UAPB
Files available in
training materials on
web site.
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