What Financial Condition is Your Agricultural Society in?

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What Financial Condition is Your Agricultural Society in?

  1. 1. What financial condition is your Agricultural Society in? “ Understanding your financial performance” Presented to the Alberta Association of Agricultural Associations Yvonne Barthel, Senior Manager KPMG Lethbridge (403) 380 – 5744 Friday, February 10, 2006
  2. 2. Welcome!
  3. 3. Agenda <ul><li>The Budget – Do you have a plan? </li></ul><ul><li>What financial condition are you in? </li></ul><ul><li>Your financial statements – what do they say about you? </li></ul>
  4. 4. How many accountants does it take to change a light bulb? Two. One to change the bulb and one to check it was done within budget.
  5. 5. The Budget Planning for Success
  6. 6. The Budget – Your Financial Road Map <ul><li>A budget is the translation of strategic plans into measurable quantities that express the expected resources required and the anticipated returns over a period of time. </li></ul><ul><li>A detailed estimate of future transactions, designed to provide a plan for and control over future operations and activities. </li></ul>
  7. 7. Budget Scope <ul><li>Budgets are normally developed for a specific program of activities </li></ul><ul><li>Budgets are prepared for: </li></ul><ul><ul><ul><li>Operations </li></ul></ul></ul><ul><ul><ul><li>Capital expenditures </li></ul></ul></ul><ul><ul><ul><li>Cash Flow </li></ul></ul></ul>
  8. 8. Budgets - The 4 Basic Functions <ul><li>Planning </li></ul><ul><li>Coordinating and communicating </li></ul><ul><li>Monitoring progress </li></ul><ul><li>Evaluating performance </li></ul>
  9. 9. Planning <ul><li>Involves a process to ensure the organization will have the necessary resources to achieve its goals. </li></ul><ul><li>It involves building assumptions to facilitate economic modeling </li></ul><ul><li>Strength of the budget is dependent upon thorough planning </li></ul>
  10. 10. Coordinating & Communicating <ul><li>Coordination involves pulling the pieces together to achieve the Master Budget. </li></ul><ul><li>Expresses the organization’s overall financial objectives and strategic goals. </li></ul><ul><li>To achieve success, communication is essential. </li></ul>
  11. 11. Monitoring Progress <ul><li>Timely and periodic monitoring allows management to track progress by comparing actual results to expected or planned results. </li></ul><ul><li>Through the monitoring process we are able to identify variance. We can then take action to ensure we stay the course. </li></ul>
  12. 12. Tracking your budget <ul><li>To track your budget: </li></ul><ul><li>Assess monthly revenue performance versus budget </li></ul><ul><li>Assess monthly expense performance versus budget </li></ul><ul><li>Determine the effect variances will have on your overall bottom line </li></ul>
  13. 13. Evaluating Performance <ul><li>Managers are held accountable for the performance of their department and their contribution to the goals of the organization as a whole. </li></ul><ul><li>Performance is often evaluated against the budget or plan. </li></ul>
  14. 14. Tips for Effective Budgeting <ul><li>Stay goal-oriented </li></ul><ul><li>Be realistic, achievable but with stretch </li></ul><ul><li>Don’t try to do it alone </li></ul><ul><li>A budget is not a substitute for regular communication </li></ul><ul><li>Don’t use the budget to deny requests </li></ul><ul><ul><li>consider if part of your mandate </li></ul></ul>
  15. 15. Where do we start? <ul><li>Analyze the organizational strategy </li></ul><ul><li>Understand the targets </li></ul><ul><li>Document your assumptions </li></ul><ul><li>Quantify your assumptions </li></ul><ul><li>Take a step back </li></ul>
  16. 16. <ul><li>To some degree, preparing a budget involves crunching numbers – a process being left more and more to financial models, computers and technology. </li></ul><ul><li>Behind the budget are people - like you - who develop the assumptions, people who know the operations and consider the strategic goals. </li></ul>
  17. 17. Analyzing Financial Performance What financial condition are you in? Accounting will prove anything. Even the truth!
  18. 18. Analyzing and Interpreting Financial Statements <ul><li>Financial Statements provide a wealth of information </li></ul><ul><li>Analyzing and interpreting this information is key to making informed decisions and developing successful strategies </li></ul>
  19. 19. Analysis and Interpretation <ul><li>What do the numbers tell us? </li></ul><ul><li>How can we use the financial statements in financial forecasting? </li></ul><ul><li>Value of informed decision making. </li></ul>
  20. 20. Tips for Analyzing <ul><li>Consider the context </li></ul><ul><li>Compare your department to your peers </li></ul><ul><li>Watch for trends </li></ul>
  21. 21. Financial Statement Analysis <ul><li>Comparison to budget </li></ul><ul><li>Comparison to prior years </li></ul><ul><li>Trend analysis </li></ul><ul><li>Peer group comparison </li></ul>
  22. 22. Ratio Analysis <ul><li>Provides a means of digging deeper into the information contained in the financial statements. </li></ul><ul><li>A financial Ratio is a means of expressing key components in relation to other components </li></ul><ul><li>Value added when compared to peers or a predetermined benchmark </li></ul>
  23. 23. Ratio Analysis – normally four areas <ul><li>Liquidity Ratios </li></ul><ul><li>Profitability Ratios </li></ul><ul><li>Operating Ratios </li></ul><ul><li>Leverage Ratios </li></ul>
  24. 24. Liquidity Ratios <ul><li>Current ratio </li></ul><ul><ul><ul><li>Current assets / current liabilities </li></ul></ul></ul><ul><li>Quick ratio </li></ul><ul><ul><ul><li>(Cash +short-term investments+A/R) / Current liabilities </li></ul></ul></ul>
  25. 25. Profitability Ratios <ul><li>Not as relevant for “NPO’s” </li></ul><ul><ul><li>Return on assets (ROA) </li></ul></ul><ul><ul><li>Return on equity (ROE) </li></ul></ul><ul><ul><li>Return on revenue (ROR) </li></ul></ul>
  26. 26. Operating Ratios <ul><li>Days in receivables </li></ul><ul><li>Days in payables </li></ul>
  27. 27. Leverage Ratios - what is the strength of your organization?
  28. 28. Strength of your organization <ul><li>Capital assets – what % is yours versus externally funded? </li></ul><ul><li>Age of assets – accumulated depreciation as a % of total assets. </li></ul><ul><ul><li>What is the age of your facilities? </li></ul></ul><ul><ul><li>will determine how much is required in reserves </li></ul></ul>
  29. 29. Strength of your organization, cont’d: <ul><li>Interest coverage </li></ul><ul><li>Net assets as a % of total assets </li></ul><ul><li>Debt to equity </li></ul>
  30. 30. What are your financial statements saying about you? <ul><li>What are your (future) plans? </li></ul><ul><ul><li>Have they been determined? </li></ul></ul><ul><ul><li>Are restricted net assets reflecting your goals? </li></ul></ul>
  31. 31. What are your financial statements saying about you? <ul><ul><li>Are comparisons to budget reflected? </li></ul></ul>
  32. 32. What are your financial statements saying about you? <ul><li>Statement of cash flows </li></ul><ul><li>Prepared in accordance with generally accepted accounting principles </li></ul><ul><ul><li>Peer to Peer </li></ul></ul><ul><ul><li>i.e. depreciation </li></ul></ul>
  33. 33. <ul><li>What is the definition of an accountant? </li></ul><ul><li>Someone who solves a problem you did not know you had in a way you don't understand. </li></ul>
  34. 34. <ul><li>Members are your users </li></ul><ul><li>What do they see? </li></ul><ul><ul><li>Their view of your organization may be affected </li></ul></ul>
  35. 35. <ul><li>Questions? </li></ul>

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