Extension provides financial tools to cope with COVID-19 impacts
Wyoming ranchers will feel the impacts of suffering livestock markets as a result of COVID-19, according to Interim Associate Director of University of Wyoming (UW) Extension, Bridger Feuz and Interim Director of the Wyoming Agricultural Experiment Station, John Ritten.
“Ranchers could face tough decisions as markets remain volatile and significant downside risk exists,” they say.
While many ranchers in the area might not have felt the affects of COVID-19 thus far, most livestock in Wyoming are marketed in the fall, according to Feuz and Ritten, and many local producers luckily were not in a position to market their animals while the market struggled.
UW Extension provides producers with two bulletins specific to helping understand current financial health and providing information to make informed decisions.
Understanding Financial Statements(B-1308) focuses on understanding the balance sheet, income statement and cash flow statement. The key financial statements each look at different parts of a ranch’s financial situation.
Balance sheets, according to the bulletin, define the assets, liabilities and equity of the ranch at any point in time.
Ranch revenues and expenses are recorded over a period of time in the income statement.
The cash flow statement, according to the bulletin, should be created to cover the same amount of time as the income statement. Sometimes called the statement of cash flows, this document shows all of the sources of income and expense.
“Without using all three statements, choices can be made that may seem to help a ranch in the short-run but can actually be weakening its long-term financial health,” they say.
After grasping an understanding of the three financial statements, Calculating and Interpreting Financial Ratios to Gauge Ranch Business Health and Guide Management (B-1307) explores liquidity, solvency and income analysis.
According to the bulletin, the financial ratios discussed are figured from the three standard financial statements mentioned earlier.
Liquidity refers to the ability of a ranch to cover short-term expense obligations, often found on the balance sheet as the current ratio, according to the bulletin.
The bulletin states solvency is a long-term look at the ranch’s ability to cover all debt, and how much of the business that is actually owned. Solvency is based on the debt to asset ratio, equity to asset ratio and the debt to equity ratio.
Income analysis consists of return on assets, return of equity and the operating profit margin ratio using net farm income from operations on the income statement.
The financial ratios discussed in this bulletin are helpful in informing decisions individually and when used together. The bulletin says these measurements can be powerful and relatively easy to calculate and track over time.
“They are just another tool in the decision making toolbox and should be used in conjunction with other management tools,” notes Feuz and Ritten.
“Financial analysis can be extremely useful when facing challenging decisions,” they add.
A strong understanding of financial health is critical to producers during this time.
UW Extension has decision informing tools such as a break-even budget tool, price slide and marketing tools available on the Wyoming Ranch Tools website available to producers.
Averi Reynolds is the editor for the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.