Looking to purchase a commercial poultry farm? One of the financial documents that can help you assess the business’ viability is a balance sheet.
Your passion, skills, and expertise are important to your success as a business owner. Still, you must do your due diligence to determine if the poultry farm you are considering purchasing is worth your investment. There are several financial reports to review, including the balance sheet. Let’s look at how it helps to illustrate the financial health of a business.
What is a Balance Sheet?
The poultry farm’s balance sheet is a snapshot of assets and liabilities at a single point in time. It provides information on what resources are available to the business and how those resources are financed. The bottom line is that the balance sheet can be a key element in helping you determine whether the poultry farm is a wise investment for you – or not:
- The balance sheet gives information on assets, equity, and liabilities. The basic formula is Assets=Liabilities + Owner’s Equity. A balance sheet is also known as “net worth” statement (If you subtract liabilities from assets, you find the equity value for the owner.)
- Critical information in any balance sheet is the information on cash, accounts receivable, short-term investments, land, grain, feed, flocks, inventory, equipment, and other significant liabilities.
- A balance sheet should always balance, meaning that assets should equal liabilities plus owners’ equity.
How to Read a Balance Sheet
It is time to break down what is included in a balance sheet and what each section means. The balance sheet provides significant insight into a farm’s fiscal health. A balance sheet has three sections: assets, liabilities, and equity:
1. Assets
Assets are anything owned by the company that could be converted into cash, called liquidation. Assets are usually positives on the balance sheet and are divided into current and noncurrent assets.
- Current assets can be converted into cash within a year, such as cash, marketable securities, inventory (crops, hay, young livestock to be sold within one year, etc .) and accounts receivables.
- Noncurrent assets, such as land or other real estate, breeding stock, equipment, and , other assets that are not expected to be converted within the year.
2. Liabilities
Liabilities are what a company owes, are obligated to pay, and are an inverse of the assets These are tallied against the balance sheet. Liabilities are also current or noncurrent.
Current liabilities include wages payable, debt financing, rents payable , utilities payable, accounts payable, and other costs.
Examples of noncurrent liabilities which are not due within a year could be obligations for future goods or services, leases, or loans.
3. Owner’s Equity
The owner’s equity is what remains when you subtract liabilities from assets. In summary, owner’s equity is anything belonging to the poultry farm’s owner(s) after any liabilities are accounted for.
