AEC 4204-

Agribusiness
Management
Lecture 9: Agribusiness Record Keeping
and Financial Management.
Paul Aseete, PhD

October 22nd, 2021

RECORD KEEPING AND USE
• Importance of record keeping
1. Profitability Analysis
2. Capital position Analysis
3. Investment analysis
4. Management performance appraisal
5. Borrowing from financial institutions
6. Taxation purposes
7. Legal purposes
RECORD KEEPING AND USE
• Importance of record keeping
1. Profitability Analysis
• Record keeping facilitates the orderly recording of business
transactions to assess whether the enterprise has made a profit
/loss after the business cycle. This will also show whether the
business is growing and financially sound through constant
earnings and expense tracking
2. Capital position Analysis
• It helps to show whether the enterprise needs more working
capital which may call for financing from outside through short-
term borrowing.
RECORD KEEPING AND USE
• Importance of record keeping
3. Investment analysis
• If the enterprise is making a decision to invest and increase its
productive capacity, it will need to know whether this additional
investment will be beneficial or not. Even for large enterprises,
they may need to attract more investment through inviting more
shareholders. These potential shareholders will need to know the
performance of the enterprise before they can buy shares.

4. Management performance appraisal

• Record keeping can enable the owners of the enterprise to assess
the performance of management. Employees also need to know
the performance of the enterprise to assess the security of their
employment, future company prospects and possibility of
collective bargaining for a pay rise.
RECORD KEEPING AND USE
• Importance of record keeping
5. Borrowing from financial institutions
• Lenders will need to be assured that their client is in position to
pay the debt. They need to see the cash flow statement, balance
sheet, or the income statement. Even the suppliers of raw
materials need to be assured that the enterprise has a good credit
rating.

6. Taxation purposes
• Records are essential in tax assessment because they indicate the
revenues and expenditures of the enterprise. They will help to
avoid over or under tax assessment by tax authorities.

7. Legal purposes
• Records are essential while taking any legal action because they
provide documentary evidence.
RECORD KEEPING AND USE
• Types of Records
1. Physical/Production Records
2. Machinery /Equipment Register
3. Stores Ledger/inventory records
4. Financial Records/Accounts
RECORD KEEPING AND USE
• Types of Records
1. Physical/Production Records
These include:
• Farm / site map where names, numbers of fields, ponds, plots, offices
etc., and their areas may be identified with their current land use.
• Agro metrological Records. These are records of main interest in
business and general farm management and usually include the
following in order of importance in small holder farms: rainfall (intensity
and distribution), temperature (maxima and minima) wind velocity, and
direction, humidity, evaporation, sunshine, solar radiation, atmospheric
pressure, soil temperature, etc.
• By collecting weather information and analyzing it carefully, it is possible
to judge what weather can be expected in the next few days. A farmer
will then know when to plant or not to plant breed/ or not to breed.
RECORD KEEPING AND USE
• Types of Records
1. Physical/Production Records
These include:
• Field/Plot/Pond records which may include location and description
indicating total area, soil test information, current breed, crop variety,
breeding/planting date, seeding rate, manure requirements, agro
chemical treatments, cultural practices, field/plot/pond observations,
harvesting date, yield, grading /post harvest losses/waste, disposal, etc.
Sample of a pond record

Pond Fish Date Number Feed used Harvests and disposition

breed introduced introduced
Qty Value data Home lost Donated Sold

2
 RECORD KEEPING AND USE
• Types of Records
1. Physical/Production Records
These include:
• Livestock Production records- may include information detailing
sources of stock, pedigree records, service dates, gestation dates,
birth dates and rates, number of head of livestock, feed input,
veterinary reports, weaning dates, livestock weights, growth rates,
lactation periods, production rates, culling rates, mortality rates, etc.
• Livestock (Dairy) Production Record
Data Animal Id Production Inputs used Outputs and disposition

Morning Evening Feed Drugs Vet Home lost Donated Sold

2
RECORD KEEPING AND USE
• Types of Records
1. Physical/Production Records
These include:
• Work Records (manual/ mechanical) basically refer to peak
periods and tasks involved, rates of work required to perform
various operations and work requirements of each enterprise.
Numbers available, whether regular, casual or contract for various
tasks should be recorded.
The following books are also typically kept:
• Master- Roll, which provides the basis for calculations of worker’s
pay and deductions, both statutory (e.g., taxes) and voluntary
(e.g., credit purchases)
• Machinery Register which provides an inventory for machinery
and equipment items and eases calculations of depreciation
charges, capital gains or losses on sale, etc.
RECORD KEEPING AND USE
• Types of Records
2. Machinery /Equipment Register
These include:
• Machinery Register which provides an inventory for machinery
and equipment items and eases calculations of depreciation
charges, capital gains or losses on sale, etc.
Item Quantity Year Price Estimated life Estimated Not book
Acquired value depreciation value
RECORD KEEPING AND USE
• Types of Records
3. Stores Ledger/inventory records
• A Stores Ledger provides an inventory for stocks of inputs and/or
products, which should be regularly checked by the Production
Manager. This eases the valuation of opening and closing stock.
RECORD KEEPING AND USE
Types of Records
3. Stores Ledger/inventory records
Item
Date Stock balance Deliveries
Opening Closing Supplier Qty Price Date delivered

Unit
Disposals Transfers Sales
Location Qty Price Inv. No. Location Qty Price Inv. No Customer Qty Price Rept. No

Physical Remarks
count
General Remarks

Sign
RECORD KEEPING AND USE
• Types of Records
3. Stores Ledger/inventory records
• Farm Inventories: are property lists including all physical assets such as:
1. Land and improvements (e.g., processing houses, irrigation
systems, installations, buildings, stores, packaging rooms, etc.
2. Machinery and equipment (e.g., tractors, trucks, fertilizer
application and agrochemical spraying equipment, spare parts,
implements, etc.)
3. Farm produce
4. Seeds
5. Fertilizers
6. Agrochemicals
7. Material supplies
8. Growing crop and livestock, etc.
Attach monetary value to every item
 RECORD KEEPING AND USE
• Types of Records
3. Stores Ledger/inventory records
• Farm Inventories:
• Farm Inventory record sample template (take at beginning and end of
year)

Description Opening Closing Comments

Date Qty Value Date Qty Value

RECORD KEEPING AND USE
• Steps to follow when taking an inventory
Make a physical count (weigh and/or measure) all farm property
Assign monetary value to each item listed according to the nature of the
asset. Some of valuation methods include:
Nature of Asset Method of Valuation
1. Current purchases At cost
2. Saleable products At farm gate price
3. Growing crops At cost of production
4. Machinery and equipment At cost less depreciation
5. Buildings and other farm structures At replacement cost
6. Land At estimated market value
RECORD KEEPING AND USE
• Nature of Assets and Method of Valuation
• Important aspects to note
▪ Once the method has been chosen it should be he same for both
opening and closing valuation
▪ The closing valuation often becomes the opening valuation for
the next period beginning the next day.
▪ Records kept like this over a period of time give a basis for
comparison and future planning.
▪ It is therefore important to have a fixed system of recording and
evaluating your business status and transactions
▪ Over a period of time an inventory shows changes in value due to
changes in quality, quantity, prices or depreciation.
RECORD KEEPING AND USE
• Depreciation is calculated to write off the cost or valuation of
fixed assets over their estimated useful lives usually on a straight-
line basis.
• The annual rates often used in Uganda may be:
• For office / stores, grading hall, staff housing, etc is 5%
• For green houses, cold stores, irrigation system, electrical supply,
etc. is 15%
• For tractors, trucks (refrigerated pick ups), spraying equipment,
etc. is at 20%
RECORD KEEPING AND USE
• Types of Records
4. Financial Records/Accounts
Physical/production records provide data for financial accounts
through the valuation process. Two basic steps of valuation are
involved:
1. Every business, no matter the size owns resources called assets.
So, assign monetary value to each item listed in the physical
inventories according to the nature of the assets.
2. The second fact is that without transactions there is no
business. A business transaction is where there is exchange of
goods or services usually involving money. So, all values of the
transactions must be captured and recorded.
 Accounting and Financial
Management
Accounting
• Accounting is the collection of financial data about an
organization, its measurement and analysis and its reporting or
communication to decision makers
• The definition recognizes 3 stages of the accounting process:
1. Recording accounting information
2. Classifying and summarizing accounting
information(bookkeeping)
3. Communicating accounting information (through financial
statements such as income statement, balance sheet and
cash flow statement)
 Accounting and Financial
Management
Financial Management
• The use of information from a selected number of financial statements and
financial ratios to guide in more efficient and effective decision making and
control of a business.
• Financial management refers to the strategic planning, organizing, directing,
and controlling of financial undertakings in an organization or an institute.
• It also includes applying management principles to the financial assets of an
organization, while also playing an important part in fiscal management.
• This relates to typical decisions that a firm has to make such as:
1. Investment,
2. Dividends/ Allocating profits - for contingency, innovation, or
expansion purposes
3. Setting capital structure – e.g. setting debt equity in the short-term
and the long-term
4. Financing, etc
Implications of finance and accounting to an
agribusiness firm
Accounting implications:
• An agribusiness firm must be run in a profit minded manner if it is
to make profits and grow.
• Accounting therefore facilitates the orderly recording of business
transactions and bookkeeping.
• This will be used to assess whether :
1. the business has made a profit after a particular period or
business cycle-income statement
2. Business is growing, stagnant or declining at a particular point in
time –the balance sheet.
3. Business is financially sound –the cash flow statement
Implications of finance and accounting to an
agribusiness firm
• The information is also required by a number of other users (Stakeholders) who
are interested in the progress or otherwise of the agribusiness firm.
• Investors (Owners): Need to know how well or badly the business is
performing e.g.: i) Investors need to make decisions whether to buy more
shares, sell shares or hold the shares in the business, ii) Evaluate the
stewardship of management, and iii) Know the liquidity position of the
firm
• Employees: Need to know the performance of the firm in order to assess
the security of their employment, future company prospects and as a
basis for collective bargaining.
• Lenders (e.g. Banks): Need to be assured of the ability of the firm to repay
the loan and sustainability of interest payment
• Suppliers: Need to know whether the firm has a good credit rating based
on its level of profitability (income statement), liquidity (balance sheet)
and financial stability ( cash flow statement)
• Government: Its interest to know stems from various capacities as a
customer, regulatory agency and tax agency.
• Public: Needs to know the performance of the agribusiness firm because
of the need for the firm to discharge its
Implications of finance and accounting to an
agribusiness firm
• Financial Management Implications
• When the agribusiness firm needs to make investment decisions e.g.,
adding a poultry unit to the existing agribusiness activities
• When assessing the financing needs of the enterprise e.g., whether the
firm needs more working capital, etc.
• When making decisions to increase the productive capacity and
assessing if the additional investment be profitable?
• When making decisions involving long term financing e.g., should the
firm borrow or invite other potential investors to bring in more equity
capital?
• When the enterprise has alternative projects to implement but has only
limited financial resources, e.g., hatchery/feed mill/milk processing?
• When the firm needs to determine the minimum scale of production for
the unit to make profits e.g., the minimum number of broilers for the
poultry unit to be viable
• When the existing owner of the business wants to dispose of the
enterprise and needs to determine the price for it, thus business
valuations
 FINANCIAL ANALYSIS OF AGRIBUSINESS
ENTERPRISES

• Financial analysis is the process of identifying financial strengths

and weaknesses of a business.
• To ensure good financial management we must develop
techniques for analyzing financial success or failure of any
agribusiness enterprise.
• The analysis monitors the performance of farm business by giving
an overall projection of the direction the business is taking.
• This can be done through several ways such as monitoring:
1. Profits through the income statement
2. Solvency and liquidity through balance sheet
3. Financial efficiency through ratios/ indictors.
4. Financial soundness through cash flow statements
Monitoring solvency and liquidity
• Key terms to know
• Solvency refers to the value of assets owned by the farm business as
compared to liabilities
• Liquidity refers to the ability of the business to meet its cash flow
obligations.
• A balance sheet also referred to as net worth statement is used to
measure solvency and liquidity.
The balance sheet outlines the stock or status showing assets, liabilities and
owner equity.
The balance sheet is a summary of what the business owns (assets) and what
it owes other parties (liabilities = debt and equity).
It shows assets owned by a business and claims against those assets i.e.
Ownings = Owings. The claims include owner's equity and liabilities, which
are claims by owners who extended credit to the farm business.
The balance sheet therefore shows the business assets and how the
acquisition of those assets was financed or paid for.
Monitoring solvency and liquidity
• The accounting equation is one on which the entire recording system of
financial transaction in accounting is based.
• The accounting equation is stated as follows:-
Assets = Liabilities + Owners Equity
Assets
• These are resources owned by the organizations that aid in the
income generation process or facilitate operations.
• It is anything of economic value owned by an organization or an
individual.
• For business organizations, assets create more assets (wealth) but
non-profit making organizations assets are required for smooth
flow of under takings or activities. Assets are broadly categorized
into two- current assets and fixed assets.
Monitoring solvency and liquidity
Assets
• Current Assets
• These are short-term assets, which have a useful life of only one
financial year. At the end of the financial year, current assets are
expected to be exhausted or used up. Examples include stock of tilapia
or fingerlings, inventory, debtors/accounts receivable, cash at hand,
cash at bank, prepaid expenses, etc.
• Fixed Assets
• These are long-term assets that can be used to benefit the agribusiness
farm for many financial years. Their useful lives extend beyond one
financial year. Examples include land, buildings, fishpond, motor
vehicles, furniture and fittings, machinery, etc. The major distinction
between current and fixed assets is one financial year i.e. those that last
more than one year are called fixed assets while those that do not last
more than one year are called current assets.
Monitoring solvency and liquidity
• To be continued