Standardized Financial Benchmarks for Canadian Farm Financial Statements
Larry Martin and Joerg Zimmermann
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Lack of standardization with respect to financial benchmarks can impede farm financial management, because it limits the ability of farmers to understand their performance, diagnose performance issue and focus on what needs improving.
Continuing Agri-Food Management Excellence’s (AME) commitment to helping improve financial management practices on farms, Dr. Larry Martin, AME Principal has collaborated with Joerg Zimmermann, Principal, GlobalAgAdvisors and BDO Canada to introduce standardized benchmarks for farm financial performance. They recently released the report: Standardized Financial Benchmarks for Canadian Farm Financial Statements.
The objective of the paper is to determine whether there is a relationship between specific financial benchmarks and relative farm profitability. The goal is to provide producers with a standardized model they can utilize with their own financial data, as well as ratios that they can use to ascertain areas in need of scrutiny.
Actual farm records, provided by BDO Canada, were segmented on the basis of profitability, measured by earnings per dollar of sales and earnings per dollar of assets. Both measures identified essentially the same farms as the most profitable when arrayed into quartiles from most profitable to least profitable. Then, organizing the operating statement based on five cost categories that apply to all types and sizes of farms, a series of ratios were calculated and the results related to profitability. The results show a strong correlation with overall profitability and provide an excellent basis on which to assess management performance.
“This structure provides prospective benchmarks that help farmers assess their performance and identify the management practices that are working and those that need improvement,” says Larry Martin, Principal of AME and co-author of the paper. “If you can’t measure it, you can’t manage it.”
Joerg Zimmermann, co-author and Principal of Global AgAdvisors Ltd. adds “from the strong evidence provided by this pilot project, our next step is to extend it to a larger sample, which will confirm or improve the benchmarks and allow us to test how they differ by type of farm, region and size of operation.”
Key words: Financial Management; Benchmarking; Management Training.
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