Resume Wizard - Colorado FFA



Junior and Senior level Ag Bus. | |Colorado Agriscience Curriculum

|Section: |Advanced Agribusiness |

|Unit: |Management of Agricultural Business Records |

|Lesson Title: |Analyzing Financial Statements - Ratios |

|Colorado Ag Education | |

|Standards and Competencies |AGB11/12.03 - The student will be able to formulate and analyze financial records and use the information for evaluation and |

| |planning. |

| | |

| |Use financial measures (ratios and trends). |

| | |

|Colorado Model Content |Math Standard 1: Students develop number sense and use numbers and number relationships in problem-solving situations and |

|Standard(s): |communicate the reasoning used in solving these problems. |

| | |

| |Math Standard 2: Students use algebraic methods to explore, model, and describe patterns and functions involving numbers, |

| |shapes, data and graphs in problem-solving situations and communicate the reasoning used in solving these problems. |

| | |

| |Math Standard 3: Students use data collections and analysis, statistics, and probability in problem-solving situations and |

| |communicate the reasoning used in solving these problems. |

| | |

| |Math Standard 6: Students link concepts and procedures as they develop and use computational techniques, including estimation, |

| |mental arithmetic, paper-and-pencil, calculators, and computers, in problem-solving situations and communicate the reasoning used|

| |in solving these problems. |

|Student Learning Objectives: |The student will define ratios. |

| |The student will understand why ratios are used in agriculture and life. |

| |The student will understand the algebraic concepts of creating ratios |

| |The student will understand how to compare financial ratios to make educated decisions and improve the health of an agricultural|

| |business. |

|Time: |50 minutes |

|Resource(s): |Casey, Jobes, Purcell, and Steward (1992). Farm and Ranch Business Management. Deere and Company Service Publications Department.|

| |Moline, Illinois. |

| |Doan’s Farm Management Guide 14th edition (1980), St. Louis, Missouri |

| |Decisions and Dollars (1993) National Council for Agriculture Education |

|Instructions, Tools, |Italicized words are instructions to the teacher, normal style text is suggested script. |

|Equipment, and Supplies: |Tools, Equipment, and Supplies |

| |PowerPoint Slides |

| |Handouts |

| |Quiz / Test |

|Interest Approach: |Today we are going to explore ratios and how they are used in agribusiness. |

| | |

| |First, let us get foundation knowledge of what ratios really are! |

| |The following is a definition of a ratio. Write this down, because you will need to remember it later. |

| | |

| |Move on to slide 2 |

| | |

| |A financial ratio is simply a comparison of two measurements of a business. These two measurements are expressed in terms of a |

| |ratio or one as a percentage of another. Each ratio is designed to highlight some particular phase of the financial condition of|

| |your business |

| | |

| |Before you go to the next slide, ask the students the following question. Have them answer in a quick draw format (one students |

| |answering after another. You will need to call on students to keep the pace up) write the ratios on the board. |

| | |

| |Now that you have the definition of a ratio, come up with some ratios that you may use everyday, in sports, or in other classes. |

| |(write these on the board) |

| | |

| |Move to slide 3 |

| | |

| |Ratios are used in many aspects of everyday life and finances. |

| | |

| |Ratios are everywhere in our lives, weather it is a batting average, fuel mileage in our vehicle, or our own net worth statement.|

| | |

| |Ratios drive us to perform better, strive to be the best, and outperform the competition. |

| |The same holds true in agriculture, ratios allow us to evaluate the performance of our enterprises and make educated decisions |

| |about our enterprises. |

| |Finally, ratios allow us to make educated decisions with the assistance of our financial advisor or loan officer concerning |

| |financing. |

| | |

| |Move to slide 4 |

| | |

| |The primary function of ratios is allow agriculturalists to keep track of finances without devoting a large amount of time to |

| |study of individual records. |

| |The maximum value of ratios occurs when a producer compares specific ratios over a period of years. This is the most effective |

| |way to measure the growth of your operation. |

| | |

| |Move to slide 5 |

| | |

| |How many of you would like to be a state champion in sports, academics, or FFA? Have students show by hands. You could even |

| |promote a conversation about competitiveness at this point. How many of you would like to own, operate, or work in a business |

| |that is successful? Ratios can fuel competition between teams, players, and producers. The list on the slide shows how ratios |

| |are used to improve a business or competition between businesses |

| |Average or Benchmark ratios are established in many financial scenarios. |

| | |

| |The benchmarks may be national, state, county, local, or personal. |

| | |

| |Also, ratios can be compared between one agriculture business and another. |

| | |

| |Now, let us get into the meat and potatoes of Agriculture Ratios! |

| | |

| |Move onto slide 6 |

| | |

| |The instructor needs to prepare themselves for this part of the lesson by reviewing the following ratios and understanding how |

| |the algebraic formulas work. At the end of the Ratio slides, relate the ratios to algebraic formulas. |

| | |

| |The following are examples of specific agriculture ratios, and their descriptions. |

| | |

| |Current Ratio |

| |One of the most used of all ratios. It measures Liquidity which is the ability to repay debt. (also used on the State and |

| |American FFA Degree on page10) the instructor may choose to pull up the Stat/American FFA Degree application so that the students|

| |can see exactly where the ratio is. |

| | |

| |Move to slide 7 |

| | |

| |Example of a Current Ratio: |

| | |

| |Total Current Assets |

| |Current Ratio = ------------------------------ |

| |Total Current Liabilities |

| | |

| |$59,127 |

| |$2.15 to $1 = -------------- |

| |$27,524 |

| | |

| |In other words this operation has $2.15 of current assets to cover each $1 of current debt. |

| |On a side note, most lenders consider a current ratio of 2:1 good. On the other hand a ratio of less than 1:1 could mean that a |

| |business is in serious financial trouble. |

| | |

| |Move to slide 8 |

| | |

| |Debt-to-Equity Ratio |

| |Otherwise known as leverage, it relates total debt to net worth. It reflects the soundness of your business. (Also used on the |

| |Sate and American Degree on page 10) |

| | |

| |Move to slide 9 |

| | |

| |Example of a Debt-to-Equity Ratio: |

| | |

| |Total Liabilities |

| |Debt-to-Equity = ----------------------- |

| |Net Worth |

| | |

| |$50,000 |

| |$2 to $1 = ----------------- |

| |$25,000 |

| |In this scenario the ratio is 2:1, this means that creditors have $2 invested for every $1 the producer has put into the |

| |business. The higher the ratio, the larger the share creditors have in your operation’s assets. This could mean a greater risk |

| |of exposure to both the creditors and yourself. |

| | |

| |Move to slide 10 |

| | |

| |Profit to Gross Income Ratio |

| |This ratio relates the volume of your operation to the Profit (net income) otherwise known as “take home” income. |

| | |

| |Move to slide 11 |

| | |

| |Example of Profit to gross income ratio: |

| | |

| |Profit (net income) |

| |Profit to Gross Income = ------------------------- |

| |Gross Income |

| | |

| |$75,000 |

| |$.50 to $1 = ---------------------- |

| |$150,000 |

| |This example shows that it took $1 of gross income (the measure for volume of a business) to produce $.50 in profit (otherwise |

| |know as take-home income). |

| | |

| |So now that we have discussed specific ratios, let us use one of those ratios to show how the health of a business can improve |

| |over time and how we can use ratios to evaluate the health of that business. Move to slide 12 |

| | |

| | |

| | |

| |The following is an example of how an agriculture business’s Debt to equity Ratio improved over time. |

| | |

| |2004 2005 2006 2007 |

| |2:1 2:1.1 2:1.4 2:1.7 2:1.9 |

| | |

| |As you can see in the above example, this producers Debt to Equity Ratio or leverage improved over the five-year span. This |

| |improvement shows that the business is getting healthier. A healthier business means more profit in the long run. |

| | |

| |Move to slide 13 |

| |Read the following list to the students and encourage them to add specific agriculture ratios to this list. |

| |Bushels per acre |

| |Ears of Corn per plant |

| |Blossoms per flower |

| |Lambs per ewe |

| | |

| |Move to slide 14 to wrap it up |

| | |

| |Now let’s summarize what Ratios can do for us as agriculturalists. |

| |Assess or measure individually and relation to others |

| |Compare measures with known benchmark |

| |Calculate measures using good information |

| |Use measures to evaluate past, present, and future |

| | |

| | |

|Objective 1: |The student will define ratios. |

| |First, let us get foundation knowledge of what ratios really are! |

| |The following is a definition of a ratio. Write this down, because you will need to remember it later. |

| | |

| |Move on to slide 2 |

| | |

| |A financial ratio is simply a comparison of two measurements of a business. These two measurements are expressed in terms of a |

| |ratio or one as a percentage of another. Each ratio is designed to highlight some particular phase of the financial condition of|

| |your business |

| | |

| | |

|Objective 2: |The student will understand why ratios are used in agriculture and life |

| |Before you go to the next slide, ask the students the following question. Have them answer in a quick draw format (one students |

| |answering after another. You will need to call on students to keep the pace up) write the ratios on the board. |

| | |

| |Now that you have the definition of a ratio, come up with some ratios that you may use everyday, in sports, or in other classes. |

| |(write these on the board) |

| | |

| |Move to slide 3 |

| | |

| |Ratios are used in many aspects of everyday life and finances. |

| | |

| |Ratios are everywhere in our lives, whether it is a batting average, fuel mileage in our vehicle, or our own net worth statement.|

| | |

| |Ratios drive us to perform better, strive to be the best, and outperform the competition. |

| |The same holds true in agriculture, ratios allow us to evaluate the performance of our enterprises and make educated decisions |

| |about our enterprises. |

| |Finally, ratios allow us to make educated decisions with the assistance of our financial advisor or loan officer concerning |

| |financing. |

|Objective 3: |The student will understand the algebraic concepts of creating ratios |

| |Now, let us get into the meat and potatoes of Agriculture Ratios! |

| | |

| |Move onto slide 6 |

| | |

| |The instructor needs to prepare themselves for this part of the lesson by reviewing the following ratios and understanding how |

| |the algebraic formulas work. At the end of the Ratio slides, relate the ratios to algebraic formulas. |

| | |

| |The following are examples of specific agriculture ratios, and their descriptions. |

| | |

| |Current Ratio |

| |One of the most used of all ratios. It measures Liquidity which is the ability to repay debt. (also used on the State and |

| |American FFA Degree on page10) the instructor may choose to pull up the State/American FFA Degree application so that the |

| |students can see exactly where the ratio is. |

| | |

| |Move to slide 7 |

| | |

| |Example of a Current Ratio: |

| | |

| |Total Current Assets |

| |Current Ratio = ------------------------------ |

| |Total Current Liabilities |

| | |

| |$59,127 |

| |$2.15 to $1 = -------------- |

| |$27,524 |

| | |

| |In other words this operation has $2.15 of current assets to cover each $1 of current debt. |

| |On a side note, most lenders consider a current ratio of 2:1 good. On the other hand a ratio of less than 1:1 could mean that a |

| |business is in serious financial trouble. |

| | |

| |Move to slide 8 |

| | |

| |Debt-to-Equity Ratio |

| |Otherwise known as leverage, it relates total debt to net worth. It reflects the soundness of your business. (Also used on the |

| |Sate and American Degree on page 10) |

| | |

| |Move to slide 9 |

| | |

| |Example of a Debt-to-Equity Ratio: |

| | |

| |Total Liabilities |

| |Debt-to-Equity = ----------------------- |

| |Net Worth |

| | |

| |$50,000 |

| |$2 to $1 = ----------------- |

| |$25,000 |

| |In this scenario the ratio is 2:1, this means that creditors have $2 invested for every $1 the producer has put into the |

| |business. The higher the ratio, the larger the share creditors have in your operation’s assets. This could mean a greater risk |

| |of exposure to both the creditors and yourself. |

| | |

| |Move to slide 10 |

| | |

| |Profit to Gross Income Ratio |

| |This ratio relates the volume of your operation to the Profit (net income) otherwise known as “take home” income. |

| | |

| |Move to slide 11 |

| | |

| |Example of Profit to gross income ratio: |

| | |

| |Profit (net income) |

| |Profit to Gross Income = ------------------------- |

| |Gross Income |

| | |

| |$75,000 |

| |$.50 to $1 = ---------------------- |

| |$150,000 |

| |This example shows that it took $1 of gross income (the measure for volume of a business) to produce $.50 in profit (otherwise |

| |know as take-home income). |

| | |

| |So now that we have discussed specific ratios, let us use one of those ratios to show how the health of a business can improve |

| |over time and how we can use ratios to evaluate the health of that business. |

| | |

|Objective 4: |So now that we have discussed specific ratios, let us use one of those ratios to show how the health of a business can improve |

| |over time and how we can use ratios to evaluate the health of that business. Move to slide 12 |

| | |

| | |

| | |

| |The following is an example of how an agriculture business’s Debt to equity Ratio improved over time. |

| | |

| |2004 2005 2006 2007 |

| |2:1 2:1.1 2:1.4 2:1.7 2:1.9 |

| | |

| |As you can see in the above example, this producers Debt to Equity Ratio or leverage improved over the five-year span. This |

| |improvement shows that the business is getting healthier. A healthier business means more profit in the long run. |

|Review/Summary: |Now let’s summarize what Ratios can do for us as agriculturalists. |

| |Assess or measure individually and relation to others |

| |Compare measures with known benchmark |

| |Calculate measures using good information |

| |Use measures to evaluate past, present, and future |

|Application--Extended |Option 1 – Have students Open their Record Books and develop the three ratios from their records that were presented in the |

|Classroom Activity: |lesson. Have them develop a two-minute speech about their ratios and a justification of their ratios. This can either be turned|

| |into you as the teacher or presented in front of the class. |

| |Option 2 – Have the students develop a top ten list of the most important ratios in developing the health of an agribusiness. |

| |Have them relate this to their SAE. |

|Application--FFA Activity: |Have students research and use specific ratios that will improve the FFA Chapter. Examples are: |

| |Males to females, males to females in leadership positions, amount of community activities to chapter |

| |Development activities to member development activities. |

|Application--SAE Activity: |Have students research and use specific ratios that will improve their individual SAE projects. |

| |These could also be later used in proficiency applications. |

|Evaluation: |Name:___________________ |

| |Date:__________________ |

| | |

| | |

| |1) What is the definition of a ratio? |

| | |

| | |

| | |

| |2) The _____________________________of ratios is allow agriculturalists to keep track of finances without devoting a large amount|

| |of time to study of individual records. |

| | |

| |3) The ______________________________ of ratios occurs when a producer compares specific ratios over a period of years. This is |

| |the most effective way to measure the growth of your operation. |

| | |

| |4) One of the most used of all ratios. It measures Liquidity which is the ability to repay debt. (also used on the State and |

| |American FFA Degree on page10). |

| | |

| |Profit to Gross income Ratio |

| |Debt to Equity Ratio |

| |Current Ratio |

| | |

| |5) Otherwise known as leverage, it relates total debt to net worth. It reflects the soundness of your business. (Also used on |

| |the Sate and American Degree on page 10) |

| | |

| |Debt to Equity Ratio |

| |Current Ratio |

| |Profit to Gross income Ratio |

| | |

| |6) This ratio relates the volume of your operation to the Profit (net income) otherwise known as “take home” income. |

| | |

| |Current Ratio |

| |Profit to Gross Income Ratio |

| |Debt to Equity Ratio |

| | |

| |7) Figure the Following Current Ratio: |

| |Farmer Aggie is trying to determine her current ratio. She has the following information prepared: Her total current assets |

| |equal $103,240. Her total current liabilities equal $51,346. What is her current Ratio? ( Show all math below, circle your |

| |answer) |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| |8) Figure the Following Debt to Equity Ratio: |

| | |

| |Farmer Scout is trying to determine his debt-to-equity ratio. He has the following information prepared: His total liabilities |

| |equal $221,923. His total Net Worth equals $99,999. What is his Debt-to-Equity Ratio? ( Show all math below, circle your |

| |answer) |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| |9) Figure the Following Profit to Gross Income Ratio: |

| | |

| |Alfred the Greenhand is trying to determine his Profit to Gross Income ratio. He has the following information prepared: His |

| |total gross income for the year from his Fishing Guide Service Entrepreneurship SAE equals $81,003. His total Profit for the |

| |year equals $31,444. What is his Profit to Gross Income Ratio? ( Show all math below, circle your answer) |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| |10) True or False (Circle One) |

| | |

| |The following agriculture business’s Debt to equity ratio improved over time. |

| | |

| |2004 2005 2006 2007 |

| |2:1 2:1.1 2:1.4 2:1.7 2:1.9 |

|Evaluation Answer Key: |Name:___________________ |

| |Date:__________________ |

| | |

| | |

| |1) What is the definition of a ratio? |

| | |

| |A financial ratio is simply a comparison of two measurements of a business. These two measurements are expressed in terms of a |

| |ratio or one as a percentage of another. Each ratio is designed to highlight some particular phase of the financial condition of|

| |your business |

| | |

| |2) The primary function of ratios is allow agriculturalists to keep track of finances without devoting a large amount of time to |

| |study of individual records. |

| | |

| |3) The maximum value of ratios occurs when a producer compares specific ratios over a period of years. This is the most |

| |effective way to measure the growth of your operation. |

| | |

| |4) One of the most used of all ratios. It measures Liquidity which is the ability to repay debt. (also used on the State and |

| |American FFA Degree on page10). |

| | |

| |Profit to Gross income Ratio |

| |Debt to Equity Ratio |

| |Current Ratio |

| | |

| |5) Otherwise known as leverage, it relates total debt to net worth. It reflects the soundness of your business. (Also used on |

| |the Sate and American Degree on page 10) |

| | |

| |Debt to Equity Ratio |

| |Current Ratio |

| |Profit to Gross income Ratio |

| | |

| |6) This ratio relates the volume of your operation to the Profit (net income) otherwise known as “take home” income. |

| | |

| |Current Ratio |

| |Profit to Gross Income Ratio |

| |Debt to Equity Ratio |

| | |

| |7) Figure the Following Current Ratio: |

| |Farmer Aggie is trying to determine her current ratio. She has the following information prepared: Her total current assets |

| |equal $103,240. Her total current liabilities equal $51,346. What is her current Ratio? ( Show all math below, circle your |

| |answer) |

| | |

| | |

| | |

| | |

| | |

| |Total Current Assets |

| |Current Ratio = ------------------------------ |

| |Total Current Liabilities |

| | |

| |$103,240 |

| |$2.01 to $1 = -------------- |

| |$51,346 |

| | |

| | |

| |8) Figure the Following Debt to Equity Ratio: |

| | |

| |Farmer Scout is trying to determine his debt-to-equity ratio. He has the following information prepared: His total liabilities |

| |equal $221,923. His total Net Worth equals $99,999. What is his Debt-to-Equity Ratio? ( Show all math below, circle your |

| |answer) |

| | |

| | |

| | |

| |Total Liabilities |

| |Debt-to-Equity = ----------------------- |

| |Net Worth |

| | |

| |$221,923 |

| |$2.219 to $1 = ----------------- |

| |$99,999 |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| |9) Figure the Following Profit to Gross Income Ratio: |

| | |

| |Alfred the Greenhand is trying to determine his Profit to Gross Income ratio. He has the following information prepared: His |

| |total gross income for the year from his Fishing Guide Service Entrepreneurship SAE equals $81,003. His total Profit for the |

| |year equals $31,444. What is his Profit to Gross Income Ratio? ( Show all math below, circle your answer) |

| | |

| | |

| |Profit (net income) |

| |Profit to Gross Income = ------------------------- |

| |Gross Income |

| | |

| |$31,444 |

| |$.388 to $1 = ---------------------- |

| |$81,003 |

| | |

| |10) True or False (Circle One) |

| | |

| |The following agriculture business’s Debt to equity ratio improved over time. |

| | |

| |2004 2005 2006 2007 |

| |2:1 2:1.1 2:1.4 2:1.7 2:1.9 |

| | |

| | |

| | |

| | |

|Other: | |

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download