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Which financial analysis tool is best?

by | Jan 5, 2021

FINPACK’s agricultural credit analysis suite of tools includes several options for completing financial analysis on your farm and ranch customers.  These tools help you as a lender look at the past performance of the farming operation when considering the farm’s annual renewal.  Each of these tools can help evaluate profitability and farm financial performance trends of the operation over time.  FINPACK is a bit like a Swiss army knife, it has lots of tools available.  You choose which of these tools is best for you, your customers, and the credit situation. Let’s take a look at each of these tools and when they are best utilized.

Earned Net Worth Analysis

FINPACK’s Earned Net Worth Analysis helps you easily and accurately evaluate true earned net worth change between any two balance sheets.  FINPACK’s Earned Net Worth Analysis should be used when complete year-end, cost, and market based financial statements aren’t available.  When this is the case, net worth change is often the best indicator of financial performance.  But, as a lender, you want to make sure net worth increases aren’t comprised of asset valuation increases.  Therefore, the Earned Net Worth Analysis backs out asset valuation changes to arrive at true earned net worth.  In addition, term debt coverage is calculated for the period as part of the analysis.  And, net farm income is an optional calculation that can be derived from minimal additional data entry.  Some FINPACK users actually prefer the Earned Net Worth Analysis and feel this tool provides the most accurate analysis.  Why?  Details like family living draw, which are hard to get from customers, aren’t needed.  All the activities of the past year are wrapped up in earned net worth, and we don’t need detailed information to calculate it.

Schedule F Cash to Accrual Analysis

At a minimum, most lenders ask for a year-end balance sheet and Schedule F tax return from customers each year.  These are important documents, but how are they best analyzed for creditworthiness?  FINPACK’s Schedule F Cash to Accrual Analysis uses fiscal year balance sheets, the Schedule F tax return, and a few other pieces of information to generate an accrual analysis.  (Learn why the FINPACK Team feels accrual analysis is superior to tax return based cash analysis alone.)  The Sch. F Cash to Accrual analysis generates a detailed look at accrual adjusted net farm income.  The net farm income is then used to calculate all 21 ratios and measures recommended by the Farm Financial Standards Council, as well as earned net worth change.  The analysis includes spreads to evaluate performance over multiple years for the farming operation, as well as how the operation compares to industry averages.  The key to completing this tool is beginning and ending fiscal year-end balance sheets that align with the Sch. F tax return.  Therefore, analysis timing and the type of information received from customers will drive whether this is the best analysis tool for you and your customer.

Global Cash Flow

The FINPACK Global Cash Flow analysis uses tax returns for each business entity and individual related to the borrowing relationship.  This tool uses the tax return information to evaluate the repayment ability for each of the businesses, individuals, and guarantors involved.  Global debt coverage is also calculated for the combined entities and individuals/guarantors included in the analysis.  This tool provides a powerful analysis when a multi-entity, multi-individual credit needs to be analyzed.  The global cash flow allows the lender to look at the combined sources and uses of cash for these more complex borrowing relationships.  In addition, the analysis can easily add projected new income and/or proposed new debt payments to consider different scenarios for the borrowing relationship.

FINAN Financial Analysis

The Financial Analysis (FINAN) tool in FINPACK is available for lender use in FINPACK as well.  This is a more detailed analysis tool that allows for both whole-farm and enterprise-level analysis of profitability.  Because of the time and additional detailed information needed to complete the analysis, we don’t see many of our FINPACK lenders utilizing this tool.  With that being said, many of our legacy customers understand and utilize FINAN for their farm customer past performance analysis, as this is the premier FINPACK tool our software system was built upon.  If you desire a detailed look at a customer’s financial performance, this tool will provide just that.  Many of our lenders have the luxury to partner with farm business management education programs in their area to get this detailed analysis completed on their customers.  FINAN provides powerful information, the limiting factor is often the time and effort needed to complete this thorough analysis.


We hope you now better understand the suite of farm financial analysis tools available in FINPACK.  Each of these FINPACK tools has its place, depending on timing, borrower information received, and borrowing situation.  Determining which tool best meets your needs as a lender is the key.

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