Management > Operational Benchmarking > Setting up and viewing financial ratios

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Setting up and viewing financial ratios

You can view a variety of financial ratios using the accounting information you’ve entered into AgExpertAnalyst. Financial ratios enable you to compare and evaluate the financial aspects of your business from one accounting period to the next. They can be used as a guideline to the profitability, solvency and liquidity of your operation according to the current status of your financial statements. 

To set up financial ratios:

1. Select Operational Benchmarking from the Management menu. The Operational Benchmarking dialogue box appears.

2. Select Financial Ratios from the menu panel on the left.

3. Specify the following:

  • Accounting - Select the Accrual or Cash check box. The accrual method includes all outstanding accounts receivable and accounts payable charges for the current year. The cash method includes the current balance of income and expense accounts for the current year.
  • As at date - Account balances as at the end of the specified date will be included on the report. You can enter a date or click the drop-down menu to choose one from the calendar. The as at date can only be set for book value ratios. Fair market value ratios always use the entire fiscal year for ratio calculations.
  • Accounts - Several financial ratios require specific account balances to ensure an accurate result.Click the link for each account classification and select the accounts that should be associated with it. Click OK when you’re done. 

Current assets – This includes unrestricted cash and any other assets that, in the normal course of operations, are expected to be converted into cash or consumed within one year (cash, accounts receivable, feed and other supply inventories, market livestock, produce and prepaid expenses).

Current liabilities – This is a liability (debt) that will be payable within the current year, such asaccounts, notes payable and the current portion of long-term debt (principal only) due in the upcoming fiscal period (including portions in arrears).

Cash equivalents – This includes any current asset that can be immediately converted into cash without disrupting normal operations (cash, accounts receivable, treasury bills and share certificates held for a relatively short period of time). 

  • Values - Select whether to use Book Value or Fair Market Value your report. The book value is the value of the asset’s purchase price less the total of all CCA expense claimed on the asset. The fair market value is your estimate of the asset’s current value in the marketplace.
  • Options - Select the Show five-year comparison to display a five-year comparison report based onthe options you’ve selected.

4. The following financial ratios will appear in the live results panel on the right: 

  • Acid Test or Quick Ratio - Liquidity – This measures the proportion of cash or cash equivalents to current liabilities. It measures your business’ liquidity in the form of its ability to meet current liabilities as they come due, regardless of sales.
  • Current Ratio - Liquidity - This measures your business’ ability to meet financial obligations as they come due without disrupting normal operations. A ratio of more than 1 means the business is considered liquid.
  • Debt Structure Ratio – Liquidity – This measures the proportion of the total debt due and payable within the current year. A high debt structure ratio may indicate liquidity problems.
  • Debt to Asset Ratio – Solvency - This measures the extent of creditor financing used by the business. It measures the proportion of total assets that are financed by debt. The higher the value of the ratio, the higher the financial risk.
  • Equity Ratio – Solvency – This measures the proportion of total assets financed by the owners. The higher the ratio’s value, the greater the proportion of financing supplied by the owners and the more solvent the business.
  • Debt to Equity Ratio – Solvency – This measures the extent to which creditors have financed the business compared to owners. The higher the value, the greater the proportion of financing that has been provided by the creditors.
  • Capital Turnover Ratio – Profitability - This indicates the extent a business uses its assets to generate revenue. The higher the ratio, the better the use of assets. 

5. Click Generate to display the report in the viewer. 

Last updated on November 18, 2014 by FCC AgExpert