For ranchers: financial statements, ratios explained

 

Red angus calf stands in front of black angus mom.
Financial measurements can help guide ranch management decisions. UW Photo: Chavawn Kelley

While most ranchers state that profit is not their only motive for ranching, a ranch that is profitable is more likely to be sustainable over time, write John Ritten and Bridger Feuz in “Understanding Ranch Financials,” a new publication from UW Extension.

“Understanding Financial Statements” and “Calculating and Interpreting Financial Ratios to Gauge Ranch Business Health and Guide Management Decisions” offer a practical approach to the bigger financial picture. Both are free at bit.ly/UWEpubs.

Ritten is an extension specialist in the Department of Agricultural and Applied Economics, and Feuz is the UW Extension livestock marketing specialist.

“Understanding Financial Statements” describes how to use the balance sheet, income statement, and cash flows. Ritten and Feuz recommend examining these essential statements at least once a year, as each gives insight into different aspects of the financial health of the operation. An accountant or financial professional already employed by the ranch should be able to prepare them.

“Calculating and Interpreting Financial Ratios to Gauge Ranch Business Health and Guide Management Decisions” describes key indicators of liquidity, solvency, and income that can be calculated from standard financial statements.

While the authors say ratio analysis can provide a powerful approach to business management, they also offer these caveats:

  • Remember, no single ratio provides all the information needed to make good decisions.
  • Whether a ratio falls where you want it or not, don’t stop watching it.
  • Ratios are information only. YOU decide what action to take in response.

“The success of your ranch can be measured many ways, but the longevity of your enterprise is most likely to be determined by its financial success,” say Ritten and Feuz. “Knowing how to measure financial success can help guide management decisions you are contemplating.”

For more information, contact Ritten at 307-766-3373 or john.ritten@uwyo.edu.

These how-to guides are among many from UW Extension that help extend skills in grazing, cropping, pruning, canning, habitat restoration and more. See bit.ly/UWEpubs. Find a comprehensive set of practical tools for Wyoming ranchers at bit.ly/WYRanchtools. YouTube video series from UW Extension include Barnyards and Backyards, From the Ground Up and Exploring the Nature of Wyoming.