Resume Wizard - Colorado FFA
Junior and Senior level Ag Bus. | |Colorado Agriscience Curriculum
|Section: |Advanced Agribusiness |
|Unit: |Agricultural Business Records |
|Lesson Title: |Balance Sheets |
|Colorado Ag Education Standards|AGB11/12.03 - The student will be able to formulate and analyze financial records and use the information for |
|and Competencies |evaluation and planning. |
| | |
| |Complete and analyze cash flow projections, income statements, and balance sheets. |
| | |
|Colorado Model Content | |
|Standard(s): |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. |
| | |
| |English Standard 4: Students apply thinking skills to their reading, writing, speaking, listening, and viewing |
| | |
| |English Standard 5: Students read to locate, select, and make use of relevant information from a variety of media, |
| |reference, and technological sources. |
| | |
|Student Learning Objectives: |Upon completion of this lesson the student will be able to: |
| |Define what a balance sheet is. |
| |State the three kinds of analysis to use on a balance sheet. |
| |State the three areas a balance sheet financially analyzes. |
| |Compile a balance sheet from a real farm business. |
|Time: |50 minutes |
|Resource(s): |2005 National Farm Business Management Test |
| |Farm and Ranch Management, John Deere |
|Instructions, Tools, Equipment,|Italicized words are instructions to the teacher, normal style text is suggested script. |
|and Supplies: |*1 copy/student of the scenario found in the unit 4-6 scenario. It might even be helpful to make single sided copies |
| |so that a student can analyze several bits of information at one time. |
| |*Blank piece of paper for interest approach. |
| |*Projector and whiteboard with markers. |
| |*Blank balance sheet forms attached at the end of this lesson. |
| | |
|Interest Approach: |Have students pick a certain farm or ranch scenario familiar to your community. Once students have decided on a |
| |scenario hand out a blank piece of paper to each student. Once each student has a blank piece of paper in front of |
| |them, have them write/draw an asset or liability that would be familiar to the type of business they have picked. |
| |Each item must be stated and have a value. For example 10 head of cows - $9,000. Operating note at bank – $20,000. |
| |The interest approach will proceed from here. |
| |Hello students!! Today we are going to explore the wonderful world of balance sheets. I know you may remember these |
| |from previous years, but we are going to go into more detail to make sure you really know this skill for your own |
| |business needs one day. First, when I say go, I need you, as a class, to come up with a farm business or ranch |
| |scenario that is familiar to this community. For example, if you all want to work with a wheat farm scenario all you |
| |have to is say wheat farm. If there are several ideas we will put them on the board and vote. I am going to give you|
| |1 minute. Go. |
| |Stop. Now that we have an idea, I am going to pass out a blank piece of paper to each of you. Once you have your |
| |piece of paper and I say go, you will have 1 minute to come up with an asset or liability that would be familiar to |
| |the farm business you have picked. For example your piece of paper may say 10 head of cows - $9,000 or operating note|
| |at bank - $20,000. If you have time you may draw a picture of your asset or liability. Are you ready? You have one |
| |minute, go. |
| |Stop. Now, when I say go, I need you all to stand up and I need you all to divide yourselves into asset and liability|
| |groups. The assets need to gather on one side of the room and the liabilities on the other. When I say go, you have |
| |15 seconds. Go. |
| |Review and discuss why each is an asset or liability. (See if students break into the right groups and use this |
| |teachable moment to reinforce the information) |
| |Great now that you are all divided, when I say, “divide further,” I want you to, as a group, to divide into current |
| |and non-current entities. Do not mix assets and liabilities still stay separate. When you are complete we should |
| |have 4 groups. You have 2 minutes, “Divide further.” |
| |Stop student and review and discuss why each is asset or liability is current or non-current. Make corrections as you|
| |go. |
| |Great! Now when I say, “Do your math,” you have 2 minutes to add your group’s total. Remember there should be four |
| |totals when we are done. “Do your math.” |
| |Stop. Now that you have done your math, when I say go I need a representative to write their groups total on the |
| |board. Make sure you label which group you are from. Go. |
| |Great! Now I need you all to sit down at your desk and each figure the net worth of this business for me. Remember |
| |the equation for net worth is assets – liabilities. You have 2 minutes, go. |
| |Stop. Let’s discuss your answers. Let’s also discuss why we have to divide assets and liabilities into current and |
| |non-current portions. |
| |What answers did you all get? Great, now I bet your wondering why we have to divide the balance sheet into current |
| |and non-current portions. You will see later today that several financial analysis procedures need to have current |
| |and non-current portions divided in order to tell what a business is doing right and what a business could do better. |
| |Let’s get out our notebooks so we can review further. |
|Objective 1: |Define what a balance sheet is. |
| |Utilize PowerPoint through lesson as it directly aligns with all note taking sections so you don’t have to write as |
| |much information on the board. |
| |What is a balance sheet? |
| |A balance sheet or commonly called “net worth statement” is a snapshot of a financial situation that lists assets, |
| |liabilities, and net worth. The accounting equation states that net worth = assets – liabilities. |
| |A balance sheet is further divided into current assets, current liabilities, non-current assets, and non-current |
| |liabilities in order to analyze a farm or ranch financially. |
| |Remember that current assets are those that have a useful life of one year. Example: Hay for cows. Current |
| |liabilities are those that are due within the current year. Example: Portion of term loan due this year. |
| |Remember that non-current assets are those that have a useful life of more than one year. Example: Tractor. |
| |Non-current liabilities are those that are due beyond the current year. Example: Portion of term loan due beyond |
| |this year. |
|Objective 2: |State the three kinds of analysis to use on a balance sheet. |
| |What are the three kinds of analysis to use on a balance sheet? |
| |Comparative analysis – Comparison of figures from the same dates each year to determine if the business equity is |
| |growing or shrinking. |
| |Projected analysis – This consists of making balance sheets for the future for expected farm situations and analyzing |
| |them to see probable trends. |
| |Ratio analysis – A tool to measure the financial condition of one farm business against another--using financial |
| |ratios. |
|Objective 3: |State the three areas a balance sheet financially analyzes. |
| |What are the three areas a balance sheet financially analyzes? |
| |Liquidity – The ability of a business to generate enough cash to pay bills without disrupting business. Liquidity |
| |measures determine the ability to meet short term debt and other obligations from available cash. Ratios that help |
| |determine liquidity are as follows: |
| |Current ratio = Current assets/Current liabilities. Therefore a ratio of $3.85:$1.00 means that there would by $3.85 |
| |worth of current assets for every $1.00 of current debt. This means that a business with this type of ratio would be |
| |liquid. |
| |Working capital = Current assets – current liabilities. Therefore a business that has $62,550 worth of current assets|
| |and $16,254 worth of current liabilities would have a working capital of $46,296. This is also a reflection of a |
| |business that is liquid. |
| |Debt Structure = Current Liabilities/Total Liabilities. The higher this percentage the more current assets will have |
| |to be used to service debt. |
| |Solvency – Measures the ability of all assets, if sold at market value, to cover all debts. A business is solvent if |
| |there are more assets than liabilities. Ratios that help determine solvency are as follows: |
| |Debt-to-Asset ratio = Total liabilities/Total Assets. Lenders usually prefer to provide loans that are equal to or |
| |less than 50% of assets. Therefore a ratio of .50:1 or less is preferred. |
| |Debt to Equity ratio = Total liabilities/Net Worth (Owner’s Equity). Lenders prefer a debt to equity ratio of less |
| |than one. This shows the owners contribution is more than the borrowed funds. |
| |Equity to Asset ratio = Net worth/Total assets. A ratio of .50:1 would mean that for every $1.00 of assets there is |
| |.50 in equity. |
| |C. Equity – The owner’s share of the business. |
|Objective 4: |Compile a balance sheet from a real farm business. |
| |Students will need to complete the beginning of the year balance sheet and end of the year balance sheet in order to |
| |complete the following income statement lesson. |
| |Now that we are through discovering the ins and outs of a balance sheet let’s get some hands on experience compiling |
| |and analyzing balance sheets for Tucker Farms. |
| |Use the attached forms to pass out and utilize in compiling balance sheets. |
|Review/Summary: |Close class with analyzing the ratios that were discovered in compiling the balance sheets. Ask if the business is |
| |liquid and solvent. Ask what the business could do to improve. |
|Application--Extended Classroom|Objective 4 works well as students are asked to compile a balance sheet from information retrieved from the farm |
|Activity: |scenario previously presented. |
|Application--FFA Activity: |This information was pulled from the national farm business management exam. This whole curriculum would be perfect |
| |to get a farm business management team started. |
|Application--SAE Activity: |Have students look at and analyze their own financial sheets in their own record books. |
|Evaluation: |Use the beginning balance sheet for practice. Use the ending balance sheet for an evaluation. |
|Evaluation Answer Key: |Attached. |
Balance Sheets
2004
Tucker Farm Business
Assets
Current Assets 1/1/04 12/31/04
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Total Current Assets _________________ __________________
Non-Current Assets
______________________________________________________________________________
Total Non-Current Assets __________________ __________________
Total Farm Assets ______________ ______________
Liabilities
Current Liabilities
_______________________________________________________________________________
Total Current Liabilities _________________ __________________
Non-Current Liabilities
Total Non-Current Liabilities _________________ __________________
Total Farm Liabilities _____________ ______________
Net Worth (Equity) _____________ ______________
Balance Sheets
2004
Tucker Farm Business
Assets
Current Assets 1/1/04 12/31/04
Bank Balance________________________$99,661.00__________________________$117,793.00__
Savings and CD’s____________________ $56,176.00__________________________$50,000.00___
Accounts Receivable__________________$8,376.00___________________________$3,900.00____
Crops and Feed Inventory______________$163,010.00_________________________$127,965____
Market Livestock Inventory_____________$50,839.00__________________________$64,590.00___
Prepaid Expenses___________________ $19,234.00__________________________$8,257.00____
Total Current Assets ______$397,276___ _______ $372,505.00__
Non-Current Assets
Machinery, Buildings, and Land________$626,546.00_________________________ $659,201.00__
Total Non-Current Assets ______$626,546.00_________________________$659,201.00__
Total Farm Assets _____$1,023,842.00_______________$1,031,706.00
Liabilities
Current Liabilities
Accounts Payable w/Merchants________$1,829.00__________________________$(50.00)________
Total Current Liabilities ______$1,829.00___ ______$(50.00)________
Non-Current Liabilities
Total Non-Current Liabilities ______$0.00_______ ______$0.00__________
Total Farm Liabilities ____$1,829.00__ ____-$50.00______
Net Worth (Equity) ____$1,022,013.00__ _____$1,031,756.00
Balance Sheet Ratios
1/1/04 12/31/04
Liquidity
Current Ratio_______________________________________________________________________
Working Capital_____________________________________________________________________
Debt Structure______________________________________________________________________
Solvency
Debt/Asset Ratio____________________________________________________________________
Equity/Asset Ratio___________________________________________________________________
Debt/Equity Ratio____________________________________________________________________
Is this business liquid?________________________________________________________________
Is this business solvent?______________________________________________________________
Balance Sheet Ratios
1/1/04 12/31/04
Liquidity
Current Ratio_____________________________217.22:1_____________________7450.10:1______
Working Capital__________________________395,467______________________372,555________
Debt Structure_________________________________1:1__________________________1:1______
Solvency
Debt/Asset Ratio__________________________.002:1________________________.000:1________
Equity/Asset Ratio_________________________.998:1_______________________1.000:1________
Debt/Equity Ratio__________________________.002:1________________________.000:1________
Is this business liquid?____________________Yes____________________________________________
Is this business solvent?___________________Yes___________________________________________
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