Use Of Cosris Flow SiraIe eI n rs As A Financial Management Tool BULLETIN 487 AGRICULTURAL EXPERIMENT STATION/AUBURN R. DENNIS ROUSE, Director APRIL 1977 UNIVERSIT' AUBURN, ALABAMA CONTENTS Page INTRODUCTION-3 O bjectives of Study --------- --------Procedure-4 DEVELOPING A CASH FLOW STATEMENT --------- ------ - 4 - -- - 5 -5 Enterprises Considered -------------------------Enterprise B udgets --------- --------- --------- -----Steps in Developing a Cash Flow Statement-7 USING THE CASH FLOW STATEMENT FOR FORWARD PLANNING -5 -13 TO REDUCE INTEREST COST ------------ Enterprises Considered -------------------------Comparison of Alternative Methods of BorrowingTHE EFFECT OF ENTERPRISE SELECTION ON CASH FLOW -13 13 15 -15 Enterprises Considered -------------------------Financial Environment of Each Organization-16 Cash Flow Analysis for Row Crop and Stocker Cash Flow Analysis for Beef and Soybean Organization Comparison of the Two Farm Organizations-19 USING CASH FLOW STATEMENTS TO EV ALUATE CAPITAL Organization-17 18 INvESTMENT PROPOSALS ----------------Decision Criteria-21 ----- -21 Alternative Investm ents -----------------------Evaluation of the Investments ---------Comparison of the Two Investments SUMMARY-26 - -22 -23 26 CONCLUSIONS BIBLIOGRAPHY-29 A PPE ND IX - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - 28 - - 31 FIRST PRINTING 3M, APRIL 1977 In formation contained herein is available to all without regard to race, color, or national origin. AUBURN RALPH BROWN DRAUCHON LILBRARY AUBUR~N UNIVERSITY, ALABAMA 36349 UNIVERSIY 00 , I I Use Of Cash Flow Statements As A Financial Management T0 0 1 RICHARD W. WILT, JR., and SIDNEY C. BELL* INTRODUCTION ARMERS GENERALLY understand the aspect of farm management relating to control and use of physical assets to achieve high rates of production. They are less familiar with the tools of financial management, however, even though the high capital investment in agriculture makes it imperative that financial management be a part of farm management. High interest rates and other unfavorable factors of the recent economic environment have encouraged farmers to seek ways to increase production efficiency, especially the more efficient use of capital. This can be accomplished through improved financial management. Financial management includes decision making concerning investment, tax liabilities, and financing current operations. All of these involve forward planning and have direct effects on the profitability of the farm. Industry emphasizes financial management and farmers should do the same, especially with the large amounts of capital being borrowed by today's farmer. Good financial planning at the beginning of the year can both reduce the need to borrow and reduce interest costs when borrowing is necessary. Financial planning should not be limited to the management of borrowed funds. Relevant information should also be gained in the areas of tax management and investment decisions. Perhaps the most useful financial management tool available to the farmer *Former Graduate Research Assistant and Professor, Department of Agricultural Economics and Rural Sociology. F 4 ALABAMA AGRICULTURAL EXPERIMENT STATION in this regard is the cash [Iow statement. A cash flow statement is a periodic summary of Iain rieceip)ts and expenses. This publication examines the dev elopment and use of the cash flow statement in several farmjing situations, hased on data ohtamed in a stndy of a specific fari situation. Objectives of Study The general ohjective of the study as to demonstrate how a 1h)sical data anl cash flow statement can he dev eloped fin enterprise budgets and to cemonstrate the usefulness of the cash flow statement as a financial management tool by: (1) Showing that, when hoi1row ing is necessary, interest cost can be minimized hy horrowing as needed rather than 1)1rowing the total annual amount required at the beginning the year, (2) Showing' that, by using a cash flow statement, a larmer can project expected receipts and expenses and use this informaticn to analyze the intermediate and long-terms debt repaymiet capacity of a farm organization, and (3) Showing that the cash flow\ statement provides information useful in a capital investment decision. of Procedure To develop cash flow statements, data were taken from a farm of approximately 1,100 acres located in Marengo County, Alabama. Based on disc ussion w ith the farm owner, enterise budgets were developed for each crop and type of livestock likely to be produced on the subject farm. These budgets served as the basis for developing cash flow statements. A detailed analysis of enterprise expenses and receipts was undertaken to develop cash flow statements. A computer model was used to develop cash flow statements for a given farm plan. Three different methods of borrowing o perating capital were compared to show differences in inter est cost of the three methods and how net cash income was affected. Cash flow statements were developed for two different farm combinations of enterprises. Projected prices were used to determine which farm organization could best service intermediate and long term debt requirements. Cash flows for a beef feedlot and a farrow-to-finish swine enterprise were analyzed to determine which would be a better capital CASH FLOW STATEMENTS AS MANAGEMENT TOOL 5 investment. Cash flows were analyzed with respect to stability of cash flows over time and recovery of the initial investment, to provide a basis for accepting one investment over the other. DEVELOPING A CASH FLOW STATEMENT Data from an actual farm were used rather than simulated data to get as realistic a representation as possible of the principles of constructing a cash flow statement. Budgets and cash flow statements were constructed w ith the use of a computer model which, when supplied with input information, performed necessary calculations and printed output as a readable budget-. Enterprises Considered Enterprises considered were typical of those usually undertaken in the area, considering soil type, fertility, and topography of the land. Because of labor requirements, the use of only one cotton picker, and the preferences of the farm owner, cotton was limited to a maximum of 300 acres. All other enterprises were limited by available land or lab)or. Some row c(ops budgeted for this study could be sold directly or utsed as feed for the livestock enterprises. Crops for sale were corn, soyb)eans, wheat, and cotton. Corn would be used as feed for livestock, as grain, or as silage. Other crops considered were jollnsongrass for hlay and sorghum for grain or silage. Summer pasture was dallisgrass. \Vinter pasture was dallisgrass overseeded with ryegrass. Livestock enterprises considered were cow-calf, stockers, feeders, and market hogs. Enterprise Budgets were developed for all enterprises likely to be undertaken on the farm, appendix tables 13-23. Product prices were based on estimates by the Department of Agricultural Economics and Rural Sociology staff of expected supply and demand of the products considered for 1976. Product prices are shown in Table 1 and machinery and equipment prices in Table 2. Current prices were used for inputs. Budgets included receipts, if the product was to be sold, and cash and non-cash expenses for each enterprise. 1 DARRELL D. KLIETKE. 1975. Operations Manual for the Oklahoma State University Enterprise Budget Generator. Okla. State Univ. Agr. Exp. Sta. Research Rep. P-179. Budgets 6 ALABAMA AGRICULTURAL EXPERIMENT STATION ENTERPRISE BUDGETS TABLE 1. Row CROP AND LIVESTOCK PRICEs USED IN DEVELOPING FOR SELECTED FARM, ALABAMA, 1976 Product Row crops Soybeans--$ Wheat-3.40/bushel Corn-2.50/bushel Cotton lint-50/pound Cotton seed-80.00/ton Livestock Weancd calves (steeis)-32.00/cwt. Stocker calves--32.00/cwt. Price per unit 4.50/bushel Slaughter steers-46.00/cwt. Market hogs-47.50/cwt. TABLE 2. MACHINERY AND EQUIPMENT LIST ANI) PuRCIIASE PRICE FOR SUBJECT FARM, ALABEAMA, 19761 List price Machine Purchase price Dol. 16,800 Dol. Tractor, 125-hp.--------------------------22,437 'Tractor, 125-hp. Planter, 30-in.----------------------------Chisel plow, 14-ft. Rotary mower, 15-ft. Hydratlic disk, 21-ft. Grain drill, 21-ft. Hay baler Mower-conditioner, 9-ft. Forage harvester, 2-row Combine, 4-row Two forage wsagons ---------------------------- 25,547 5,589 2,144 4,968 7,329 19,680 4,297 1,800 4,180 6,625 - 3,267 5,034 4,896 7,949 35,560 8,109 2,857 4,000 3,900 6,500 29,000 5,400 1 Source-data supplied by operator of the farm used. Labor, machinery, and equipment requirements were determined by the computer model. Budgets for rowc and forage crops are on a per acre basis. Livestock budgets are on unit basis where a selected number of head make up a single unit. The base unit of the stocker enterprise consisted of 14 steer calves purchased at weaning. Calves entered the program at 425 pounds, were carried 180 days with gain of 1.5 pounds per day. and then sold at 700 pounds. The feed program was based on feed produced on the farm -- cool season pasture or a combination of pasture .and sorghum or corn silage or bay. Confined feeding of stockers was not considered because cool season grazing was more profitable and land was available for pasture. The feeder budget also was based on a 14-steer unit. Steers weighed 700 pounds when put on. the program and were fed to CASH FLOW STATEMENTS AS MANAGEMENT TOOL 7 1,000 pounds. Average daily gain was 2.24 pounds for the 134-day program. The steers were fed a ration of corn, protein supplement, and silage, and they were confined when fed. The type of feeding equipment used was specified, with all labor and equipment requirements and costs computed by the programming model. In the case of the swine budget the basic unit was 80 sows, with 1,320 hogs produced and marketed annually. This total was based on two litters per year averaging 8.5 pigs per litter. Half of the sows were considered to be replaced each year. Twenty acres of pasture were considered available for sows, and corn for the hogs was produced on the farm. The cow-calf budget was based on one bull unit of 30 brood cows. One system of production considered was winter-dropped calves weaned and sold in August at an average weight of 425 pounds. A -90 percent calf crop was estimated, providing 14 steer calves and 13 heifers. Six heifers were kept as replacements for five cows and one yearling heifer that were culled. The bull was kept for 4 years. Feed requirements were based on research done by Auburn University Agricultural Experiment Station. Steps in Developing a Cash Flow Statement To construct a cash flow statement, the quantities of crops and livestock to be produced must be determined or already known. This forms the projected farm plan. Conditions that must be considered when developing the farm plan include preferences of the owner, the labor situation, quantity and type of land available, and the availability of markets. For this study, no formal attempt was made to develop a farm plan. The combination of enterprises considered consisted either of a plan based on preferences of the owner or an enterprise mix that showed a profit and proved useful in demonstrating the techniques of the cash flow analysis. The combination of enterprises considered in this section was selected for the purpose of illustrating the construction of a general cash flow statement. No attempt was made to maximize income or net worth or meet any other criteria except a typical farming situation. Enterprises for the row crop and stocker farm were 200 acres of corn, 400 acres of soybeans, and 37.5 units (525 head) of stockers. These enterprises required the labor of three men. Computer gen- Co TABLE 3. FERTILIZER, SEED, CHEMICAL, AND MACHINERY COSTS, BY CROP FOR Row CROP AND STOCKER FARM ORGANIZATION, ALABAMA, Crop Fertilizer Rate per acre Seed Total Rate per acre Tacre 1976 Chemicals Rate per Acres Corn Soybeans Pasture 200 400 310 33-0-0 0-46-0 0-46-0 33-0-0 0-46-0 Cwt. 3.75 1.3 1.7 3.8 1.3 Cwt. 750 260 680 1,178 403 18 lb. 1 bo. 20 lb. 3,600 lb. 400 bu. 6,200 lb. herbicide herbicide insecticide 5 pt. 4 pt. 4 lb. 125 gal. 200 gal. 1,600 lb. SUMMARY OF COS TS Fertilizer Analysis 33-0-0 0-46-0 Require- ment Cwt. 1,928 1,343 needledl Feb. Apr. July Apr. When Cs Cs Requiremeut 36 cwt. 400 bu. 62 cwt. Seed Wben needed Apr. Apr. Oct. ______Chemicals _ Power and machinery Cost Requirement When needed Cost Dol. 2,500 3,200 5,700 Requirement Cost Dol. 3,419 C Dol. 17,004 8,122 25,126 Dol. 2,088 2,800 2,790 7,678 herbicide 325 gal. 1- Apr. July fuel and oil m insecticide .Jutne Sept. m 1,600 lb. 3,419 Total z -0 k~~rll~7DP CASH FLOW STATEMENTS AS MANAGEMENT TOOL 9 cratec l udgets werie used to show the mechanics of constructing a cash flow statement; howev er, computer generated cash flow statements were not used. Steps in constr ucting a fari cash flow statement are shown in tables 3 through 7. Fertilizer, seed, and chemical costs are shown in Table 3. In the first two columns the crops to be grown and tbe acreage of each are listed. The next three columns are for listing fertilizer, seed, and chemical requirements. Fertilizer for corn was ammonium nitrate (33-0-0) applied at a rate of 3.75 hundredweigti per acre over 200 acres (a total of 750 hundhedweight) and Ciperllospllate (0-46-0) applied at a rate of 1.3 hundrelweight per acre (a total of 260 hundcedweight). Seed were applied at 18 pounds per acie. A total of 250 gallons of herbicide was required for the 200 acres of corn. Requirements for each crop are listed in this manner. The bottom half of Table 3 is a summary of all crop costs, giving) the total amount of each input required and the month in which it is used. Total cost for each input was computed and listed. In the feitilizer column, the analysis of the fertilizer used was 33-0-0 and 0-46-0. Next is the total amount required of each type and the month when it is used. For 33-0-0 (anmonium nitrate), 1,928 hundredweight used in February, April, and July. Seed and chemical entries in the table were made similarly. Costs for powei and machinery requhements (fuel and oil) can be extrapolated from previous years' farm records. was TABLIE 4. CROP USE AND FEED REQUIREMEINTS BY ENTERPRISE FOR Row CROP AND STOCKER FARMI OR(ANIX1IoN, ALABAMA, 1976 Pr odnction Enterprise Row crops Corn Beinn~1ing inventory Per acre Bu. Trotal Ru. 12,000 Sales of sales Month inventory Ending Ru. 12,000 Septenmber 0 (60 Soybeans 0 30 12,000 12,000 October 0 0 Liv estock inventory Beginning Livestock EndingSnleet Tons Ila Tons 155 155 Stockers Total feeding requnrements 0 0 0 0 r TABLE 5. LIVESTOCK PLAN FOR Row CROP AND STOCKER FARM ORGANIZATION, ALABAMA, 1976 Kind KBeginnilg inventory Number Value 0 Purchases Sales Head 525 Cost $71,400 Month Jan. Head 5251 Value $117,600 Month Number 0 Value O Stockers 1 July No death loss assumed. CASH FLOW STATEMENT FOR ROW CROP AND STOCKER FARM, ALABAMA, TABIir' 6. 1976 I;I- Receipts and expenses Operating receipts Total Dol. Jan. Dol. Feb. Dol. Mar. Dol. Apr. Dol. Cash flow, by month May June July Dol. Dol. Dol. Aug. Dol. Sept. Dol. 30,000 Oct. Dol. 45,000 Nov. Dol. Dec. Dol. nt'I- Ciops --------------- - 75,000 7--------5-Liv estock --------------- 117,600 x ----------------- 192,6(10 C ToTi 117,600 117,600 2,500 2,343 2,092 222 71,400 76,243 4,940 92 2,642 12,126 358 1,000 18,517 5,100 196 1,500 12,381 250 800 30,000 2,500 3,112 45,000 2,500 2,790 810 Operating expenses Salary ----------------Seed ------------------Repairs -1 C Liv estock expenses -----Fertilizer ---------------Fuel, oil Chemicals -------------Stocker purchase ------1071 'L ------------ --- 30,000 7,678 5,803 2,500 126 2,500 50 2,500 2,088 445 2,500 2,800 288 2,500 304 29,500 259 2,500 354 2,500 55 2,500 I1F,' m -v m 2,448 23,176 3,419 5,700 71,400 --------------- 151,624 105 3,766 420 800 7,850 280 800 6,692 572 800 4,226 949 7,049 2,092 80 4,727 2,500 z 3,854 z CASH FLOW STATEMENTS AS MANAGEMENT TOOL 1 11 Crop use and feed reqjuirements for livestock aie recorded in Table 4. The crop grown and expected total yield fron the acreage in pioduction are listed along iti expected sales, the month in which the sale will occur, and any unsold pioduction, i.e., ending inventory. Heie corn and soybeans have an expected production and sales of' 12,000 bushels each. Corn is to be sold in September and soybeans in Octoei. The botton half of the table lists the type of livestock held for sale, any beginning and ending inventoly, and feed req1 uirements. In this case stockers were fed 155 tons of hay during the pr oduction period. The farni livestock plan is summaiized in Table 5. There was no beginning oi ending inventory to be listed since stockers were purchased, fed, and sold in about 180 days. In January, 525 head were piii chased at a cost of 1,100. Assuming no death loss, these steers weie sold in July for $117,600. The cash flow statement, Table 6, includes operating receipts and expenses. Capital receipts and expenses would have been includeci if any had occurred. In this case ieceipts occurred in July, September, and October. Total receipts amounted to Fxpenses occuired in every month and totaled $151,621. The information in Table 7 reflects the ciedit needs of the farm. Total receipts and expenses are entered in the months they occuired. Any deficit indicates the need for borrowing in that month; any surplus is used to pay outstanding debt. Here the expenses lbuild up to a peak of $118,580 in June. Receipts in July enabled the debt to he reduced to Borrowing occurred S7 $192,600. in August to increase the debt to $19,867. $13,175. In September th~e debt was p~aid, leav ing a positixve balance at the emid of the month $5,577 and a balance at the end of the year of $36,301. Profitable use of credit should be a main objective of both borrower and lender. Tihe farm cash flow statement piovides both borrower and lender with infor matioii on the prodluctiv ity of the farm through projectedl yields and receipts, on the costs of production through Iprojected exp~enses, and~ on tihe ciedit ie(quiiements the farm b~y show\ing how much capital needs to borrowed in each month amid wheii the debt can be paid. collecting' the data necessary to construct the cash flow statement, the farmer is forcedi to make estimates of yields and quantities of inputs to be used. This giv es an increased awareness of the productivity of the farm and proides the farnier with infoimation on where improv ements could be made. of of be By T ABLE 7. CASH FLOW SUMMAR SY FOR Row CROP AND STOCKER FARM, ALABAMA, 1976 Receipts Oper ating receipts --- Total Do!. 192,000 Jan. 1)ol. Eel). Do!. Mar. Do!. Apr. Dol. May Do!. June Do!. July Do!. Atg. Do!. Sept. Do!. 30,000 Oct. Do!. 43,000 Nov. Do!. Dec. Do!. Capital sales__ Total cash-D receipts _-192,600 Total operating expenses 1 17,600O 117,600 76,2.13 4,91(0 2,6.12 18,517 12,38:1 3,851 7,830 30,000 6,t692 -6,692 6,692 .1,226 45,000 7,049 37,951 4,727 -4,727 2,500 -2,500 00 --- 151,624 (Cash deficitD 0r surp1lus-Borrowing to m)aintain $0 balance cipal -76,2.13 76,243 -4,9-1(1 4,911) -2,612 2(612 -18,517 18,31 7 --12,384 12,381 -3,831 -7,850 23,771 W C. -I 3,834 105,4051 4,345 -----128,647 C 19,867 33(1m Pay mentr interest Balance endx of period -Accumulated 1)01rowBings --- 4,687 5,577 76,213 81,183 83,823 1(2,342 114,726 118,38(0 13,173 19,867 43,328 38,801 36,301 m rm z CASH FLOW STATEMENTS AS MANAGEMENT TOOL 13 USING THE CASH FLOW STATEMENT FOR FORWARD PLANNING TO REDUCE INTEREST COST When the need to borrow operating capital is recognized, the farmer can minimize interest cost by borrowing as needed during the production period and paying back as soon as possible rather than by borrowing the total amount required at the beginning of the year and paying back at the end of the year. The cash flow statement provides information on how much capital needs to be borrowed and when this borrowing is needed. This information provides the opportunity to do some forward planning concerning credit needs. Enterprises Considered To show how the farmer can save on interest costs, this case considered a farming situation based on producing 450 acres of wheat, 37.5 units of stockers (525 head), 310 acres of dallisgrass overseeded with ryegrass used as fall and winter pasture, 200 acres of cotton, and 400 acres of no-till soybeans. The cotton budget was based on a 700-pound per acre yield harvested in October and November. No-till soybeans planted in wheat stubble had a projected yield of 25 bushels per acre because of the risks associated with no-till planting. This method of cultivating soybeans is still in the experimental stage. 2 The wheat budget was based on a yield of 28 bushels per acre harvested early in May. The 310 acres of overseeded dallisgrass pasture provided about 0.6 acre per head for stocker grazing. The stockers were put on pasture early in January and sold in early July. Costs for cutting hay in August after calves are removed from the pasture were included in the budget. Since the farm is an ongoing concern, hay from the previous year's program was available to be fed to stockers in the year budgeted. Comparison of Alternative Methods of Borrowing With the assumed farming situation, no receipts were realized until May when wheat was harvested and sold. However, expenses from other enterprises started in January and occurred in every month, accumulating to $103,632 in April. Loan payments in 2 HOWARD T. ROGERS. 1971. Soybean Production Recent Research Findings. Au- burn Univ. (Ala.) Agr. Exp. Sta. Bull. 413. 14 ALABAMA AGRICULTURAL EXPERIMENT STATION May amounted to $25,891 on principal and $2,703 on interest. The sale in July of the stockers provided for a loan payment of $84,764 on principal and $1,219 on interest, leaving a cash balance at the end of July of $16,323. This amount covered all expenses in August and left a $3,433 ending balance for the month. September expenses required borrowing $19,598 that was paid off in October with an interest charge of $147. November receipts from cotton sales covered November and December expenses, leaving a net cash income at the end of the year of $78,317. There are two alternatives to borrowing when needed and paying back as soon as cash is available. One method would be to borrow the total production cost at the beginning of the year and pay it back at the end of the year. In situations where a cash flow statement is not used, the farmer does not know the amount of funds needed to be borrowed and can only estimate his cost of production. If budgeting is used, the farmer has an accurate estimate of production costs. Using the first method - borrowing the total production cost at the beginning of the year and paying back when receipts permit - $202,654 was borrowed in January. Interest was charged on that amount through April, amounting to $6,090. A principal payment of $36,760 and interest payment of $6,090 made from wheat receipts left a balance of $159,814 outstanding in May. This amount was charged interest for 2 months, until a payment was made from stocker receipts in July. Interest paid was $2,397 along with a principal payment of $115,202. This left an outstanding loan balance of $44,611. Interest charged on this amount through September was $699. October receipts from cotton were adequate to retire the debt. Total interest paid for the year was $9,146 and net cash income was $73,239. Using the second method - borrowing the total production costs at the beginning of the year and paying it back at the end TABLE 8. EFFECT OF THREE D)IFFERNT I'IMETHODS OF BORROWING ON INT,RFST PAID AND NET CASH INCOME Method of borrowing Monthly using cash flow Beginning of year, paying back as receipts permit Beginning of year, paying back at end of year Interest Dol. Net cash income Dol. 4,069 9,146 18,239 78,317 73,239 64,146 CASH FLOW STATEMENTS AS MANAGEMENT TOOL 15 CASH FLOW( STATEMENTS AS MANGEMENTTOL1 of the year - the entire cost of production, $202,654, was borrowed as in the previous case. When borrowed in January and paid back in December, interest paid was $18,239 and net cash income was $64,446. A comparison of the three different methods of borrowing operating capital is shown in Table 8. If the cash flow statement is not used to plan credit needs, the farmer will pay an unnecessary amount of interest. In this case, up to $14,170 extra interest can be paid, thus reducing the net cash income by that amount. THE EFFECT OF ENTERPRISE SELECTION ON CASH FLOW The beginning farmer's choice of enterprises will determine whether the farm will be a profitable operation and able to make debt payments or unprofitable and unable to meet obligations. If obligations cannot lbe met, the farmer will be forced to discontinue operations. Different farm organizations can give drastically different cash flows from alternative farm organizations and affect the financial stability of the farm. Enterprises Considered To examine the effects of these different cash flows on the financial stability of a farm, two farm organizations and the cash flows resulting from each were examined with regard to the ability of each to meet intermediate and long-term debt obligations. TABLE1 9. PRICES USEn FOR CASH F LOW PRO JECTIONS FOR ROW CROP-STOCKER AND BE r-SOYBEllAN FARM 0R, \NIZ XlIONs, ALABAMA, 1976 Item and unit Year 1 Year 2 Dol. 13(0.00 110.00 3.20 9.00 Year 3 Dol. 125.00 130.00 3.00 7.00 4.15 Year 4 Dol. 120.00 125.00 3.00 7.00 3.90 Year 5 Dol. 120.00 123.00 3.00 7.00 3.90 Year. 6 Dol. 120.00 125.00 3.00 7.00 3.90 Dol. Ammnoniuim nitrate, tonl --135.00 Superphosphate, ton ----- 150.00 Wheat grain, ho. -------3.4(0 Wheat seed, ho. Soybean grail), ho. Cotton lint, --------- 7.50 7.23i -------4.50 4.215 9.00 80.00 .38 Soybean seed, ho. -------Cotton seed (sell), ton Cotton seed (btuy), lb. Rvegrass seed, lb. -------Steer calves, cwt. Heifer calves,, cwt. ------- 11)-----. ------.50 9.00 9.00 9.00 9.00 ------.45 32.00 30.00 .50 80.00 .38 .50 80.00 .38 37.00 35'.00 70.00 .3 .45 .40 .45 70.00 .35 .45 70.00 .35 --------- .45 37.00 35.00 .15 5 .40 40.00 .40 40.00 40.00 Cull cows, cwt. ---------Bull, cwt. --------------- 22.00 25.00 25.00 27.00 25.00 27.00 32.00 27.00 29.00 38.00 27.00 29.00 38.00 27.00 29.00 Yearling heifer, cwt.------ 23.00 29.00 29.00 30.00 30.00 30.00 16 ALABAMA AGRICULTURAL EXPERIMENT STATION The general difference between the two organizations was largely the degree of diversification. Enterprises in the row crop and stocker farm organization were soybeans and wheat doublecropped on 450 acres, 200 acres of cotton, 310 acres of dallisgrass overseeded with ryegrass, and 37.5 units (525 head) of stockers. The beef and soybean farm organization enterprises were 17 units (510 head) of brood cows, 153 acres of johnsongrass hay, 487 acres of dallisgrass pasture, and 450 acres of soybeans. Budgets and cash flow statements were based on prices projected ahead 5 years. The prices listed in Table 9 were assumed to represent typical price relationships under normal circumstances. Both farming situations required the labor of an operator and two hired laborers. The operator paid himself a salary of $1,250 per month and each hired laborer $625 per month. Financial Environment of Each Organization Each situation was considered to be a farm just starting operations requiring intermediate and long-term financing, which was assumed to be available through a Production Credit Association (PCA) and Federal Land Bank Association (FLBA). For both farm organizations, a 20 percent down payment was considered to be made on machinery before farming operations started. This amounted to $22,247 for the row crop and stocker organization and $17,047 for the beef and soybean organization. Annual payments on the row crop and stocker farm machinery loan at 9 percent interest were $27,468 for 4 years. The beef and soybean organization machinery loan annual payments were $21,048 for the 4-year period. The land being used was the same in both cases, therefore the loan for land was $300,000 for 20 years at 8.5 percent. Principal and interest payments were $31,701. In some cases, farmers are able to obtain land mortgages where only interest payments have to be made during the first few years of operations. In this instance, interest payment on the land loan amounted to $25,500. In addition to machinery and land financing, the beef and soybean farm required a loan of $154,904 to acquire a brood cow herd. Production Credit Associations sometimes allow loans for brood stock to be repaid on an "as able" basis with the unpaid balance of the loan being refinanced annually. This allows loan repayment flexibility on the part of the farmer. CASH FLOW STATEMENTS AS MANAGEMENT TOOL 17 Cash Flow Analysis for Row Crop and Stocker Organization Annual cash flow summaries for the row crop and stocker organization with the required debt payments made are shown in Table 10. The loan payments listed are for the intermediate-term machinery loan and long-term land mortgage. All short-term operating loans were paid back from cash inflow to the farm during the production period. Net cash income (NCI) is cash available for intermediate and long-term debt repayment and reinvestment. TABLE 10. YEARLY SUMMARY OF NET CASH PAYMENTS FOR THE Row INCOME FARM Year 3 Dol. 56,025 79,600 37,800 135,975 22,215 14,064 32,288 20,689 83,678 30,000 3,941 102,525 AND CASH BALANCE AFTER LOAN ORCANIZATION, ALABAMA, CROP AND STOCKER 1976 Receipts and expenses Year 1 Year 2 Dol. 57,375 79,600 40,320 128,625 22,597 14,560 32,558 21,662 83,678 30,000 3,986 96,879 Year 4 Dol. 52,650 71,400 37,800 147,000 22,023 13,359 31,981 20,104 83,678 30,000 3,868 103,837 27,468 31,701 59,169 44,668 Year 5 Dol. 52,650 71,400 37,800 147,000 22,023 13,359 31,981 20,104 83,678 30,000 3,868 103,837 Year 6 Dol. 52,650 71,400 37,800 147,000 22,023 13,359 31,981 20,104 83,678 30,000 3,868 103,837 Dol. Enterprise receipts Soybeans, 450 acres __ 60,750 79,600 Cotton, 200 acres ____ Wheat, 450 acres ______ Stockers, 525 head ... 117,600 Enterprise expenses Soybeans, 450 acres __ 22,980 Pasture, 310 acres ___ 15,056 Cotton, 200 acres ___ 32,828 22,635 Wheat, 450 acres ...... Stockers, 525 head---. 83,678 30,000 Labor Interest on 5,547 operating capital NET CASH INCOME__ 45,226 Loan payments Machinery Land Total loan payments Cash balance after loan payments 1 Interest only. 27,468 25,5001 52,968 -7,742 27,468 31,701 59,169 37,710 27,468 31,701 59,169 43,356 31,701 31,701 72,136 31,701 31,701 72,136 The first year of operations did not generate sufficient cash to meet minimum debt requirements of the $27,486 machinery loan payment and $25,500 interest on land mortgage. Therefore, the operator was required to supply $7,742 from other sources of cash. The cause of this situation was that no wheat was harvested during the year but expenses for the wheat crop to be harvested the next calendar year were incurred. The second year of operations generated $96,879 available for debt payments and reinvestment. Debt payments of $27,468 on machinery and $31,701 on land (principal and interest) were made, leaving $37,710 before taxes available for reinvestment to stimulate growth or for alternative 18 ALABAMA AGRICULTURAL EXPERIMENT STATION 18 ALABMA AGRICULTURLEPIMNSTIO investment opportunities. All subsequent years had substantial cash balances after meeting all debt requirements. Cash Flow Analysis for Beef and Soybean Organization Annual cash flow summaries for the beef and soybean organization, Table 11, show a drastic difference in the ability of this.farm organization to generate enough cash to service minimum debt obligations. As in the previous organization, all operating capital loans were repaid during the year by cash inflows from operations. Net cash available for repayment of intermediate and long-term debt was inadequate in some years. The first year's operations generated $42,974 net cash income. To meet the minimum debt requirements of $21,048 principal and interest on the machinery loan. $25,500 interest on the land mortgage, and $ 13,941 interest on the brood cow loan, the opTABLE 11. YEARLY SUMMARY OF NEr cASH INCOME AND CASHI BALANCE AFTFR LOAN PAYMENTS FOR BEEF-SOYBEAN FARM ORGANIZATION, ALABAMA, 1976 Receipts and expenses Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Do!. Enterprise receipts Soybeans, 450 acres _ 60,750 Cow-calf, 510 head-72,726 Enterprise expenses Hay, 153 acres 11,720 Do!. 57,375 11,391 22, Dol. 56,025 83,394 11,062 22,215 12,141 10,521l 30,00(? Dol. 52,650 90,083 10,783 22,023 12,=141 10,143 3(1,00O 1,662 55,681 Dot. 52,650 90,083 10,783 22,023 12,441 10,143 30,00(0 1,6(62 55,681 Dol. 52,650 90,083 10,783 22,023 12,441 10,143 30,00(0 1,662 55,681 83,394 ----1,768 Soybeans, 450 acres_22,980 Cow-calf, 510 head-12,441 Pasture, 487 acres 11,593 Labor-30,00(1 Interest on operating capital 597 12,441 1,717 11,057 30,00( 51,566 NET CASH INCOME 42,974 Loan payments Machinery 511,683 ,497 21,048 25,5001 46,548 4,949 ------21,048 Land ------------ 25,5001 Total loan payments 46,548 Net cash income minus loan payments 21,048 25,50(1 46,548 5,018 21,048 25,5001 46,548 9,133 31,701 31,701 23,980 31,701 31,701 23,980 --------- 3,575 3,575 Cash required from operator Increase in brood cow loan --- -------- 13,941 10,178 179,023 02 11,163 190,186 02 7,983 198,169 02 Amount of brood cow loan (end of year) ----------------- 168,845 192,024 0 185,326 0 Cash balance after brood cow loan payment 02 1Interest only. funds required from refinancing. 2 Additional CASH FLOW STATEMENTS AS MANAGEMENT TOOL 19 erator had to supply $3,575 from his $15,000 living expense and the brood cow loan was increased by the amount of the interest charge. It was assumed the operator was able to refinance the brood cow loan, including the interest, in the first year. Cash flows in the second year were also inadequate to meet the other debt requirements and pay the interest on the brood cow loan. Cash was available to pay $5,018 on the interest, leaving $10,178 to be refinanced. Increasing the brood cow loan each year occurred until the fifth year when $23,980 became available for principal and interest payment. At this point it would require 16 years to retire the brood cow loan and release cash for reinvestment. Comparison of the Two Farm Organizations The most noticeable difference between the two farm organizations was that while the row crop and stocker organization had a cash flow that stimulated growth, the beef and soybean organization was facing one of three undesirable situations: (1) the cash flow schedule shows the organization is increasing debt the first 4 years by refinancing the brood cow loan that includes unpaid interest, thus increasing the length of the loan and future interest cost; (2) the operator would have to supply enough capital to meet interest payments on the brood cow loan from his salary, thus reducing money for family consumption; and (3) the farm would have to liquidate because of the inability to pay debts if the PCA was unwilling to refinance the brood cow loan. Neither situation offers any chance for farm growth. Alternatives open to the beginning beef producer would be to (1) consider starting on a much smaller scale to reduce financing requirements and generate cash for slower growth, or (2) finance the assets over long periods to reduce annual payments. In either case, growth would not be as rapid as in the row crop and stocker organization because of the lack of available funds for reinvestment. There are constraints to growth that operators of either of these organizations should be aware of: non-farm drains on cash flow, farm resources, market demand, external financing, and financial risk.3 3 HOPKIN, JOHN A., PETER J. BARRY, AND C. B. BAKER. 1973. Financial Management in Agriculture. The Interstate Printers and Publishers, Danville, Ill., pp. 153-162. 20 ALABAMA AGRICULTURAL EXPERIMENT STATION Since family consumption is not considered a non-farm drain on cash flow because the operator draws a salary, the biggest non-farm drain would be income tax. This drain in cash flow can greatly influence reinvestment in the farm. The goal should not be to minimize taxes, but to maximize returns after tax to render more cash available for reinvestment. If the farm has cash reserves to reinvest, growth still may not occur because of the lack of the right resources to invest in or, if resources are available, a lag in the ability of the operator to properly manage the new resources to achieve maximum production or returns. Also to be considered is the lumpiness of some assets. This includes tracts of land, buildings, feeding systems, irrigation system, and others. The limited capital available influences the timing and allocation of capital for investment. Even if expansion in assets occurs and the farm's ability to produce is increased, there must be markets for the additional production. Factors affecting the dynamics of supply and demand for products affect the earnings of the farm and therefore the cash available for reinvestment and growth. External financing can influence the rate and direction of growth. In the beef and soybean organization, external financing results in no growth for 20 years of operations. Also, other lenders would probably discriminate against it either by refusing to lend or by charging higher interest rates that would further retard growth. By financing through external means, the operator is exposing himself to more risk. Any change in prices or yields has a greater impact on returns to, or loss of, equity capital. The operator of the row crop and stocker organization may want to consider greater leverage4 because of the favorable cash flows. Any loss could be more easily handled by this organization than by the beef and soybean organization. In the latter case, leverage caused a lack of growth and possible liquidation even when prices were at a relatively normal level. The risks of leverage and the ability of the farm to withstand unfavorable price and yield situations should be carefully considered by the operator. The beginning farmer should be aware of the different cash flows generated by different combinations of enterprises. Cash flow analysis of the farm organization can reveal financial weaknesses in the organization and aid in correcting or improving the 4 Financial leverage is usually expressed as the ratio of deb)t to equity. CASH FLOW STATEMENTS AS MANAGEMENT TOOL 21 situation. Cash flows give a strong indication of the probable success or failure of the farm organization. USING CASH FLOW STATEMENTS TO EVALUATE CAPITAL INVESTMENT PROPOSALS Analyzing the cash flows of alternative capital investment opportunities can be useful in determining the relative merits of the investments. Some criteria for selection must be defined and used as a basis for the decision to accept or reject one investment opportunity over another. Two possible criteria are the stability of cash flows over time and rapid recovery of the initial investment, i.e., short payback period. A cash flow statement for a proposed capital investment can be a useful decision making tool. Two investment proposals and possible decisions concerning their acceptance or rejection based on the two decision criteria above are considered in this section. Decision Criteria The payback period for anrinvestment proposal is the number of years required for the net cash flow to pay back the amount of the initial investment. If this decision criterion is used to evaluate a proposal, the decision to accept or reject the proposal is based on whether the initial investment can be recovered in a given period of time. If the payback period is less than the maximum acceptable, the proposal is accepted; if not, it is rejected. It should be noted that the payback period is not a good measure of the profitability of an investment. Its usefulness here is as a tool for comparison of alternative investments. Since farmers normally borrow a large portion of their operating capital and usually finance capital investments for intermediate periods (1 to 7 years), the cash position of the farmer at any one time is usually low; therefore, any investment should have a rapid cash recovery or payback period. Another drawback of the payback method of evaluating investments is that it does not consider cash flows from the investment after the end of the payback period. Since the payback method does not account for differences in the amount and timing of cash flows, another decision criterion that accounts for these occurrences should be defined and used. This criterion would be the stability of cash flows over time. Two alternative investments were considered and their cash 22 ALABAMA AGRICULTURAL EXPERIMENT STATION flows analyzed to determine what action could be taken on each with respect to the two decision criteria discussed, payback period and stability. Alternative Investments It was assumed that the farm had land, labor, and capital available to consider adding one of two possible enterprises, a beef feedlot feeding 480 head or a farrow-to-finish swine operation based on 80 sows. Each of these operations would require approximately 276 acres of row crop land to produce corn for grain and silage, based on yields of 60 bushels of grain per acre and 15 tons of silage per acre. Projected prices were used to reflect what was considered to be a normal situation and remained constant after 4 years. In using projected prices, stability of cash flow was artificially enforced over time; however, the uncertainty associated with price variability over time should still be considered in the decision criteria. The amount and timing of returns were also enforced by making price projections in this manner, but uncertainty was present in these situations also and should be considered in the decision criteria. Investment requirements for each enterprise were based on what new equipment would have to be added to the farm if the enterprise was added. Existing equipment that could be used on the new enterprise was not considered as an investment for the TABLE 12. ESTIMATED INVESTMENT REQUIREMENTS FOR 80-Sow FARROW-TO-FINISH ENTERPRISE, ALABAMA, 1976 Item Cost Dol. Buildings and equipment N ursery------------------Lagoon Farrowing house Finishing house -- 20,747 4,330 35,015 25,710 F eed m ill b u ilding ----------------------------- -----------Feed mill W ater lines ------------------------- ---Bins and augers Sow shelter and fence Boar shelter and fence TOTAL -------- 4,200 4,842 2,147 3,101 5,333 400 -105,825 Broodstock - -- - - - - - - -S o ws - - - - - - - - - - ----- - - - - - - - - - - - -- -- - - - - - - - - - - -- - -Bo a r s ............................................................. -TOTAL TOTAL INVESTMENT-- 12 ,0 0 0 1 ,30 0 13,300 119,125 CASH FLOW STATEMENTS TABLE 13. ESmTIMATED AS MANAGEMENT TOOL 23 2 INVESTIMENT REQUIIU ENTS FOR 250-HEAD FEEDLOT, ALABAMA, 1976 Item Silo and feed equipm ent -------------------------------- Cost Dol. 31,500 9,000 3,600 Shelter, feed bunks-10,000 Concrete apron around bunks ---------------------------------tanks, gates, pens-6,500 Alleys, chute, scales -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Water - TOTAL INXVESTMIENT-60,600 enterprise. Total capital investment [or the swine operation was $119,125, Table 12, and for the beet feedlot $60,600, Table 13. was Evaluation of the Investments The cash flow statement for the farrow-to-finish enterprise was based on starting the enterprise in January. Sows would start farrowing in January with the first sales in July. Sows are bred so that 20 will farrow every 6 weeks. Annual cash flow statements for the enterprise are given in appendix tables 1-6. Because the first sales do not occur until July, operating capital must be borrowed for feed until produced corn is harvested. The outstanding loan increases to a peak of $43,776 in June. Hog sales in July provide cash to pay off some of the oi-standing operating loan, reducing it to $37,439. Regular sales occurring after July provide enough cash to reduce the operating loan to $1,674, with no payment on sow and equipment loan by the end of the year. Thus, there was a zero cash balance at the end of the year with the outstanding operating loan of $1,674. Since produced feed is not available for the hogs until after September, corn must be purchased up to that time. The expense for purchased corn gradually increases from $2,750 in February to $4,331 in July and August because of increasing number and size of pigs. The second-year cash flow statement, Appendix Table 2, shows the regularity of cash inflows of the farrow-to-finish enterprise. There were hog sales every 6 weeks, with March, June, September, and December the only months with no sales. Because of this relatively constant cash inflow, the outstanding balance of the operating loan from the first year was repaid and no additional operating capital was required to be borrowed. The cash balance at- the end of the year was $67,893. Subsequent annual cash flow statements show the continued regularity of cash inflows and indicate no need to borrow operating capital. 24 ALABAMA AGRICULTURAL EXPERIMENT STATION Equipment, housing, and the original 80 sows for the farrow-tofinish enterprise were financed with payments arranged to repay the loan as quickly as possible. An $8,000 minimum balance after loan payments was required to reflect an approximate 7 percent return on the investment. Cash was not adequate in the first year to make any payment on the sow and equipment loan so the loan was refinanced for the second year to include unpaid interest from the first year. This increased the amount of the loan to $129,846. Net cash income in succeeding years was sufficient to pay $59,893 in the second year, $61,560 in the third year, and final payment of $29,894 in the fourth year. Annual summaries of the cash flows for the enterprise are given in Table 14. TABLE 14. ANNUAL CASH FLOW SUMMARY FOR 80-Sow FARROW-TO-FINISH IN ALABAMA FOR 6 YEARS ENTERPRISE Receipts and Year 1 expenses Dol. Enterprise receipts Sows, 80 head __ Enterprise expenses Sows, 80 head Corn, 276 acres NET CASH INCOME Loan payments Year 2 Year 3 Year 4 Year 5 Year 6 Dol. 108,688 23,645 15,453 69,590 59,893 8,000 Dol. 108,688 24,114 15,014 69,560 61,560 8,000 Dol. 95,332 23,645 14,664 57,023 29,894 27,129 Dol. 95,332 23,645 14,664 57,023 -- Dol. 95,332 23,645 14,664 57,023 -- 62,700 46,647 15,898 155 -0 Cash balance after loan payments 57,023 57,023 Investment in the farrow-to-finish enterprise appears favorable in light of the decision criteria specified. The payback period is a relatively short 3.5 years and the inflow of cash is relatively constant throughout the year. Even if returns were reduced as much as 10 percent there would be little effect on the payback period. No change in the pattern of inflows would be expected unless caused by a major event that results in the interruption of operations. Another favorable aspect of the farrow-to-finish enterprise is that, after the first month of the second year of operations, the enterprise generates its own operating capital. In the first year of the feedlot operation, there was only one group of steers purchased and fed. These were purchased in late September after corn was harvested. Two groups of approximately 240 head each were fed annually after the first year with the first group being purchased in January and sold in May and the second group bought in August and sold in December. Annual cash flow CASH FLOW STATEMENTS AS MANAGEMENT TOOL 25 statements for the feedlot enterprise are given in appendix tables 7-12. Equipment for the enterprise was financed to be repaid as quickly as possible. If the equipment had been financed so that equal annual payments would be made over 10 years, payments would equal $11,219 a year. Net cash income would be inadequate to meet this debt obligation after the third year, making the enterprise unprofitable. Principal and interest payments were scheduled so as to leave at least $4,000 available after payments. ,This represents an approximate 7 percent return on the investment. The annual cash flow statement for the first year, Appendix Table 7, shows monthly receipts and expenses for the enterprise. Sales did not occur until December, requiring operating capital to be borrowed until that time. Borrowing reached a peak of $86,943 in September and remained at that level until a payment in December. Interest was $3,647. Net cash income for the year was $13,370. The second year cash flow statement, Appendix Table 8, indicates the pattern of cash flows with both groups of steers being fed. Borrowing.reached a peak in April of $85,837. Cash receipts in May were enough to repay accumulated borrowing up to that time and pay expenses for June. No expenses or receipts occurred in July. The purchase of another group of feeder steers in August required additional borrowing of $61,006. An additional $3,409 was required in September to cover feedlot and crop costs. No receipts were available to repay this loan until TABLE 15. ANNUAL CASH FLOW SUMMARY FOR 480-STEER FINISHING ENTERPRISE IN ALABAMA FOR 6 YEARS Receipts and expenses Year 1 Year 2 Dol. 212,520 160,160 14,458 929 32,809 Year 3 Dol. 207,690 170,303 14,047 902 17,757 Year 4 Dol. 202,860 177,065 13,720 880 6,103 Year 5 Dol. 207,690 187,208 13,720 880 338 Year 6 Dol. 207,690 187,208 13,720 880 338 Dol. Enterprise receipts Steers, 483 head-- 221,180 Enterprise expenses 78,246 Steers, 483 head'__ 14,868 Corn, 259 acres 957 Silage, 17 acres NET CASH INCOME Loan payment 13,370 (principal and interest) Cash balance after 9,370 28,809 13,757 2,103 338 338 loan payments.. 4,000 4,000 4,000 0 0 0 1240 head only are fed in the first year. 26 ALABAMA AGRICULTURAL EXPERIMENT STATION December when steers were sold. Net cash income for the year was $32,809. The third-year cash flow statement, Appendix Table 9, indicates the same general pattern of cash flows as the second year. Each succeeding year shows a decline in the amount of net cash income. Annual cash flow summaries for the enterprise are in Table 15. Investment in the feedlot does not appear favorable in light of the two decision criteria presented. The payback period for the investment is over 40 years, and after 4 years all net cash income is applied to loan payments. When considering the uncertainty associated with later time periods and the possibility of the enterprise having a negative net cash flow, an investor would not consider the enterprise a suitable investment. Comparison of the Two Investments Based on the decision criteria presented, the beef feedlot investment would be rejected in favor of a farrow-to-finish enterprise. The feedlot had a payback period of over 40 years, whereas for the farrow-to-finish enterprise it was only 3.5 years. Amount of cash inflows to the feedlot also underwent a steady decline over time. Other considerations may enter the decision criteria of the investor. The beef feedlot has an initial investment lower than the farrow-to-finish enterprise, $60,000 as opposed to $119,125. During 3 months when the feedlot is empty, the operator may take advantage of some off time or distribute farm labor more efficiently throughout the year. Less skilled labor would be required by the feedlot than for the swine enterprise. Although these may make the feedlot more desirable, low return in comparison with the swine enterprise represents a major disadvantage. The feedlot enterprise is not nearly as profitable as the swine enterprise. The feedlot is just breaking even in later years when the swine enterprise is producing $57,023 above cost. The low returns to the feedlot in the later years would probably not encourage the investor to undertake the risk and uncertainty associated with this later time. SUMMARY The general objective of this study was to show the development of cash flow statements from the information provided by enterprise budgets and physical production data and to demon- CASH FLOW STATEMENTS AS MANAGEMENT TOOL 27 CASH FLOW STATEMENTS AS MANAGEMENTTOL2 strate the usefulness of the cash flow statement as a financial management tool. Enterprise budgets for ciops and livestock common to the area were generated using data from a farm located in Marengo County, Alabama. A computer model was used to generate budgets based on input information consisting of' yield and prices for roduction and quantities and prices of inputs. Cash flow statements for the study were also developed using the computer model. No attempt was made to develop optimum farm plans. Cash flow statements were based on typical farming.situations. The cash flow statement was used to compare alternative methods of borrowing for a farm organization consisting of various acreages of cotton, soybeans, w heat, pasture, and a stocker program. Of three methods examined for borrowing operating capital, the method which resulted in the lowest interest cost was that which employed the cash flow statement with interest charged on the year the unpaid balance. By horrowing at the heginning was paid in inand paying lback at the end of the year, when using the cash flow statement terest compared to only and paying interest on the unpaid balance. $4,096 $18,239 of Projected cash flow statements were used to study the effects of two different combinations of enterprises on farm cash flow. A farm organization consisting of a brood cw herd and soybeans did not generate enough cash in the first year of operations to make minimum frst-year loan payments on brood cows, machin- ery, and land. W~hen recquired payments on the machinery and land loans were made, there was not enough cash available to make payments on the brood cow loan, which forced the loan to be refinanced until the fifth year when $23,980 hecame available to make pr incipal and interest lpahments. This represented all of the net cash income generated by the farm organization. XWith all. of the net cash income used to make paymnmts, it would require 16 years to retire the debt andl (ash would not be axvailable for reinvestment. A combination of enterprises including row crops and a stocker program proved highly profitable. Because of' limited receipts inl the first year the operator needled to supply quired debt payments and leav e('ash available for reinvestment. 5,7,74-9 to make re- By using all the net cash income for loan payments, the machinery loan wvas repaid in 4 years. N'et cash income after 4 years was 28 ALABAMA AGRICULTURAL EXPERIMENT STATION 28 ALABAMA AGRICULTUL EPRMN TTO projected to remain constant at leaving $72,136 after the land loan payment available for reinvestient. The cash flows of two capital investment opportunities, a beef feedlot and a farrow-to-finish swine operation, were analyzed. Two decision criteria - short payback period and the amount of cash flows being stable over time - were defined and used as the basis for determining which investment should be chosen. The swine enterprise appeared favorable considering both criteria. The payback period was 3.5 yeais and (ash flows were stable and regular, providing a projected $57,023 net cash income per year after 3 years of operations. The beef feedlot did not appear favorable by either of the decision criteria (isctssed. The payback period was over 40 years and net cash income declined steadily from $32,809 in the second year to $338 in the fourth year. $103,837, CONCLUSIONS The cash flow statements dlemonstrated in this study should prove useful to Alabama faiincrs in helping improve financial management on the farni. Substantial savings in interest are possible by rsing cash flow statements, becanse theirnse permits borrowing operating capital when it is needed and iepaying the debt as receipts perimit rather than borrowing at the beginning of the year and r epaying the end of the year. Gash statenients also providle infor mation that cai assist farmers in determining financial weaknesses in the farm organization and planning possilble solutions, such as clhalning the enterpimix or chlanoing the timing of receipts and expenditures. Cash flow analysis can also reveal gr owth limiting factors 011 the farm. Information is provided on dr ains on (ash Iflow, such as income tax, and on the tiniing and allocation of available cash for reinvestment. Another possilble use of cash flow statements demonstrated in this stndy involv es using information about future cash flows of at flow alternative capital investmlent opportunities to assist the farmer in making tihe diecisioni acepelt or reject the investment. When certain dlecision criteiria are given, an analysis of the cash flow of the investmlent will indlicate whether tihe invxestment meets the criteria and should beC adceepted or rejected. Tihe cash flow also provides othler information that not be cdiiectly associated to may with the dlecisioni criteria bait may be helpful.i in evaluating the investment. CASH FLOW STATEMENTS AS MANAGEMENT TOOL 29 BIBLIOGRAPHY (1) BARRY, PETER J. 1970. Financial Management and Farm Planning Information: Some Implications for Research and Edncation. Canadian tural Economics. 18(3). (2) AND T. P. PHILLIL's. 1972. Measuring Cash ---------------------------- Jurnal of Agicul- Flows by FarmnType. Canadian Journal of Agricultural Economics. 20(2). (3) BELL, SIDNEY C. 1972. How to Project Yonr Bnsiness Year. Top. 0). 3:22. (4) HOPKIN, JOHN A., PETER J. BARRY, AND C. B. BAKER. 1973. Financial Management in Agriculture. The Interstate Printers and Publishers, Inc. Danville, Ill. (5) KLITKE, DARREL D. 1975. Operations Manual for the Oklahoma State Ujniversitv Enterprise Budget Generator. Okla. State Univ. Agr. Exp. Sta. Res. P-179. Rept. (6) ROGERS, HOWARD T. 1971. Soybean lProduction- Recent Rescarch Findings. Auburn. Univ. (Ala.) Agr. Exp. Sta. Bull. 413. (7) WILLETT, GAYLE 5. 1973. Financial-Economic Considerations of Alternative Farm Equipment Control Strategies: Example Comparison. Univ. of Ariiz. Mimeo. An n APPENDIX I APPENDIX TABLE 1. ANNUAL CASH FLOW STATEMENT FOR 80 Sow FARROW-TO-FINISH ENTERPRISE, FIRST Y EAR 0 IA Receipts and expenses Enterprise receipts Swine finishing, 1.0 unit 1 --------- Month Jan. Dol. Feb. Dol. MaT. Dol. Apr. Dol. May Dol. June Dol July TDol. 15,675 15,675 Aug. Dol. 15,675 15,675 Sept. Dol. Oct. Dol 15,675 15,675 Nov. Dol. 15,675 15,675 Dec. Dol. Total Dol. -I -a - z 62,700 62,700 CA TOTAL -------------- Enterprise expenses Swine finishing, 1.0 uniti Corn, 276 acres TOTAL 3-,058 -310 2,800 3,110 5,058 3,350 197 3,547 7,793 14,458 22,251 4,037 4,037 5,372 401 5,773 8,265 8,265 4,509 4,509 50 532 582 5,185 5,185 178 178 50 50 46,647 15,898 62,545 z z -a Cash balance beginning of mot th Receipts minus expenlses------ -5,058 Money borrowed -3,110) 3,110 -3,547 -22,251 22,251 -4,037 4,037 -5,773 5,773 7,410 6,336 1,073 11,166 10,903 262 -582 582 -10,490 10,115 375 13,497 15,378 119 -50 50 155 Payments on loan in mlonlth ----5,058 2 3,547 0 0 Interest paid ---Cash balance end of month -Accumulated buorrowinlg----- 5,058 8,168 11,715 33,966 38,003 43,776 37,439 26,535 27,117 17,002 1,624 1,674 1 Unit based on 80 lows. 2 Pay ments on operating loan only. w w~ AmPI' :mxI Receipts andl Cel)CV1SeS 'F uLE 2. Jain. ANNUAL CASiiIFLO STATEENT FOR 80-Sow Month FARROW-TO-FINIsI- ENTERPRISE, SECOND YEAR Feb. Mar. Apr. May June July Do!. 13,272 13,272 Aug. Sept. Oct. Nov. Dol. 13,200 13,200 Dec. Total Do!. Enterprise receipts Do!. Do!. Do!. 13,272 13,272 Dol. 14,180 14,180 Do!. Do!. 13,200 13,200 Do!. Do!. 14,112 14,112 Dol. Dol. Swine finishing, 1.0 unit' -----14,25 2 13,200 TOTAL Enterprise expenses Swvin finishin, 11,252 13,200 108,688 108,688 303 1.0 unit' Coin, 276 acres Cash balance beginning of 8,0(1 8,001 178 310 488 5(1 4,052 197 14(119 27 1,0 71 17,019 178 178 12,220 14,002 1,338 4,052 178 50 5,340 5,340 178 178 50 50 67,943 -3(1 401 1,739 26,222 -1,739 526 4,3 24,483 9,220 178 576 23,645 15,453 39,097 C mon th -------- 4,534 6,251 17,266 33,703 13,022 46,725 -576 46,149 8,772 54,921 13,022 Receipts minuils C- expenses ------ Mfoney horr owed in im oith __ ____ 12,712 -24, -4,799 67,893 C Paxmnents on loan2 Interest Cash paid balance -----23 4,554 17,266 17,019 12,220 26,222 24,483 1,674 m end of month -Accumulated borrowing 33,703 x 46,723 46,149 54,921 67,943 67,893 m m z V' 1 Unit based on 80 sows. 2 Payments on operating loan only. 0 Al'PFNDIX TABLE 3. ANNU~AL CASH FLOW STATEMENT FRO 2-SOW FARROW-TO-FINISH ENTIRPRISE, THIRD YEAR m 0 Receipts expenses and( Jan. Dol. Feb. Dol. Mar. Dol. Apr. Dol. May Dol. Month June July Dol. Dol. Aug. Dol. Sept. Dol. Oct. Dol. Nov. Dol. Dec. Dol. Total Dol. Enterprise receipts Swine finishing, 1.0 unlit'i TOTAL ------1,252 ------- 14,252 13,200 8,118 8,118 13,200 13,272 14,180 13,272 13,200 14,112 13,200 13,2 72 11,180 13,272 13,200 14,112 13,200 108,688 108,688 50 50 z -4 m Enterprise expenses Swine filuishiulg, 1.0 unit,------ 178 Corin, 276 acres __ TOTA -------Cash balnce Iheillliug of 310 188 30 197' 247 ,169 178 178 1,338 4,169 178 178 13,580 17,719 401 1,739 4,169 50 526 376 48,509 -- 576 5,457 5,457 178 178 24,114 15,014 39,128 mon01th ________ Receipts niinus Tolley 6,134 6,134 12,712 18,846 -217 18,599 -4,477 14,122 14,1102 28,124 26,385 9,103 35,487 13,022 -17,93-1 8,655 56,588 13,022 69,610 -50 z -4 69,560 -4 0 0 expenses _____1)01rowe d ill 111011th -1,739 26,385 ------ Pais tsO on1loanl2 111terest lbalante endc month _of Accumulated borrow~ing ----1 Cash paid -----6,134 18,846 18,599 14,122 28,124 35,487 48,509 47,934 56,588 69,610 69,560 Unit 2 Payment[s based on 80 sows. 01 opelrating loan onix. APPENDLX TABLE 4. ANNUAL CASH FL OW STATEMENT FOR 80-Sow FARROW-TO-FINISH ENTFRPRISE, FOURTH YEAR Receipts andi expenlses Enterprise receipts Swine finishing, 1.0 uniti TOTAL Jan. Dol. Feb. Dol. Mar. Apr. Dol. May Dol. Month June July Dol. Dol. Aug. Sept. Dol. Oct. Dol. Nov. Dol. Dec. Dol. Total Dol. -]I- Dol. Dol. 11,550 11,550 12,549 12,549 11,550 11,550 11,618 11,618 50 12,481 12,481 11,618 11,618 12,416 12,416 11,550 11,550 95,332 95,332 w Enterprise expenses S lie finishing, unit 1.0 -310 8,001 178 488 Corn, 276 acres TOTAL 4,052 13,231 17,283 15,363 178 1,338 ,0529 8,001 Cash balance beginning of month 197 247 15,610 178 178 27,829 178 9,699 401 1,739 22,002 4,052 20,263 50 526 576 39,201 5,340 5,340 38,625 178 178 50 50 57,073 23,645 14,664 38,309 4,548 11,062 Receipts minus cxl)cilSes- 45,701 11,372 8M -----4,518 C - Money l)orronweel il- nm onth -----Paxyments on loan ' lInterest paid ---Cash balance end of month -Accumulated b)orrOwing -247 -5,665 12,303 -1,739 7,566 11,372 -576 7,076 -50 57,023 C 2r 4,548 15,610 15,363 9,699 22,002 20,263 27,829 39,201 38,625 45,701 57,073 x 57,023 m m 1 Unit based on 80 lows. 2 Paymeents on operating loan only\. z -I z APPENDIX TABLE Receipts antd 5. Feb. ANNUAL CASH FLOW STATEMENT FOR 80-Sow FA\RROW-To-FINISH ENTEPRISE, FIFTH YEAR Month -TI 0 Aug. Dol. Sept. Dol. Oct. Dol. 12,116 12,416 Nov. Dol. 11,550 11,550 Dec. Dol. Total Dol. 95,332 95,332 expenses Enterprise receipts Swine finishing, Jan. Dol. Mar. Dol. Apr. Dol. May Dol. June Dol. July Dol. Dol. 11,550 11,550 1.0 uniti 12,549 TOTAL12,549 Enterprise expenses Swine fiuishing, 1.0 uniti 8,001 11,618 11 ,618 50 12,11 12,=181 11,618 11,618 1l,!O 11,550 178 178 27,829 11,372 z In Corn, 276 acres TOTAL Cash balance beginning of -310 8,001 178 488 4,052 13,231 17,283 15,363 -5,665 178 178 9,699 12,303 1,338 4,052 197 247 15,610 401 1,739 22,002 -1,739 4,052 20,263 7,566 526 576 50 5,3-10 178S 178 50 23,615 5,3-10 5(1 57,073 -50 11,664 38,309 z n~ m month_4,548 4,548 11,062 39,201 -57i6 Receipts minus expenses ------MoIneyhorrowed 38,625 45,701 7,07 -247 11,372 57,0)23 z 0 0 in month -----Payments on loan Interest paid ----4,518 15,610 15,363 9,699 22,002 20,263 27,829 39,201 38,623 r- Cash halance end of month --Accumulated borrowing _---' 15,701 37,073 57,023 Unit based on 80 sows. 2 Payments on operating loan only. Ui w APPENDIX Receipts and expenses Enterprise receipts TABLE 6. ANNUAL CASH FLOW STATFME-NT FOR 80-SoNY FARROW-TO-FINISH- ENTE RPRISE, SIXTH YEAR Month Jan. Dol. Feb. Dol. 11,550 Mar. Dol. Apr. Dol. 11.618 11,618 May Dol. 12,181 12,481 June Dol. July Dol. Aug. Dol. Sept. Dol. Oct. Dol. 12,416 12,416 Nov. Dol. 11,550 11,550 Dec. Dol. Total Dol. 93,332 95,332 Sine finishing, 1.0 unniti TOTAL12,549 11,618 11,350 11,530 12,549 11,550 11,618 Or Enterprise expenses Sws finishing, ine 1.0 uniti Corn, 276 acres TOTAL ---- 8,001 -310 -8,001 178 188 50 197 24 7 13,610 4,052 13,231 17,283 15,363 178 1,338 178 9,699 401 1,739 22,002 4,032 4,052 20,263 178 178 50 526 576 39,201 5,340 5,340 38,625 178 178 45,701 50 50 57,073 Cash balance beginning of month expenses ----- 23,645 14,664 38,309 Receipts minus 4,548 11,062 27,829 11,372 ------,548 -247 Money bor1rowsed in month -----Payments on loan Interest paid -- _Cash balance end of month -- -5,665 12,303 -1,739 7,566 -576 7,076 11,372 -50 57,023 I8x -I C I 'Ii C Accumulated horroxs ing 4,548 15,610 15,363 9,699 22,0102 20,263 27,829 39,201 38,625 45,701 57,073 57,023 m m ---- Z -O Zf 1 Unit based on 80 sows. 2Payments on operating loan onl\ L on APPENDIX TABLE 7. ANNUAL CASH FLOW STATEMENT FOR 480-HEAD FEFDLOT ENTERPRISE, FIRST YEAR 0 Receipts' anti expenses Enterprise receipts Feeders, 240 head-TOTAL.------------ Jan. Dol. Feb. Dol. Mar. Dol. Apr. Dol. May Dol. Month June July Dol. Dol. Aug. Dol. Sept. Dol. Oct. Dol. Nov. Dol. Dec. Dol. 111,090 111,090 Total Dol. 111,090 111,090 -a m z Enterprise expenses Feeders, 240 head-Corn, 239 acres LA Silage, 17 acies TOTAL ------- -290 -- 184 20 12 13,527 -310 196 14,365 18381 375 375 71,118 192 71,69"1 7,129 78,246 14,868 937 94,071 Cash balance 1eginning of m onth -------Receipts minus expe~nse --------- 7,129 z m 310 310 Money borrowedi in month -----Payments on loan' -196 196 -14,365 -375 375 -71,697 71,697 z 103,961 86,943 3,647 13,370 17,019 0 0 I-" 14,365 Interest paid ---Cash balance end of month -Accumulated borrowing 1 -310-- 506 14,871 14,871 15,246 15,246 15,246 86,913 86,943 86,943 Payments on operating loan only. w~ W Co 'ENDIX TABLE 8. ANNUAL CASH FLOW S1ATEMErNT FOR AIL 180-HiEAD FirmLOT ENTERPRISE, SECOND YEAR Receipts and expnlSS Jan. Month Feb. Mar. Apr. Dol. Max June Dol. July Dol. Aug. Dol. Sept. Dol. Oct. Dol. Nov. Dec. Dol. Total Dol. Dol. Enterprise receipts Feedlot l)ccf, 183 bhead TOTAL ------------Enterprise expenses Feedlot lbeef, 483 head ------------ 71,40-1 acres ---Con, Silage, 17 acres ---- Dol. Dol. Dol. Dol. 1060260, 106,26-106,2 106,260 106,260 212,520 259 7,129 29(1 20 310 181 12 196 13,116 811 13,927 71,669 375 375 11,038 10,663 71,669 10,663 TOTAL- Cash balance beginning of ------month Receipts minus expelnse -71,414 71,404 -310 2,830 192 87 3,109 7,129 7,129 160,160 1,158 929 175,547 G~1 C C 7,129 Money lborrowedI in month ----- -------71,404 310 -196 196 -13,927 99,131 -373 -71,669 61,006 -3,409 99,131 36,973 r- 13,927 3,409 Pay ments on loan' Inter est paid Casb balance endl of month -Accumulated borrowsing ----- 83,837 2,256 11,038 10,663 10,663 61,006 64,415 64,415 64,415 64,415 1,907 32,809 m rn 71,404 71,713 71,910 85,837 z -4 Of 1 Pay men ts on operating loan only. ZI A APPENDIX TABLE 9. ANNUAL CASH FLOW STATEMENT FOR 480-HEAD FEEDLOT ENTERPRISE, THIRD YEAR Receipts expenses andl Month Jan. Feb. Mar. Apr. May June July ~t~l~l~iuUln. I~~Lr, ~-1. ~-\NIYIJAL, ~IASHrl.()W ~I~I ATEMBhl~l ~nR 4nl~-nB.An Aug. r ~ Dol. Dol. Dol. Dol. Dol. Dol. Dol. Dol. 103,845 103,845 Sept. Dol. Oct. Do!. Nov. Do!. Dec. Enterprise receipts Feedlot l)eef, 183 head Total rrLirru Dol. Dol. 103,845 103,845 EE I II, - I OTIAL 207,690 207,690 I Enterprise expenses Feedlot leef, -183 head 76,47i5 Corn, 259 acres Silage, z 7,129 T071AL 17 290 20 acres ------- 76,4 Cashlbalance b~eginnIing 735 310 184 12 196 12,706 784 13,489 76,741 375 375 3,841 3,466 76,741 3,466 -76,741 73,275 7,129 2,830 492 87 3,409 7,129 7,129 170,303 14,017' 902 185,252 'I of 'Ii month -------Receipts mirns exp nlses -------- 76,475 Monley borrowedcc in month -----76,475 Payments 0n loan' Interest paid ---Cash halance z -3,409 3,409 96,716 76,684 2,275 22,438 r- -310 310 -196 -13,489 96,716 -375 196 13,489 90,470 2,405 3,841 3,466 3,466 end of month -Accumulated borrowing ----- 17,757 73,275 76,684 76,684 76,684 76,475 76,785 76,981 90,470 x Payments on operating loan only. 0 APPENDIX TABLL 10. ANNUAL CASH FLOW STATEMENT FOR 480-HEAD FEEDLOT ENTERPRISE, FOURTH YEAR Receipts andMot ezpeulSCS Jan. Feb. Mar. Do!. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total Dol. Enterprise receipts Do!. Do!. Do!. 101,430 101,430 Dol. Do!. Dol. Do!. Dol. Do!. Dol. 101,430 101,430 Do!. 202,860 202,860 Feedlot beef, 483 head -----Toi -\ - Enterprise expenses Feellot beef, Corn, 259aces-_ Silagea, 17 acres 79,856 Cash balance leginning of m on00th expenses -------- -183 head 79,856 290 20 310 184 12 196 7,129 12,379 80,122 375 375 80,122 762 13,141 7,129 2,830 492 87 3,109 7,129 7,129 177,065 13,720 880 191,666 Receipts minus -------\loney borr owed 79,856 in mouth -----Paymirents 01n loani -79,856 -310 -196 -13,141 94,301 -375 -80,122 80,122 -3,109 3,409 94,301 85,612 2,587 6,103 11,194 I c I- 310 196 13,141 91,797 2,504 375 Interest paid ---1 Cash balance end of monthu lad -F, bonrrowing ----- 'Ii 79,856 80,166 80,362 93,503 1,706 2,081 2,081 82,203 85,612 85,612 85,612 I-I ll 1 P~aymTents on operating loan only. -I I Z APPENDIX TABLEF 11. ANNUAL CASH FLOW STATEMENT FOR 180-HEXO Receipts and EEFDLOT ENTERPRISE, FIFH YEAR 0 I -I Month Jan. Dot. expen1ses Enterprise receipts Feedlot beef, Feb. Dot. Mar. Dot. Apr. Dot. May Dot. June July Aug~. Dol. Sept. Dot. Oct. Dot. Nov. Dot. Dec. Dol. Total Dot. I- Dot. Dol. 0n In 483 head Enterprise expenses Feedlot beef, head Corni, 259acesSilage, ares_ 103,845 103,815 103,845 103,845 207,690 207,690 187,208 13,720 880 201,809 4183 17 111 81,928 7,129 290 20 310 15-1 12 196 12,379 762 13,141 375 7,129 375 85,193 84,928 85,193 2,830 492 87 3,109 7,129 7,129 m z -I 0n Cash balance ley;nning of n11th -------Receipts minus -84,928 Mone) 1borriow ed in nents -310 31(0 -196 196 -13,141 13,141 96,716 94,060 2,616 -375 375 -85,193 85,193 -3,109 3,409 96,716 93,492 2,886 5,881 r- IIPa on loan' 8 4,928 lpaid Cash balance end of month -_ Accumulated Interest -l 85,237 loan only, 85434 98,574 borro0w5ing ----- 84,928 1 Paymnen ts on operatmg 4,514 4,890 4,890 90,083 93,492 93,492 93,492 .j APPENDIX TABLE 12. ANNUAL CASH FLOW STATEMENT FOR 480-HEAD FFEDLOT ENTERPRISE, SIXTH YEAR Receipts and expenses Enterprise receipts Feedlot Ieef, 183 head To[AL- Jan. Do!. Feb. Do!. Mar. Do!. Apr. Dol. May Do!. Month June July Dol. Do!. Aug. Dol. Sept. Do!. Oct. Dol. Nov. Dec. Dol. Total Dol. Do!1. 103,845 103,845 103,845 103,845 207,690 207,690 Enterprise expenses Feedlot beef, head 84,928 Corn, 259 acres _ -183 7,129 2Y90 184 Silage, 17 12,379 ares- 84,928 Cash balance begininlg ot 111011 thb expenses 20 310 12 196 762 13,141 3 75 375 85,193 85,193 7,129 2,830 492 87 3,409 7,129 7,129 187,208 13,720 880 201,809 C Receipts mlinlus -------------- 84928 81,928 -310 310 -196 196 -13111 13,141 9-6,716 91,060 2,656 -37 375 -85,193 -3,409 3,409 96,716 93,492 2,886 C 5,881 M~oney 1)orrowedc Pay ilnts Inter 85, 193 onl loan-' - est paid ----84,928 85,237 85,434 98,574 rn Cash balance end( of month Accumuclatedl boi rowinlg 4,514 4,890 4,890 90,083 93,492 93,492 93,492 z OI ZA 1 Payments on operating loan only. CASH FLOW STATEMENTS AS MANAGEMENT TOOL APPENDIX TABLE 13. CORN SILAGEF, EsTI I'o vimCOST 11iR AcRi:, 1 MANAGiEME'NTf lRAICTElS, ALA\BAMA, 1976 RECOMMENDED 4 43 Item Variable costs Preharvest Corn seed(I ---------------AirinoninIn nitrate Unit Rate D)ol. Quantity Amount Dol. iM achiner ' ------------------Tiracto s - ----- -..---- -- ---- Interest oin op)Ciating icalital Subtotal, lpreharvest -----H arves t \Iach inery ----------------Tractors ------------------Subtotal, harvest --------o TAT. ---------------Fixed costs \lach inert' ------------. P)hosph ate herlbicide Preinci ge ----------------- --------------- bu. Cwt. Cjwt. 1't. acre acr e dol. acire acre 29.0(0 6.75 7.5(0 100) .81 -.18 .09 1.29 .76 0.19 3.75 1.30 5.00 1.00 1.00 21.31. 1.00 1.0(1 5.51 25.31 9.75 5.00 .81 1.18 1.92 52.18 4.29 .76 5.05 57.53 12.69 T T riactors .11) T acre i--cre ---------.------------- I12(69 1.55 1.00 1.00 oi TAT. - - - - -- - - - - - - - - -- - - - - - al C OS'TS ----------------------120-(60-0, \laiengo Countx. 4.55 17-2-) 74.79 1Black Belt soil requiring 44 ALABAMA AGRICULTURAL EXPERIMENT STATION. 11i Es'i-I SIT i vCOSTIsS NO RiI Rt~NX R APFEND1x TABiL 14. CORN 1 RE COMMIENDED1 MANAGIEMENT PRACTICES, ALABAMA, 1976 Item GRAIN, ACRE, Unit. Rate Quantity Ainount Dol. Gross receipts C orn - - - - - - - -- - - - - - - - - - - - - - - - - - Dol. (6O.0( 150.00 1 50.0(0 5.22 25.31 .83 4.2-1 1.89 52.21 1.9(1 1.9(1 59.14 95.86 10.37 3.73 14.10 68.24 81.76 h«i. 2.5i0 Variable costs 1Preharx est C oin seed( -----1------Aniinonisioi nitrate -- -------------- Phosphate -------------- 1)11. cwt. cw t. eeilelge herbicide --1Pi lht. acrei acirc 29.0( 6.75 7.5(1 1.0(1 .83 .18 3.75 1.31) 1.00 20.98 1 .00 actossInterest on Subtotal, Harvest Mach inery' Subtotal, Incm 1.2-l 1.9(1 operating capital_ picharvest -----------------------barv est ---------- (101. acre .09 T O TFAL ----------_----IloveC abO~i variable costs--_- Fixed costs \Iacb i rx ---- ---------------T r actor s - - - - - - - - - - -- - - - - - - - - - T O SAL -- - ------------ acire acr e 10.37 3.73 1.00 1.00 1' OVAL COS vS -----------------Net returnus to land, labior, and management 1 Black Belt soil requir ing 12(1-(ill0, Mairengo County. CASH FLOW STATEMENTS AS MANAGEMENT TOOL APPENDIX TABLE 15. WI-EAT, ESTIMATED COSTS AND RETURNS PEIR ACRE, RFD~nMMI N~I)ID NIANAC;I NtI Ni PRA\CTICES, ALAIAMIA,' 1976 Item Unmit Rate Quantity 4 45 A mount Dot. Gross receipts W he a t -- - -- - - - - - -- - - - - - - -- - - - - V T OT[AL -------------------1bi1. Dol. 28.00 95).20 95.20 9.38 20.25 16.50 .16 .99 2.92 50.20 3.02 3.02 53.22 41.98 11.87 .88 12.76 65.98 29.22 3.40 Variable costs Preharvest XVheat sed(1 Am~nrI hium ------------------n itrate ------------ 1)1. c«' t. cwTt. acr e acre P hos 1 )hatec --------------------- \fa chlli nrsy ------------ -------T Iracto rs --- ---- - ----- ------ -- -inter est DD oper ating cap~ital Suohtotal, preharxest----------- 7.50 6.75 7.50 .1(i .99 .019 (10 1. 1.25 3.01() 2.20 1.00 1.00 392.-16 1.00 Hanvest Machinery --------------------Suobtotal, harvest ----------- _T OTAL --------------Incomre above variable costs ------- acre 3.02 Fixed costs M achinery ------------------------------ ---- I la c to ls --------------- ----- T OTAL adre acre 11.87 .88 1.00 1.00 TOTAL COSTS --------------------- Net returns to land, lalbor, andl nanagement 1 Black Belt soil requiring 100-100-0, Marengo County. 46 ALABAMA AGRICULTURAL EXPERIMENT STATION APPE NDIX TABLE 16. ESTIMA\TEDnCOSTS AND. RETURNS PER ACRE, 1 Rv-(oMvMINovo MANAGEMENTI 1R\C'IICI :S, \r \n\MA, 1976 TItem Unit Rate Quantity Amount SOYBEAXNS, Dol. Gross receipts Soy b~eans _--TOTiAL Ia1. .1. Dot. 30.00 135.00 135.0(0 9.00 12.75 5.00 5.00 8.00 .88 6.86 1.73 49.21 3.58 3.58 52.79 82.21 17.69 6.38 24.07 76.87 58.13 50 Variable costs 1Prehasx est Soyb e)an seed ---------------------P hosphate ----------------------P seem c ge ---------------- 1. cw~t. p t. t. 9.00 7.)0 2.50 2.5 ------- H erl)u(idle ------------------------ In secticide Ms achinci T ractors -----------------------Interest on operating cap~ital -----Subhtotal, 1pehin xest ----------Harvxest ----------------------Subtotal, harvest -------------T o v '-- -- - - -- - - --- - -- --.- - Income ahov evariable costs -------- ---------------------------------------------- 11). acreC acre dol. 2.00 .88 6.86 .09 3.5 0 1.00 1.70 2.00 2.00 4.00 1.00 1.00 19.20 1.00 M\achinery ---_ acr e Fixed costs M ach inery -------------------------acr e "1t racto r s - ---- -- --- - --- -- ----- -- -- - acre T OT AL ---- -- --- - - ---- --- -- 17.69 6.38 1.0(0 1.00 r1o IAI. COsS :Net r etmus to landi, labori, and management 1 Black Belt soil requiring 0-80-0, :Marengo County. CASH FLOW STATEMENTS AS MANAGEMENT TOOL APPENDIX 47 4 TABLE 17. No-TILL SOYBEANS, ESIiID Costs AN!) RETURNS PIE ACR!, RI COM\TVINOVD MA\NAGETMENT PRA\CI CES, ALAxNXM y 1976 Unit Rate Quan tity Amount Iterm Gross receipts Dol. So)beans - - - ---ToTAL Dol. 25.00 112.50 - -- - - - - b. 1.50 112.50 1)11. Variable costs Ireharv est Soylean seed--Phosphate .--P eeme h ebcd )icide ---- 9.0(0 7.50 cwt. P t. p)t. H erbicide ---------------- ---Insecticide -------------------M achinery --------------- ---T racto rs ------------------ --Interest on operating calpital-_Subtotal, preharvest--------Harvest 11). acre acre (1o1. acreC 2.50 2.50 2.00 .53 4.79 .09 3.58 1(.00 1.70 2.00 2.00 4.00 1.00 1.00 14.65 1.00 9.00 12.75 5.00 5.00 8.00 .53 4.79 1.32 46.40 3.58 3.58 47.98 62.52 15.29 4.58 19.86 69.84 42.66 M achinery --------------- ---- Subtotal, harvest-----------TO TA L ----------------- -- Income abov e variable costs----Fixed costs M achinery ----------------acre Tractors-acre T OTAL ---------------T OTAL COSTS ---------------------- 15.29 4.58 1.00 1.00 Net returns to land, labor, and management 1 Black Belt soil requiring 0-80-0, Marengo County. APPENDIX TABLE 18g. DALLISL;RASs (VIRsI I nil WITH RXI:CRASS, ElTsIMATED CosTS PER ACRE, RECOMME NDED M \N V!' NITN I PRACTICiES, ALAITANI A,1 1976 Item Unit Rate Dol. Quaintity Amount Dol. Variable costs edAmmronium nitrate -------- lw. cwt. -- P hosph ate ------------- ---- Machinery----Tractors Fixed costs Machinery acrte acre In~terest on operatin~g capital TOTAL dol. acre -acre 0.45 6.75 7.50 .93 3.23 .09 3.12 3.09 20.00 3.80 1.30 1.00 1.00 21.87 1.00 1.00 9.00 25.65 9.75 .93 3.23 1.97 50.54 3.12 3.09 6.21 56.74 T ractors TOTAL --------------------------------- COSTS---- 1 Black Belt soil, Marengo County. 48 48 ALABAMA AGRICULTURAL EXPERIMENT STATION DAxiiISGE ASS PASTUJRE, ANN UAL MAINTEINAN CE I11 NAGl IEN I PRACTIC1(1S, '. LAi XI A,7 x1976 API'i NDIX TABLE 19. 1 It em Variable costs Amm 1onI1inln11 COSTS PER ACRE, Amount Ri cnSIMN i) Unit Rate Dol. Quantity Dol. 1.80 1.30 1.00 1.00 8.34 1.00 1.00 12.15i 9.7> .42. 1.415 .75 24.53 1.98 1.39 3.37 29.70 I'hosph nitrate -------- cxs 1. ate ----------------Nlacnhiler) -----------T Iractor s -----------Ilnter est on opClratinig capital T O TA L (~WIt. ,lcr1e acr e (101. alcre 6.75 7.5(1 .129 1.45 .09 1.98 1.39 ---------------- Fixed costs M1achinery ---------------TII actors --- ---------TOTAL ----------r lI OI --- acreC 1 Black Belt soil requiring 60-60-0, Marengo County. APPENDIX TABILE 20. JOH-NSON(.RAs HAY, ESTIMATED COSTS PER ACRE, RECOMMENDED MAN AGEMEN T PRACTICES, ALABAMA,1 1976 Item Unit Rate Quantity Amount Dol. Variable costs Ammonium nitrate --------------Phosphate M achinery Vol. 6.00 1.30 1.00 ------------------------------------------------ cwt. cwt. acre 6.75 7.50 9.36 40.50 9.75 9.36 Tractors ------------------------- acre dol. 16.99 .09 1.00 20.27 16.99 1.82 Interest on operating capital --------- T OTAL -----------------------Fixed costs 78.43 acre acre M achinery T ractors ----------------------- ------------------- ----- 23.51 15.74 1.00 1.00 23.5 1 15.74 TOTAL ------------TOTAL COSTS ---------------------1 39.25 117.68 Black Belt soil, Marengo County. CASH FLOW STATEMENTS AS MANAGEMENT TOOL 4 49 APPENDIX TABLE 21. 80-Sow FARROW-TO-FINISH, ESTIMTTD COSsS AD RETUNS RECOMMENDED MANAGEEINT PRACTICES, ALABAMAx, 1976 Item Gross receipts Slaughter hogs' Sow s ---------- Unit Rate Dol. QuaDntity Am~ount Dol. 2,16 10.011 40.00 cwt. cwt. cwst. 17.50 30.00 12:5,100.00 Boar' TJOTAL ------------------------------ 20.00 54.1 1.01) 4,200.00 320.001 129,920.00 1 Variable costs C orn ----------------------------supplement ----- acre Protein :Cep --------------------------O ther Veteinary U tilities t. 8.5(1,1 11.13(1 co . (101------------------------1 .001)1,296.8(1 head CN o--------. cw 8.0) 1I 27(6.5( 1,878 . 1( 15027. 19 1 1,969.7 1 I, 753.1(1 suppllies -------------- ----h auling -------------__- 1 .00( 1,29(6.80) 1,023.00( 1,02. 1;3 1 1,363(1)01'36 1.001 Custom Interest on operating cap~ital (-------------------1o . 1.0(0 head .75 d----.09 '10 [AL ----------------------Income abhove var iahle cost Iol. (6(0.00 1,36(3.00 I11.390.3.5 (30.00 I 39,059..12 9(---------111 .09 .09 Fixed costs Interest on livestock capital on other equipment In terest Other 1)eIpeciation on boar ---- -----------ol. (101. 12,9741.99 2-1,946.0(1 1,1(37.75 2,2-15.11 Depreciation on other equipment_ fixed dol. 101------o. 162.50 2,649.35 mrachines, costs, and equipment -----dol. T OCOSTS --------------------A ---------------------- 1,716.21 47,030.37 7, . 4TOTAL Net returns to land, lab~or, and management 1 Per animal weights are 200 pounds 82,889.60 400 pounds for boars. for slaughter hogs, 350 pounds for sows, and 50 ALABAMA AGRICULTURAL EXPERIMENT STATION APPENDIX TABLF 22. STOCKERS, 14 HEAD, ESTIMATED COSTS AND RETURNS, RLCOINMNDID MANAGEMEN[ PRACTICES, ALABSAMA, 1976 Item Unit Rate Dol. Quantity Amount Dol. Gross receipts Steer calves' TOTAL cwt. 32.00 32.00 50.54 5.00 1.00 .50 .75 .75 1.00 14.00 14.00 9.30 .45 14.00 14.00 1.00 14.00 6.72 3,136.00 3,136.00 1,904.00 470.02 31.50 14.00 7.00 10.50 10.50 94.08 109.67 48.07 2.10 101.58 2,803.02 332.97 57.66 7.87 7.00 259.49 332.03 3,135.05 .95 Variable costs Steer calves-Pasture-acre Salt and minerals .-------Vetcrinarian Custom hauling cwt. -cwt. head h and medicine-head ___________________________--__ Chem icals ------------------------Custom haulingCustom hea -dol. Sales commission --------dol. Tiactors (fuel, lube, repairs) ------Machinery (tuel, lube, Tepairs) Equipment (fuel, lube, repairs) dol. dol. ~auling head a Interest on operating capital --------(101----o. .09 1,128.62 acre dol. TOTAL3 --------- Income above variable costs ------------- -- Fixed costs P asture -------------------Interest 00 other equipment Depreciation on other equipment Other fixed costs, machinery and equipment ---------- -------- --TO T A L ----- --dol. 6.20 .09 9.30 87.50 dol. TOTAL COSTS ----------Net retuins to land, labor, and management 1 Weight, 700 pounds each. 2 Weight, 425 pounds each. s Cost includes cutting hay after calves have been removed from pasture. CASH FLOW STATEMENTS AS MANAGEMENT TOOL APPENDIX TABLE 23. CovA -CALF, 30-Cow HERD, ESTIMATED COSTS AND RETURNS, RECOMMENDED MANAGEMLNT PRACTICES, ALABAMA,1 1976 Item Unit Rate Quantity 5 51 Amount Dol. Gross receipts Steer calves2 _____________________________t. 32.00 14.00 Heifer calves 2 ------cwt. cw-------------30.00 8.00 Cows2 -----------------------w t.2 2------5--------0 .,00.00 Dol. 1,904.00 960.00 1-----,1--189.00 __ H eifers2 .......................- -.... cwt. 27.00 1.00 Aged bull2 ---------------------------------------TOTAL-4,278.00 Variable costs Dallisgrass ---------------------------------------Johnsongrass hay Protein cwt. 25.00 25.00 .25 .96 125.00 720.00 ---------------------------------acre 78.00 .30 702.00 acre supplement cwt. Veterinarian and medicine dol. Salt and minerals ---------------------------------- cwt. Custom hauling -------------------------------------- dol. Sales commission ------------------- ----------------- dol. Equipment (fuel, lube, repairs) dol. Interest on operating capital dol. TOTAL-2,181.64 ------------ 7.50 -----------------1.80 1.00 --------------5.00 .44 3.00 405.00 90.00 --------------------.09 1.00 1.00 1.75 3.80 66.00 49.00 106.00 15.43 27.81 308.95 Income above variable costs Fixed costs Pasture _2,096.36 1.50 28.80 43.20 -----------------------------acre H ay --------------------------- -Interest on livestock capital Interest on other equipment ac-re dol. dol. 45.82 .09 .09 9.00 9,112.49 2,087.50 412.38 820.12 187.87 ------Depreciation on heef hull ---------Depreciation on other equipment-. Other fixed costs, machines and equipment ----- dol. dol. dol. 12.50 140.33 146.12 - --------- TOTAL -------------------------------TOT-AL COSTS ---------------------- Net returns to land, labor, and management 1 Dallisgrass pasture and winter hay feeding is basis for feeding herd. 1,762.54 3,944.18 333.82 animal weight is 425 pounds for steer calves, 400 pounds for heifer calves, 1,000 pounds for cows, 700 pounds for heifers, and 2,000 pounds for aged bull. 2 Per AUBURN UNIVERSITY With an agr icultural researcth unit in csciv U ' stc rsvcs najior soil are a, Auburn ITiixosit- the needs1 tit of field c(1(rop, liveC strN and horin stot k, foi ilturaiP prduer iii region in each Ibittl. Alaof 1 G ' (f * 5515 (itizeni the this State has a stiake in restiarci IINc since front program,Y aoN- advan tag o antd IV more ax S of , ecoiiomical produc~ltin g a11( handl1 ing~ benelhfits thet c onshlmling pulic. Research Unit Identification 14. 15. 16. 17. 18. 19. 20. 1. Tennessee Volley Substation, Belle Mina. 2. Send Mountain Substation, Crossville. 3. North Alobomo Horticulture Substation, Cuilman. 4. Upper Coostol Plain SuLstation, Winfield. 5. Forestry Unit, Fayette Couoty. 6. Thorsby Foundation Seed Stocks Form, Thorsby. 7. Chilton Area Horticulture Substation, Clonton. 8. Forestry Unit, Cooso County. 9. Piedmont Substotion, Comp Hill. 10. Plant Breeding Unit, Tollossee. 11. Forestry Unit, Autougo County. 12. Prottville Experiment Field, Prattville. 13. Block Belt Substotion, Morion Junction. Lower Coastol Plain Substation, Comden. Forestry Unit, Barbour County. Monroeville Experiment Field, Monroeville. Wiregros Substation, Headland. Brewton Experiment Field. Brewton. Ornamentol Horticulture Field Station, Spring Hill. Gulf Coast Substation, Fairhope.