Economic Benchmarks for Dairies: Eight Rules You Cannot Break
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An Employee-Owned Company Economic Benchmarks for Dairies: Eight Rules You Cannot Break
description
Gary Sipiorski presented this information for DAIReXNET on October 7, 2013. The full version is available at http://www.extension.org/pages/15830/archived-dairy-cattle-webinars.
Transcript of Economic Benchmarks for Dairies: Eight Rules You Cannot Break
An Employee-Owned Company
Economic Benchmarks for Dairies: Eight Rules
You Cannot Break
An Employee-Owned Company
Gary Sipiorski
An Employee-Owned Company
“You Can’t Break the Rules”
• 2:1 Liquidity
• 20% of Milk check to pay P&I
• 85% Expense Rate
• $3K-$5K Debt/Cow
• +30% Equity
• 3 Year Asset Turnover Rate
• 8% ROA (Profit)
• Know Your COP
An Employee-Owned Company
Liquidity
Current Assets
• Cash• Savings• Receivables ($ owed you)• Feed• Market Steers/Hogs• $2.00
Current Liabilities
• Payables over 30 days• Past due rents• Past due RE taxes• Principal due in next 12
months• $1.00
An Employee-Owned Company
Other Considerations
• Payables at 18% Interest
• Think About Fixing Interest Rates
An Employee-Owned Company
No More Than 20% of the Income for I&P
Payments
• 15% is better
• $250,000 $37,500/$50,000
• $1M $150,000/$200,000
• $2.5M $375,000/$500,000
An Employee-Owned Company
No More Than an 85% Expense Rate
• Expenses/Gross Income
• Less is Better
• $1,000,000 Income X 85% = $850,000
• 65% - 85%.........
An Employee-Owned Company
$ Debt/Cow
• $3,000 - $5,000
• $7,000 Max Special Terms
• Debt/CWT # of Milk $20/CWT
• Less is Better
• Is Borrowing money Bad?
• $1 Invested $1 Gross Income Each Yr
An Employee-Owned Company
At Least 30% Equity
• Net Worth/Total Assets
• $200k/$500k = 40%
• More is Better
An Employee-Owned Company
3 Year Asset Turnover
• Total Assets/Total Income
• $1M Farm/$350k Income = 2.8 years
• US Farm Average 4 years
• Low number Better 1.5 years
• How about high price land?
• What value should I put on land?
An Employee-Owned Company
8% Return on Equity (ROE)
• Net Income/Total Assets
• $80,000 Net/$1M Assets = .08 or 8%
• Higher Number is Better 15%....
• Earned Income not “Appreciated”
• After Family Living, Taxes, Other Expenses
An Employee-Owned Company
Know Your Cost of Production!
• All Expenses / CWT Milk Sold
• $400,000/23,000cwt = $17.39
• $16.50 - $21.00… Range
• 90% From Milk, Enterprise
• Cash COP = Expenses, Principal, FL
• Accrual COP = Expenses, Depreciation, FL
An Employee-Owned Company
Can I Bend a Few Rules?
An Employee-Owned Company
“You Can’t Break the Rules”
• 2:1 Liquidity
• 20% of Milk check to pay P&I
• 85% Expense Rate
• $3K-$5K Debt/Cow
• +30% Equity
• 3 Year Asset Turnover Rate
• 8% ROA (Profit)
• Know Your COP
