United States

Department of

Agriculture

Rural BusinessCgccyE&ive

FIBS Research

Report 154

USDA

=a

Analysis of

Financial Statements:

Local Farm Supply,

Marketing Cooperatives
This report analyzes the balance sheets and income statements of local farm supply

and marketing cooperatives, comparing 1995 and 1994 and trends over the past 10

years. The data in this report represent four cooperative sizes and types. Common

size income statements and balance sheets are used to compare different cooperative

sizes and types. Trends for major balance sheet and income statement items and ratio

analysis are used to compare and contrast cooperatives by size and type.

Key words: Cooperatives, balance sheet, income statement, farm supply, marketing,

sales, and financial ratios.

Analysis of Financial Statements:

Local Farm Supply, Marketing Cooperatives

E. Eldon Eversull and Beverly L. Rotan

Rural Business-Cooperative Service

U.S. Department of Agriculture

FIBS Research Report 154

March 1997

Price: Domestic-S4.50; Foreign-$500
Preface This report studied the financial statements of local cooperatives, comparing 1995,

1994, and the past 10 years. Trends of major balance sheet and income statement

items as well as financial ratios are presented for four cooperative sizes and types. The

information provides cooperative managers and boards of directors with a basis to

compare their cooperatives’ historical performance with representative cooperative

data.

The authors thank the cooperatives that provided their financial statements to

RBS-Cooperative Service (CS) and made this report possible. Special thanks to CS

staffers David S. Chesnick and Charles A. Kraenzle for reviewing the initial draft.
Contents Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..~i

Profile of Respondent Cooperatives ......................................l

Balance Sheet Definitions ..............................................3

Analysis of the Balance Sheet ..........................................4

Description of the Income Statement .................................... .9

Analysis of the Income Statement ......................................l 1

Financial Ratio Analysis ..............................................17

Summary and Conclusions ............................................22

Bibliography .....................................................

..2 3

Appendix..........................................................2 4

ii
Highlights Financial statements of 1,610 local farm supply and marketing cooperatives were used

for this report. The statements of 432 cooperatives were used to compare 1995 to

1994, while 1,610 cooperatives were used to look at trends over the past 10 years.

Cooperatives were divided into four groups based on their mix of net sales between

supplies sold and farm products marketed. They were also divided into four size categories, based on their total sales volume.

Average net income increased 14 percent from 1994 to 1995. In 1995, average net

sales for all cooperatives studied was $12.2 million, up 8 percent from 1994. More than

36 percent of the cooperatives studied were small cooperatives-sales of less than !§5

million.

Cooperatives not only were important to their member/patrons, but also were an important asset to their rural communities. They were probably one of the community’s larger employers, employing an average 21 full-time and 9 part-time employees with an

average annual payroll of $707,000.

Petroleum products and fertilizer were the two principal farm supplies sold. Marketing

activities (mainly grains and oilseeds) provided more than 54 percent of sales for these

cooperatives.

Average total assets grew 17 percent between 1994 and 1995, fueled by large increases in inventories. To finance the growth in assets (mainly inventories), total liabilities

grew 31 percent while owner equities increased 5 percent.

Interest expenses, although less than 1 percent of net sales, increased 42 percent

largely due to increased short-term debt used to finance inventory buildup. Local savings was down 24 percent, but with an increase of 37 percent in patronage refunds

received, net income for these cooperatives was up 14 percent.

Financial ratio analysis was used to look at 1 O-year trends for the 1,610 cooperatives

in the data base. The financial ratio analysis revealed these findings:

l The current ratio (current assets/current liabilities) was fairly steady around 1.5

between 1988 and 1994, with a slight downturn in 1995. The quick ratio (current

assets-inventory/current liabilities) mimicked the current ratio’s trend.

. Total debt-to-asset ratio was 0.25 in 1995, higher than most recent years but lower

than the high of 0.3 in 1985.

l The fixed-asset-turnover ratio, a measure of asset utilization, has averaged at least

9.1 for the past 3 years ( i.e., net sales were 9.1 times property, plant, and equipment

levels).

l Return on total assets measures the rate of return on total investments. At 8 percent,

this measure was down slightly from 1994.

l Return on allocated equity before taxes has grown dramatically in the decade from 5

percent to 14 percent.

. . . 111
Analysis of Financial Statements:

Local Farm Supply, Marketing Cooperatives

E. Eldon Eversull and Beverly L. Rotan

Rural Business-Cooperative Service

U.S. Department of Agriculture

L

ocal agricultural cooperatives play a vital role in

providing goods and services to their patrons

and the rural community. This report analyzes

their financial statements for comparative purposes for

cooperative managers, directors, and members. Ratio

analysis and trends will be discussed. The presentation

is sub-divided into four cooperative sizes and types to

make the information more useful.

The 432 local cooperatives had farm supply sales

(petroleum, fertilizer, feed, etc.) that averaged $5.6 million in 1995 while marketing sales (corn, wheat, soybeans, etc.) averaged $6.6 million. Income from services (product delivery, fertilizer application, grains

and oilseeds hauling and storage, etc.) averaged SO.4

million per year.

These cooperatives were not only important to,

their member/patrons, but also an important asset to

their rural communities. The cooperatives paid an

average of $43,000 in annual property taxes. They were

also a large employer in their communities, averaging

21 full-time and 9 part-time employees with an average annual payroll of $707,000.

Cooperative annual reports generally contain the

balance sheet and a statement of operations. More

detailed reports may contain a statement of changes in

patrons’ equity and a statement of cash-flows along

with explanations detailing various aspects of the

financial statements. The manager and the president of

the board of directors may also provide a statement on

the cooperative’s past year operating results and

future plans. This study focuses on the balance sheet,

income statement, and financial ratios derived from

these statements.

Profile of Respondent Cooperatives

Staff of the Cooperative Services (CS) program in

USDA’s Rural Business-Cooperative Service annually

survey farmer cooperatives. Data from this survey are

used in this study. To be included, a cooperative had to

sell some farm supplies. No cooperative that exclusively markets members’ products was included. In addition to selling farm supplies, the cooperative also had

to provide an annual report that had a detailed income

statement.

There are 1,610 cooperatives in the CS Farm

Supply and Services (FSS) database. This report focuses on 432 cooperatives that provided information in

both 1995 and 1994 when comparing those years and

on all 1,610 cooperatives when looking at long-term

trends (1985 through 1993 ‘) in the financial ratio

analysis section. To obtain a more complete understanding of the local cooperatives’ business, information in this report is divided into a cross section of four

sizes and four types.

Cooperative Size

Cooperatives were grouped into four sizes by

sales volume, using actual figures. No attempt was

made to deflate these values. Sales groupings used in

this report were the same as in prior reports (see CSRR 134 and RR 138) and, for the 432 cooperatives, sizes

and types used are summarized in table 1.

1 The data in the FSS database does not include 1991. It was omitted

in an effort to disseminate information in a more timely fashion.

At the time, it was thought that information from 1991 would be

included in the future, but as that information became less and less

current, it is less likely to become part of the database.

1
In classifying by total sales alone, product mix

was ignored. For example, a cooperative with $10 million in sales that exclusively marketed grains and

oilseeds could be considered small relative to most

grains and oilseeds marketing organizations. But, a

strictly farm supply cooperative with sales of $10 million, however, was quite substantial.

Cooperative Type

To account for differences in operations and orientation based on product mix, cooperatives were

grouped into one of four descriptive categories: 1)

farm supply; 2) mixed farm supply; 3) mixed marketing; and 4) marketing. These descriptions were chosen

to represent business operations of these cooperatives

as closely as possible and their definitions summarized

in table 1.

This report focuses on cooperatives handling

farm supplies-42 percent in 1995 sold only farm supplies; 16 percent were mixed; 24 percent were mixed

marketing; and 18 percent were marketing (table 2). Of

Table r-Size and type definitions used for respondent

cooperatives

Cooperative size Definition Number

Small up to $5 million in total sales 156

Medium $5 million to $10 million 103

Large $10 million to $20 million 96

Super $20 million and more 75

Cooperative type

Farm supply total net sales from farm supplies’ 161

Mixed farm supply from 50 to 99 percent 70

Mixed marketing from 25 to 49 percent 103

Marketing less than 25 percent 78

1 The definition of farm supply cooperatives differs from prior reports.

These cooperatives now have 100 percent farm supply sales

instead of 90 to 100 percent.

the respondents, 36 percent were small; 24 percent,

medium; 23 percent, large; and 17 percent, super. Both

types of marketing cooperatives tended to be larger

while the farm supply cooperatives were most often

small. Most respondents were small farm supply cooperatives.

The first part of this report focuses on the 432

cooperatives that provided information in both 1995

and 1994. In the financial ratio analysis sections, data

between the years were not completely comparable in

that the same cooperatives did not respond to the CS

survey every year. Information in the FSS database

was not randomly selected and may not be statistically

valid to draw industry-wide conclusions. However,

the samples are large and represent a cross section of

cooperatives selling farm supplies and marketing

grains and oilseeds throughout the United States.

The information in this report also goes beyond

432 cooperatives and rural communities. These cooperatives operated 643 branches and had a significant

business impact on 1,075 rural communities in terms

of taxes and employment (table 3). Super cooperatives

that averaged almost five branch outlets impacted

more rural communities. Marketing cooperatives had

an average of two branch outlets.

Sales Mix

The respondent cooperatives had five major farm

supply and two marketing categories (table 4).

Petroleum was the dominant production supply item

sold by small and medium cooperatives. Sales of small

cooperatives, the most numerous, averaged $2.8 million in 1995. Farm production supplies represented the

bulk (86 percent) of their sales. As cooperatives grew

in size, the importance of farm supplies declined (64

percent for medium-sized cooperatives, 52 percent for

large, and 32 percent for super).

Table z-Respondent cooperatives by size and type

Cooperative size

Cooperative type Small Medium Large Super Total

Number Percenf

Farm supply 122 37 19 3 41.90

Mixed farm supply 14 23 22 11 16.20

Mixed marketing 12 28 33 30 23.84

Marketing a 15 24 31 18.06

Percent of total 36.11 23.84 22.69 17.36 100.00
Sales of mixed farm supply cooperatives averaged $12 million with $5 million in farm supply sales.

Petroleum was the most important farm supply item

sold, with feed a close second.

Average sales of marketing and mixed marketing

cooperatives were $22 million and $18 million, respectively, and much larger than both categories of farm

supply cooperatives. As defined, marketing made up

the majority of their sales. Feed, fertilizer, and crop

protectants were the most important farm supplies

sold for both types of marketing cooperatives.

Balance Sheet Definitions

Balance sheet assets represent what the cooperative owns and are usually listed in decreasing order of

their liquidity--the time it would take to convert them

to cash. Liabilities, or what the cooperative owes to

others, are usually presented in a similar decreasing

order. Equity represents members’ investment in their

cooperative.

Current assets- These are the most liquid assets on

the cooperative balance sheet. Cash and cash equivalents

represent monies either in the bank, in short-term

investments, or on hand at the cooperative. Accounts

receivable is money due the cooperative (i.e., a credit

sale due from the customer in 90 days). Inventories are

products the cooperative has purchased from patrons

to market and supplies the cooperative hopes to sell to

patrons. Prepaid expenses are those paid up-front and

then expensed as period costs throughout the fiscal

year (i.e., taxes or insurance).

Investments in other cooperatives- represent equity

held in regional cooperatives through whom local

cooperatives market products or purchase supplies

and equity in the Bank for Cooperatives or CoBank,

their lending source. These investments are purchased

Table z+-Average and total number of branches

Cooperative type Average

Farm supply .92

Mixed farm supply 1.79

Mixed marketing 1.78

Marketing 2.33

All 1.43

Total

55

122

178

177

643

Cooperative size Average Total

Small .36 55

Medium .95 96

Large 1.59 153

Super 4.52 339

Table &Average farm supplies sold and products marketed as a percent of tOtSI Saks,

and change from 1994 to 1995

Item 1995 1994 change, 1994 to 1995

Percent

Farm supplies sold:

Feed 9.22 10.17 1.48

Seed .90 .98 3.05

Fertilizer 10.45 10.44 12.10

Crop protectants 7.42 7.87 5.52

Petroleum products 12.64 13.20 7.23

Other 4.91 5.29 3.04

Total 45.54 47.95 6.33

Products marketed:

Grains and oilseeds 53.79 52.05 25.59

Other .67 - -

Total 54.46 52.05 9.10

Total sales 100.00 100.00 11.96

Based on sales of: $12,203,699 $10,900,239

3
equity as well as equity (patronage) paid back to the

cooperative based on use. The more sales through or

purchases from the regional cooperative or borrowing

from the bank, the larger the investment. Other assets

are usually past due accounts receivable not yet considered as bad debt losses.

Property, plant, and equipment- are the fixed assets

of the cooperative (i.e., grain bins, office equipment,

warehouse, gas station). Accumulated depreciation is the

sum of all the year’s depreciation expenses taken on

the assets. Net property, plant, and equipment (PPQE) is

the book value of the fixed assets-their cost minus

accumulated depreciation.

Total assets- are what the cooperative owns-current

assets, plus investments, plus net fixed assets equal

total assets.

Current liabilities- are obligations the cooperative

must pay within the next year. Accounts payable is

money owed, usually to suppliers (sometimes classified as accounts payable-trade accounts). Accrued

expenses and accrued taxes are unpaid expenses. They

often include unpaid salaries and benefits earned by

employees. Accrued taxes often include property and

sales taxes that have been incurred but not yet paid.

Other liabilities in this study are most often accounts

payable-grains and oilseeds delivered and sold to the

cooperative by its patrons who have not yet been paid.

Retired equity represents allocated equity that the board

has approved to revolve to members but not yet paid

as of the closing date of the books. This equity accumulated from past sales to or purchases from

patrons-usually revolved to members on a set schedule (often 7 or more years later). Patronage refunds and

dividends are monies declared but not yet paid to members for current use of the cooperative and for investing in preferred stock.

Cooperatives are required to pay at least 20 percent of their refunds in cash, with the rest becoming

allocated equity to be revolved to the members at a

later date. The refunds are based on cents per product

(weight or bushel) sold and/or on a percent of the dollars of farm supplies purchased. The refunds are determined by the board of directors. Dividends paid on

preferred stock ownership are based on a set percent

return on the investment. Current portion of Zong-term

debt and seasonal short-term debt are the final current liabilities. They are money owed (principal) for borrowing money and for leases. Long-term debt typically is

used to finance long-term assets, while short-term debt

is usually used for operating or seasonal loans.

Long-term debt- includes notes, bonds, mortgages,

and leases not due within the current year.

Member equities- are member and patron investments in the cooperative. The two main types are allocated and unallocated. Allocated equity is assigned to

members in one of two forms. Each member has one

share and one vote. The other form includes noncash

allocated certificates which are member investments in

the cooperative based on use.

Allocated equity could be classified as stock if the

cooperative was incorporated or certificates of ownership if not incorporated. In most cases, cooperative

stock or ownership certificates are not generally traded

between members and, if sold, require board approval.

Unallocated equity is the retained earnings of the cooperative and often thought of as nonmember-nonpatronage business but can also be based on member business.

Analysis of the Balance Sheet

The balance sheet of a local cooperative states its

financial position at the end of an operating period-a

1Zmonth fiscal year. The balance sheet represents the

cooperative’s assets, liabilities, member equity, and

their relationship to each other. This report analyzes

the balance sheets of 432 local cooperatives to provide

examples of typical levels for assets, liabilities, and

member equities for different sizes and types.

Table 5 compares common size balance sheets for

all respondents for 1995 and 1994. Appendix tables l-4

show common size balance sheets by size and type for

1995. In a common size balance sheet, each account is

listed as a percentage of total assets. The dollar

amount of total assets the balance sheets represent is

listed at the bottom of the table. By cooperative size,

total assets increased from $1.5 million for small cooperatives to $16.2 million for super-size cooperatives

(table 7). By cooperative type, total assets were $2.7

million for farm supply, $6.2 million for mixed farm

supply, $7.8 million for mixed marketing, and $9 million for marketing (table 8).

Current Assets

Looking first at current assets, cash and cash

equivalents as a percent of total assets decreased as

cooperative size increased. For small cooperatives,
cash was 7.4 percent of total assets. But, this dropped to From 1994 to 1995, current assets increased by 24

1.9 percent for super cooperatives. Farm supply cooper- percent. Most of this growth occurred in inventories,

atives held the most cash by type (5.3 percent), followed principally grains and oilseeds inventories. Overall,

by mixed farm supply cooperatives (2.8 percent). these inventories increased 51 percent and farm supTable &Common size balance sheet and change in accounts, 1994 to 1995

1995 1994 Percentage change

Assets

Current assets

Cash and cash equivalents

Accounts receivable

Inventories--grains and oilseeds

-farm supplies

Prepaid expenses

Other current assets

Percent

3.12 4.69 (22.33)

10.95 11.89 7.22

22.36 17.23 51.23

11.83 11.52 19.70

0.92 1.21 (11.42)

7.41 6.48 33.18

Total current assets

Investments and other assets

investments-other cooperatives

-Bank for Cooperatives

56.59 53.02 24.37

16.79 18.42 6.18

1.43 1.18 40.98

-total 18.22 19.61 6.28

Other assets .96 .88 27.28

Total investments 8 other assets

Property, plant, and equipment

At cost

Less accumulated depreciation

19.18 20.49 9.10

64.14 68.69 8.79

39.91 42.20 10.21

Net PP&E 24.23 26.49 6.54

Total assets 100.00 100.00 16.52

Liabilities and owner equities

Current liabilities

Current portion of long-term debt

Notes payable-seasonal

Accounts payable

Patrons credit balances & other liabilities

Accrued taxes

Accrued expenses

Patronage refunds (cash)

3.23 3.46 8.75

16.45 11.15 71.68

5.21 6.48 (8.20)

14.64 12.94 31.83

.64 .73 3.55

1.52 1.50 17.85

1.21 1.23 15.46

Total current liabilities 42.91 37.48 33.39

Long-term debt 6.82 6.84 16.31

Total liabilities 49.73 44.32 30.76

Owner equities

Allocated equity

Unallocated equity

37.03 41.76 3.30

13.24 13.92 10.83

Total owner equities

Total liabilities and owner equities

Based on total assets of:

50.27 55.68 5.18

100.00 100.00 16.52

!$5,630,189 $4,832,085

5
plies nearly 20 percent. By size, farm supply inventories increased about 10 percent more for large and

super cooperatives and by type, about 5 percent more

for both farm supply cooperatives. Grains and oilseeds

inventories increased more than 55 percent for medium and super cooperatives. By type, they increased

more than 50 percent for all but farm supply cooperatives.

There were also regional differences in inventory

buildup. By looking at 103 cooperatives that had their

grains and oilseeds inventories increase more than 50

percent, 65 cooperatives were in Iowa, Minnesota, or

Nebraska. In dollar terms, inventory increased $178

million, with $128 million in these three States. Part of

this buildup was due to low grains and oilseeds prices

the prior year and farmers holding back sales.

But a grain railcar shortage in the upper Midwest

also forced some cooperatives to resort to outdoor

storage on the ground (with increased grain prices and

especially corn prices, inventories of grains and

oilseeds can be expected to be much lower in FY 96).

Interest expenses in the three States increased by $7

million, in part to finance these inventories. Local savings fell $10 million and 30 cooperatives had losses in

local income. Net income was up 16 percent for these

cooperatives due to patronage refunds, so that only

nine experienced losses.

Accounts receivable in this study were farm supply trade accounts, not grains and oilseeds trade

receivables. Farm supply and grains and oilseeds trade

receivables (“other” current assets) were separated to

allow ratio analysis in a future section of this study.

Accounts receivable for farm supply sales increased 7

percent, growing at about the same rate as the increase

in farm supply sales.

The age of accounts receivable refers to how long

ago the sale that started this receivable was made.

Most cooperatives have credit sales with discounts

offered to promote prompt payment. Terms might be 2

percent-10 days, net 30 days (no discount). Discounts

might be offered on all farm supply sales or on certain

products. The terms and what products had discounts

were not known, but 96 cooperatives listed their discount on sales, and it was 1.22 percent on total farm

supply sales.

The age of accounts receivable is known for 54

cooperatives for both years (table 6). Fifty-five percent

were current. Another 14 percent were from 31 to 60

days old. The largest difference between the 2 years

was nearly 12 percent of receivables were more than 6

months old compared with 8 percent in 1994.

Table 6 Age of SCCOUM receivable, 1995 and 1994

Accounts receivable age 1995 1994

Percent

Current, 0 to 30 days 55.02 53.15

31 to 60 days 14.26 14.77

61 to 90 days 8.69 10.55

91 to 120 days 1.96 4.70

121 to 180 days 3.10 3.72

Greater than 6 months 11.63 7.70

Accounts written off this period 5.34 5.41

Based on accounts receivable of: $26,284,134 $24,160,885

Investments and Other Assets

About 1.4 percent of cooperative’s total assets

was invested in the Bank for Cooperatives or CoBank.

Larger cooperatives and both types of marketing cooperatives had comparable investments. Meanwhile,

investments in other cooperatives dropped from a high

of 26 percent for small cooperatives to 13 percent for

super cooperatives. Across types, marketing cooperatives had less invested than farm supply cooperatives.

Other assets often included overdue accounts receivable and were generally less than 2 percent of total

assets for all cooperative sizes and types (except large

farm supply cooperatives, 4.2 percent).

Property, Plant, and Equipment

Net property, plant, and equipment (PP&E) as a

percent of total assets tended to be between 22 percent

and 26 percent for all cooperative sizes. Net PP&E

increased 6.5 percent from 1994. Cooperatives that

handled grains and oilseeds had higher dollar

amounts of PP&E, probably due to extensive grains

and oilseeds storage and handling facilities and, also,

because these cooperatives were larger than farm supply cooperatives. But, both farm supply cooperatives

had growth in net W&E of at least 9 percent while

both marketing cooperatives were less than 5.5 percent.

Current Liabilities

Current liabilities grew 33 percent between 1994

and 1995. The largest increase was in notes payableseasonal used to finance current operations, and usually used for inventories, They grew from 11.2 percent of

total assets to 16.5 percent. Farm supply cooperatives

had a negligible change while mixed farm supply,

mixed marketing, and marketing cooperatives all were

up 5 percent.
Table 7%Common size balance sheets by cooperative size, 1995

Small Medium Large Super

Assets

Current assets

Cash and cash equivalents

Accounts receivable

Inventories-grains and oilseeds

-farm supplies

Prepaid expenses

Other current assets

7.41

13.10

3.29

20.23

2.15

3.93

Percent of fofal assets

4.59 3.03

14.05 11.96

11.38 18.46

14.11 12.68

64 63

5.07 6.54

1.93

9.07

31.21

9.15

.77

9.21

Total current assets

Investments and other assets

Investments-other cooperatives

--Bank for Cooperatives

50.11 50.04 53.50 61.34

26.20 22.51 17.95 12.72

.37 1.39 1.41 1.65

-total 26.57 23.90 19.36 14.37

Other assets 1.15 1.40 1.50 .53

Total investments & other assets

Property, plant, and equipment

At cost

Less accumulated depreciation

27.72 25.30 20.86 14.90

60.87 67.77 71.20 60.07

38.70 43.11 45.57 36.30

Net PP&E 22.17 24.66 25.64 23.76

Total assets 100.00 100.00 100.00 100.00

Liabilities and owner equities

Current liabilities

Current portion of long-term debt

Notes payable-seasonal

Accounts payable

Patrons credii balances & other liabilities

Accrued taxes

Accrued expenses

Patronage refunds (cash)

Total current liabilities

Long-term debt

Total liabilities 27.86 37.73 47.11 58.76

Owner equities

Allocated equity

Unallocated equity

1.76 3.05 4.11 3.12

6.35 9.29 13.09 22.19

6.38 5.88 6.09 4.35

6.19 9.13 12.94 18.74

.44 .55 .65 .71

1.30 1.42 1.65 1.52

1.31 1.38 1.31 1.10

23.73 30.70 39.84 51.73

4.13 7.03 7.27 7.03

53.64 45.70 39.58 30.02

18.50 16.57 13.31 11.22

Total owner equities 72.14 62.27 52.89 41.24

Total liabilities and owner equities

Based on total assets of:

100.00 100.00 100.00 100.00

$1,460,910 $3,558,985 $8,316,485 $16,249,985

7
Table s-Common Size balance sheets by cooperative type, 1995

Farm supply Mixed farm supply Mixed marketing Marketing

Assets

Current assets

Cash and cash equivalents

Accounts receivable

Inventories-grains and oifseeds

-farm supplies

Prepaid expenses

Other current assets

Total current assets

Percent of total assets

5.34 2.78 2.66 2.30

13.59 15.15 10.41 7.09

0.00 16.32 27.53 35.66

23.11 12.33 9.79 6.16

2.05 .65 .68 .57

2.69 3.85 8.64 11.51

46.78 51.08 59.71 63.29

Investments and other assets

Investments-other cooperatives

-Bank for Cooperatives

25.47 19.77 14.66 11.30

.72 1.39 1.67 1.69

-total 26.19 21.16 16.33 12.99

Other assets 2.12 1.31 .36 .63

Total investments & other assets

Property, plant, and equipment

At cost

Less accumulated depreciation

Net PP&E

28.31 22.47 16.69 13.62

58.84 68.75 69.64 58.78

33.93 42.30 46.04 35.69

24.91 26.45 23.60 23.09

Total assets 100.00 100.00 100.00 100.00

Liabilities and owner equities

Current liabilities

Current portion of long-term debt

Notes payable-seasonal

Accounts payable

Patrons credit balances & other liabilities

Accrued taxes

Accrued expenses

Patronage refunds (cash)

2.00 3.14 3.36 4.00

6.79 15.67 18.91 20.90

7.66 6.34 4.35 3.78

5.27 7.06 16.47 23.78

.51 .55 .76 .67

1.86 1.88 1.54 1.03

1.62 1.51 1.23 0.74

Total current liabilities

Long-term debt

Total liabilities

Owner equities

Allocated equity

Unallocated equity

Total owner equities

Total liabilities and owner equities

Based on assets of:

25.71 36.15 46.62 54.90

7.42 7.81 5.97 6.77

33.13 43.96 52.59 61.67

52.05 45.05 32.67 26.52

14.82 10.99 14.74 11.81

66.87 56.04 47.41 38.33

100.00 100.00 100.00 100.00

$2,731,412 $6,180,969 $7,762,383 $9,046,959

8
Patrons’ credit balances and other liabilities grew

by 32 percent, mostly due to the inclusion of payables

due on grains and oilseeds trading and other marketing activities.

Accrued expenses and patronage refunds were

the only other current liabilities that grew in double

digits. Accrued expenses grew by 17.7 percent and

were a slightly larger percentage of total assets for

larger cooperatives and for both types of farm supply

cooperatives. Cash patronage refunds and dividends

grew by 15.5 percent, but was less than 2 percent of

total assets for all sizes and types of cooperatives.

Long-term Debt

Long-term debt increased by 16.3 percent from

1994 to 1995. As a percent of total assets it generally

increased with cooperative size, but interestingly,

tended to be higher for both types of farm supply

cooperatives. By type as a percent of total assets, longterm debt ranged from 6 percent to 7.8 percent with

the farm supply cooperatives at the high end, about a

percentage point higher than the marketing cooperatives. Twenty-nine percent of the cooperatives had no

long-term debt. About half were small farm supply

cooperatives and combined together, farm supply

cooperatives made up more than half.

Nearly 66 percent of the cooperatives provided

information that broke out four main sources of their

$500 million total debt (short- and long-term combined)-Bank for Cooperatives and CoBank, commercial banks, debentures or notes, and other.

A regional cooperative was most often the source

in the “other” category. The local cooperative often

purchases its farm supplies and markets its grains and

oilseeds through a regional cooperative, which

becomes a source of debt capital. The debt may be

short-term operating capital or long-term investment

capital.

Bank for Cooperatives and CoBank were the

most frequent source of debt capital (59 percent).

Others were regional cooperatives (32 percent), debentures or notes (5 percent), and commercial banks (4

percent). Most sources, except debentures and notes,

extend lines of credit. Only 90 cooperatives reported

their lines of credit for both years, but in total it

increased by $20 million to $308 million in 1995. Of

this line of credit, the unused portion fell by $20 million to $166 million in 1995.

Member Equities

Member equities to total assets represent the percent of the cooperative’s assets owned by the members, with creditors claiming the rest. Over all sizes

and types of cooperatives, members averaged 50.3 percent ownership of the cooperative, down from 55.7

percent in 1994.

Members of small cooperatives had the highest

percentage of ownership (72.1 percent) while members

of super-size cooperatives had the lowest (41.2 percent). By cooperative type, members of mixed farm

supply cooperatives owned at least 56 percent of their

cooperatives’ assets while farm supply cooperatives’

members owned more than 66 percent. Both types of

marketing cooperatives had lower member ownership-38.3 percent for marketing and 47.4 percent for

mixed marketing cooperatives.

Member equities consisted of both allocated (preferred, common, and other kinds of ownership certificates) and unallocated equity. Allocated equity as a

percentage of total assets was highest for small cooperatives at 53.6 percent and more than 45 percent for

both farm supply cooperatives.

Unallocated equity averaged more than 13 percent of total assets for all sizes and types, but fell as

cooperative size increased. By type, unallocated equity

was around 15 percent of total assets for farm supply

and mixed marketing cooperatives and around 11 percent to 12 percent for mixed farm supply and marketing cooperatives.

Description of Income Statement

The income statement shows the results of operations for the past year and usually includes both the

current and prior year. It lists all sources of revenue

and expenses. The statement measures the profitability

of the cooperative for a given period of time. Although

it does not show timing of cash-flows, the statement

best describes the status of the business.

In the analysis of income statements, net sales

were set at 100 percent to find out the proportion that

a single item represented in a total group or subgroup.

Because the income statement variables were

expressed as a percent of net sales, comparisons were

possible between different sizes and types of operations. Thus, the statement used in this report became

known as a “common size” income statement. This

statement was provided for the average cooperative

respondent in table 9. The first item listed on the

income statement net sales was the primary source of

revenue-farm supplies sold and products marketed.

Cost of goods sold (COGS) was the amount a

cooperative paid for the products it sold and market9
Table 9-hICOI?W Statt?t?Wnt and change in SCCOUntS, 19% t0 1995

1995 1994 Percent change

Net sales

Cost of goods sold

Gross margin

Service and other income

Gross revenue

Operating expenses

Employee:

Salaries and wages

Payroll taxes

Employee insurance

Pension expense

Total

Administrative:

Professional services

Office supplies (includes postage)

Telephone, markets

Meetings and travel

Donations

Dues and subscriptions

Directors’ fees and expense

Annual meetings expense

Total

General:

Advertising and promotion

Delivery (auto & truck) expense

Insurance

Property & Business taxes

Other taxes and licenses

Rent and lease expense

Plant supplies & repairs

Repairs and maintenance

Utilities (includes dryer expense)

Miscellaneous expenses

Other expenses

Total

Depreciation

Interest expense

Bad debts

Total expenses

Local savings

Patronage refunds received

Savings before income taxes

Less income taxes

Net income

Based on sales of:

100.00

90.06

9.94

3.98

13.92

Percent of net sales

100.00

89.87

10.13

3.79

13.92

7.82

8.05

5.83

13.26

7.85

4.69 4.36 15.97

.37 .36 9.31

.49 .50 6.78

.14 .14 12.94

5.69 5.36 7.16

.16 .13 34.45

.16 .16 7.72

.09 .09 7.18

.07 .07 7.52

.Ol .Ol 9.92

.03 .03 15.51

.03 .03 6.26

.02 .02 3.93

57 .54 13.66

.16 .16 8.81

.68 .63 16.27

.49 .51 2.83

.33 .34 3.55

.15 .17 (4.96)

.20 .20 9.28

.22 .20 21.74

.68 .65 12.85

.49 .51 3.08

.12 .ll 17.21

.32 .39 (14.35)

3.84 3.87 18.00

1.53 1.54 7.33

.89 .68 42.42

.ll .lO 17.16

12.63 12.09 12.65

1.29 1.83 (23.98)

1.41 1.11 36.55

2.70 2.94 (1.03)

.31 .68 (51 .Ol)

2.39 2.26 14.01

$12,187,025 $11,302,965

10
ed-cost to the cooperative for the supplies sold and

payments to farmers for products marketed. Net sales

less COGS represented the gross margin on sales.

Service and other income came mainly from providing services to cooperative patrons. Service included delivery, chemical and fertilizer application, grain

drying, and storage. Although substantial for some

cooperatives, service income was not considered a primary source of revenue.

Operating expenses were those incurred in the

course of conducting normal business. They were usually classified by function like employee, administrative, general, and depreciation, interest, and bad debts.

Local savings resulted from operations before

taxes and patronage refunds from other cooperatives.

Patronage refunds were based on volume of business

conducted with another cooperative and were dependent on the other cooperative’s net income. Usually,

this income was allocated equity and not actual cash

coming into the respondent cooperatives.

Net income was the end result of operations for

that year. Distribution of net income was not part of

the income statement. The board of directors decides

how to distribute net income or allocate a net loss.

Analysis of the Income Statement

The income statement displays the net results of

cooperative operations. Because most managers’ performance is judged by net income, members attach

great importance to the income statement. In the following sections, the underling values of the income

statement are studied. Table 9 presents a common size

income statement for 432 cooperatives and the change

between 1994 and 1995. Appendix tables 5 to 8 show

common size income statements by size and type for

1995.

Net Sales

The first item of the income statement analyzed

in this report was net sales. It was determined by subtracting sales discounts and returns and allowances

from gross sales. The average net sales for the 432

cooperatives in 1995 was $12.2 million, up $0.9 million

or 7.8 percent from 1994. Net sales by cooperative size

are presented in table 10, and by type in table 11. All

sizes and types of cooperatives experienced a growth

in net sales from 1994. If assets from tables 7 and 8 are

compared to net sales in tables 10 and 11, sales for all

types (except marketing) and sizes are about twice the

level of assets.

Cost of Goods Sold

Cost of goods sold (COGS) represented the

largest single component of expenses, usually

expressed as a percent of net sales. For this study,

COGS includes the beginning inventory plus purchases and freight costs, minus purchase returns and

allowances, purchase discounts, and ending inventory.

So, for these cooperatives, COGS was the purchase

price of the farm supplies sold or products marketed.

Table 11 shows COGS as a percent of net sales for the

different types of cooperatives. Both types of marketing cooperatives had a relatively high COGS when

compared with farm supply cooperatives, which was

to be expected because they were generally marketing

grains and oilseeds for their patrons with only a few

cents per bushel margin. There was negligible change

in COGS by cooperative size and type between the 2

years.

Gross Margins

Gross margins were the excess of net sales over

the cost of goods sold. The gross margin averaged 9.9

percent for all cooperatives, down from 10.1 percent in

1994. The gross margin or gross margin percentage is a

very important operating ratio. A small change in the

gross margin has a tremendous impact on local savings. A cooperative manager must maintain a gross

margin near industry averages. Thus, least cost sources

of supplies need to be developed and marketing cooperatives must pay market rates on the products they

purchase.

Cooperatives are often characterized as businesses that provide goods and services “at cost.” However,

a cooperative cannot operate at cost on a day-to-day

basis. Therefore, unless a cooperative has an adequate

gross margin, it can neither be profitable nor afford to

finance essential future-directed discretionary expenditures such as expansion and advertising.

Because by definition, gross margin equals net

sales less cost of goods sold, those cooperatives with

higher COGS had lower gross margins. COGS were

higher for marketing and larger cooperatives, so gross

margins as a percent of net sales were highest for farm

supply and small cooperatives. Farm supply cooperatives-16.7 percent-had the highest gross margin.

Although both types of farm supply cooperatives had

less business volume than those that performed marketing activities, their gross margin percentage was

from 6 to 10 percentage points higher. Small cooperatives, mostly selling farm supplies, had the highest

gross margin by size (15.6 percent).

11
Table w-Abbreviated income statement as a percent of net sales for cooperatives by size, 1995

Small Medium Large Super

Percent of net sa/es

Net sales 100.00 100.00 100.00 100.00

Cost of goods sold 64.36 67.66 89.08 91.98

Gross margin 15.64 12.34 10.92 a.02

Service and other income 3.63 4.16 4.07 3.94

Gross revenue 19.27 16.50 14.99 11.96

Expenses

Employee 1 9.23 7.22 6.52 4.58

Administrative * 1.10 .79 .59 -44

General 3 4.35 3.78 3.56 3.35

Depreciation 2.11 1.97 1.74 1.46

Interest .68 .a2 .90 1.03

Bad debts .23 .24 .ia .06

Total expenses 17.70 14.82 13.49 10.92

Local savings 1.57 1.68 1.50 1.04

Patronage refunds received 2.36 1 .a4 1.49 1.12

Savings before income taxes 3.93 3.52 2.99 2.16

Less income taxes .24 .42 .49 .20

Net income 3.69 3.10 2.50 1.96

Based on total sales of: $2,599,834 $7,010,685 $13,819,360 !§37,104,303

t Employee expenses include salaries and wages, payroll taxes, employee insurance, unemployment compensation, and pension expense.

2 Administrative costs include professional services, office supplies, telephone, meetings and travel, donations, dues and subscriptions,

directors’ fees and expense, and annual meetings.

3 General expenses include advertising and promotion, delivery (auto and truck), insurance, property, business and other taxes and licenses,

rent and lease expenses, plant supplies and repairs, repairs and maintenance, utilities, miscellaneous, and other.

Gross margins vary not only by cooperative, but

also by farm supply sold or product marketed.

Cooperatives, like other businesses, have different

margins for different products. For 100 cooperatives

that provided their individual product gross margins,

these margins are shown in table 12. Margins vary due

to product type and competition. For instance, fertilizer sold by the truckload has a different margin than a

sale of a single bag. The services offered in conjunction

with a sale (e.g., fertilizer spread on the field by a

cooperative truck) have an impact on margin. Margins

are also subject to competition. The gross margin discussed in the first paragraph of this section is a blend1 2

ed margin, made up of the margins of all products the

cooperative sold, services rendered, and products marketed.

The highest weighted (by volume) gross margin

for the five main farm supplies was for fertilizer with a

gross margin of almost 19 percent. The maximum margin on fertilizer of 46 percent was for a small amount,

probably a speciality fertilizer sold by the bag. Feed

and petroleum margins were both around 17 percent.

The margin of -302 percent on seed looks incorrect and

needs further explanation. This margin was from a

cooperative with more than $6 million in grains and

oilseeds sales that sold $1,500 of seed for $400. The
Table I l-Abbreviated income statement as a percent of net sales for cooperatives by type, 1995

Farm supply Mixed farm supply Mixed marketing Marketing

Percent of net sales

Net sales 100.00 100.00 100.00 100.00

Cost of goods sold 83.32 85.06 91.82 94.02

Gross margin 16.68 14.94 8.18 5.98

Service and other income 3.81 4.99 4.03 3.55

Gross revenue 20.49 19.93 12.21 9.53

Expenses

Employee l 9.63 8.89 4.85 3.36

Administrative 2 1.02 .91 .44 .33

General 4.67 5.15 2.91 2.87

Depreciation 2.23 2.24 1.54 1.20

Interest .85 1.09 .95 .94

Bad debts .19 -22 .12 .05

Total expenses 18.59 18.50 10.81 8.75

Local savings 1.90 1.43 1.40 .78

Patronage refunds received 2.39 1.99 1.15 .91

Savings before income taxes 4.29 3.42 2.55 1.69

Less income taxes .23 .20 .49 .21

Net income 4.06 3.22 2.06 1.48

Based on sales of: !$4,930,596 $11,534,034 $18,014,033 $21,917,039

1 Employee expenses include salaries and wages, payroll taxes, employee insurance, unemployment compensation, and pension expense.

* Administrative costs include professional services, office supplies, telephone, meetings and travel, donations, dues and subscriptions,

directors’ fees and expense, and annual meetings.

3 General expenses include advertising and promotion, delivery (auto and truck), insurance, property, business and other taxes and licenses,

rent and lease expenses, plant supplies and repairs, repairs and maintenance, utilities, miscellaneous, and other.

seed may have been damaged, stolen, or sold for a

loss, but for whatever the reason, it was a very small

loss on minimal sales,

If the gross margin is extremely low, it may mean

that the cooperative is in a very competitive market.

For example, the two cooperatives with the lowest

margins were located in close proximity and of course,

in head-to-head competition. On further analysis, both

cooperatives have been profitable over the past 5 years

and have increased sales. They have even discussed

merger, but membership has resisted this change. In

this one instance, their low margins may be equated to

low product prices-something that their members

have noted by increasing their purchases from both

cooperatives.

Grains and oilseeds were the only products marketed where gross margins were known. Grains and

oilseeds margins were low, only around 4 percent.

Around 10 cooperatives reported high grains and

oilseeds margins of 18 and 19 percent. These high margins were all at mixed farm supply cooperatives that

had feed sales. It is suspected that the high margins

resulted from the grain and oilseed content in livestock

feeds sold rather than the commodities themselves.

Service and Other Income

Service and other income, for the most part, consisted of trucking services (both delivery of purchases

to patrons and transfer of their products to market),

custom application of fertilizers and crop protectants,

and drying and storing of grains and oilseeds. Local

13
Table 12--Gross margin on farm supplies sold and grains and oilsaeds marketed, 1995

Weighted Number of

margin Maximum Minimum observations

Percent Number

Feed 16.53 28.76 2.38 a4

Seed 14.59 64.09 (301 a4) 78

Fertilizer 18.61 45.88 4.14 88

Crop protectants 13.86 24.96 2.66 a4

Petroleum products 16.46 41.23 2.45 55

Tires, batteries, & auto accessories 21.04 29.68 1.77 43

Machinery 13.88 19.24 11.09 4

Building materials 21.20 69.51 9.95 16

Food 23.44 33.00 11.71 7

Other farm supplies 19.50 48.35 (10.08) 90

Grains and oilseeds 4.16 18.81 .27 62

cooperatives provided many other services to their

patrons, but these were the primary ones of the

respondent cooperatives. This income averaged

between 3.6 percent and 5 percent of net sales for all

sizes and types of cooperatives.

Other income was derived from non-operating

sources such as interest and finance charges. This

income included interest on cash equivalents and

interest charged on credit sales.

Other income also came from the sale of property,

plant, and equipment, rentals, and extraordinary

items. Sometimes property, plant, and equipment was

sold to generate income, but usually it was the sale of

a fully depreciated asset where the market value was

greater than the book value. In some cases, disposal of

a fully depreciated asset may mean a loss to the cooperative. Rental income from unused facilities or equipment provided income flows. Extraordinary items

might be either a gain or a loss. A gain could result

from a fire loss where the insurance settlement was

greater than the book value of the asset. A loss might

be from flood damage for which the cooperative had

no coverage.

Operating Expenses

Operating expenses were divided into four main

categories-employee; administrative; general; and

depreciation, interest, and bad debts. Employee

expenses, of course, were related to labor costs.

Administrative expenses included a variety of overhead costs associated with a cooperative and indirectly

related to revenue production. General expenses were

those directly related to revenue production, The bulk

were in employee, general, and depreciation categories.

14

Employee Expenses

Employee expenses included salaries, wages, and

benefits (payroll taxes, employee insurance, unemployment compensation, and pension expense) and

averaged 5.7 percent of net sales for all respondent

cooperatives. Employee expenses, up 7.2 percent from

1994, represented the smallest increase of all the major

expense categories.

As a percent of net sales, employee expenses

decreased as cooperative size increased. This expense

decreased from 9.2 percent of net sales for small cooperatives to 4.6 percent for super cooperatives. By type,

employee expenses as a percent of net sales were 9.6

percent for farm supply cooperatives and 3.4 percent

for marketing cooperatives.

About 62 percent of the cooperatives (268) provided employee numbers and expenses (table 13).

These expenses were for all employees. To equate parttime to full-time employees for purposes of this study,

four part-time employees were considered as one fulltime equivalent employee.3 Based on that calculation,

the expense for a single employee averaged $30,119 for

an average 19 employees, up 4 percent from 1994. By

size, they ranged from $26,982 for small to $33,010 for

super cooperatives and by type from $27,611 for those

selling only farm supplies to $33,481 for mixed marketing cooperatives. Small cooperatives averaged 8 actual

full-time employees (excludes part-time), medium, 16;

3 Based on previous research conducted by CS economist David E.

Cummins.
Table wCalculated salaries (using both full- and part-time employee expenses) and actual number of fulltime employees, 1995

Small Medium Large Super All

Farm supply salaries

number of employees

$26,349

9

$31,151

21

$28,391

44

$30,600

42

$27,611

14

Mixed farm supply salaries 28,144 31,452 32,324 33,394 31,596

number of employees 9 18 34 59 28

Mixed marketing salaries 31,568 31,704 34,832 34,106 33,481

number of employees 6 1 1 20 50 25

Marketing salaries 29,634 29,268 32,443 31,864 31,213

number of employees 4 6 11 39 19

All salaries 26,982 31,039 32,634 33,010 30,119

number of employees 8 16 24 47 19

Table I.+Board member SalarieS

Cooperative type Salaries Cooperative size Salaries

Farm supply $576

Mixed farm supply 1,087

Mixed marketing 559

Marketing 739

Average of all 684

Small $364

Medium 639

Large 870

Super 1,306

large, 24; and super, 47. Farm supply cooperatives

averaged 14 employees, mixed farm supply, 28; mixed

marketing, 25; and marketing, 19.

Cooperatives with a significant proportion of

their sales as farm supplies tended to be more labor

intensive. Operating a feed mill or service station,

applying chemicals and fertilizers, and selling hardware required the use of several employees. For

instance, a small farm supply cooperative had 9 fulltime employees while a small marketing cooperative

used fewer employees-often only a manager, bookkeeper, and two others.

Administrative Expenses

Administrative expenses were indirectly related

to generating income. Managers usually had more control over administrative expenses than any other cost.

In years when revenues were down, managers could

reduce expenses in this area more easily than in other

categories. Administrative costs include professional

services, donations, dues and subscriptions, directors’

fees and expenses, annual meetings, meetings and

travel, office supplies, and telephone and market information.

Professional services (such as legal, accounting,

and computer) and office supplies both comprised 0.16

percent of net sales-the largest administrative

expense. In total, administrative expenses were less

than 0.6 percent of net sales. These expenses fell from a

high of 1.1 percent for small cooperatives to 0.44 percent for super cooperatives. As cooperative size

increased, the highest administrative expense, professional services, fell as the cooperative relied more on

its own employees to perform these tasks rather than

purchase the services.

Although directors’ fees and expenses were a

small part of total costs, director compensation was

important to many cooperatives to get farmers to sacrifice time normally spent on their own operations to

devote several hours of service each month to guiding

their cooperative. Table 14 shows the number of directors and their compensation for 282 cooperatives in

1995. Board expenses seemed rather modest, averaging

$684 per director. The average board had seven directors. By size, small cooperatives paid directors the

least ($364) and super paid the most ($1,306). By type,

mixed farm supply cooperatives paid the most at

$1,087 per director.

15
General Expenses

General expenses were usually fixed in the short

run and associated with income production. These

expenses included advertising and promotion, delivery (auto and truck), general insurance, property, business and other taxes and licenses, rent and lease

expenses, plant supplies and repairs, repairs and maintenance, utilities (including dryer expenses), miscellaneous, and other. Most of these expenses (with the

exception of advertising and promotion) were not

under direct management control.

General expenses averaged 3.8 percent of net

sales in 1995, Repairs and maintenance and delivery

expenses at 0.68 percent of net sales were the largest in

the general category, followed by insurance and utilities, both at 0.49. By cooperative size, general expenses

were 4.4 for small cooperatives and 3.4 for super cooperatives. By cooperative type, these expenses were

around 5 percent of net sales for farm supply cooperatives and around 3 for marketing cooperatives.

Depreciation, Interest, and Bad Debts

Depreciation expense averaged 1.5 percent of net

sales; interest, 0.9 percent; and bad debts, 0.1 percent.

By cooperative size, depreciation expense as a percent

of net sales was 2.1 percent for small cooperatives and

1.5 percent for super cooperatives. By cooperative

type, depreciation expense was 2.2 percent of net sales

for farm supply cooperatives, 1.5 percent for mixed

marketing, and 1.2 percent for marketing cooperatives.

As discussed earlier, interest expenses, especially

for short-term borrowing increased dramatically, going

from 0.7 percent of net sales in 1994 to 0.9 percent in

1995. Interest expenses were lowest among small cooperatives at 0.7, but grew to more than 1 percent for

super cooperatives. By type, interest expenses were

about 0.9 percent for all cooperatives except mixed

farm supply which was highest at 1.1 percent.

Bad debts as a percent of net sales fell as cooperative size increased-O.2 for small cooperatives and 0.1

for super cooperatives. By cooperative type, bad debts

were 0.2 for both farm supply cooperatives and

around 0.1 for both marketing cooperatives.

Local Savings

Local savings or local income was generated from

own operations (before taxes and patronage refunds

from other cooperatives). Local savings as a percent of

net sales was highest for small cooperatives (1.6 percent) and lowest for super cooperatives (1 percent). By

type, local savings was the highest for farm supply

cooperatives (1.9 percent) and the lowest for marketing cooperatives (0.8 percent). Small cooperatives, and

especially farm supply cooperatives, had higher local

savings than larger marketing cooperatives.

About 24 percent of the cooperatives in this study

had losses. While small cooperatives have higher

returns on net sales, 50 or one-third of them lost

money. Table 15 shows losses by size and type. Thirty

percent of the mixed farm supply cooperatives lost

money. Most likely to lose money were small mixed

farm supply cooperatives (57 percent).

Patronage Refunds Received

Patronage refunds received or income from other

cooperatives resulted from locals doing business with

other cooperatives, generally regionals, or cooperative

banks such as CoBank or the Bank for Cooperatives.

The patronage refund from regionals was based

on business volume and consisted of cash refunds and

equity stock. The equity stock was usually revolved

back to the local cooperative on a set schedule. Many

respondent cooperatives also borrowed funds from

CoBank and the Bank for Cooperatives and received

both cash and noncash patronage income. The noncash

Table k-Respondent cooperatives that had losses

Cooperative type

Farm supply

Mixed farm supply

Mixed marketing

Marketing

Average

16

Small

28.69

57.14

25.00

50.00

32.05

Cooperative size

Medium Large

Pefcerrf

10.81 10.53

26.09 18.18

21.43 24.24

26.67 29.17

19.42 21.43

Super

33.33

27.27

6.67

16.13

14.67

Average

23.20

30.00

18.45

25.64

23.61
patronage from CoBank or the Bank for Cooperatives

was from investing in the bank which was usually

required in proportion to the funds borrowed.

Patronage refunds reflect the volume of business

with regional cooperatives, CoBank or the Bank for

Cooperatives. The dollar amount of patronage refunds

between 1994 and 1995 was up 37 percent, suggesting

1995 must have been a good year for regional cooperatives, CoBank, or the Bank for Cooperatives. Patronage

refunds received were 2.4 percent of net sales for small

cooperatives and 1.1 percent for super cooperatives. By

cooperative type, patronage refunds received as a percent of net sales were higher for farm supply cooperatives than for marketing cooperatives.

Patronage refunds were an important source of

revenues. They allowed 71 (out of 102) cooperatives

that had local losses to have net income.

Income Taxes

Cooperatives paid income taxes on earnings not

allocated to members (retained earnings) and on dividend payments. The decision as to what amounts of

income that were allocated to retained earnings and to

members was made by the board of directors. The

treatment of nonmember business has an impact on

retained earnings because the cooperative could allocate the earnings to nonmembers or retain the income.

In terms of net sales, income tax paid was 0.3 percent

of net sales in 1995.

Income tax paid by cooperatives varied by size

and type. Small cooperatives paid income taxes equal

to 0.2 percent of their net sales, medium, 0.4; large, 0.5;

and super, 0.2. All cooperatives except mixed marketing ( 0.5 percent) paid 0.2 percent of their net sales in

income taxes.

Net Income

Net income is the term used here for profits on

cooperative income statements. Net income as a perTable w-Distribution of net income before taxes

Item 1995 1994

Percent

Non-cash patronage allocations 52.91 54.43

Cash patronage refunds 22.42 22.51

Retained earnings 17.17 16.97

Taxes 7.35 5.96

Dividends -15 .14

cent of net sales decreased by cooperative size. For

small cooperatives it was 3.7 percent of net sales,

medium, 3.1 percent; large, 2.5 percent; and super, 2

percent. By cooperative type, farm supply had returns

of 4.1 percent on net sales, mixed farm supply had 3.2

percent, mixed marketing cooperatives, 2.1 percent,

and marketing cooperatives, 1.5 percent.

Net income (before taxes) was generally distributed five ways-non-cash patronage allocations, cash

patronage refunds, retained earnings, income taxes,

and dividends on patron’s equity (table 16). Nearly 53

percent of net income before taxes was held as noncash patronage allocations by the 287 cooperatives that

provided income allocations. Cash patronage refunds

were 22 percent. All distributions of income were basically unchanged from 1994. Only 9 of the 287 cooperatives reported dividends on preferred stock. The effective interest paid was 3.22 percent.

Financial Ratio Analvsis

Looking beyond levels of assets, liabilities, member equities, sales, and expenses, cooperative managers and boards of directors need comparative measures to evaluate their cooperative’s financial

performance.

Standard ratios were used in this report, including financial ratio analysis that allow performance

comparisons between years and different cooperatives.

No single financial indicator will provide enough

information to determine a cooperative’s financial

health. Therefore, ratios must be carefully interpreted.

It is important to look at a group of financial ratios

over a period of time, evaluate other cooperatives with

similar sales and functions, and/or compare performance with other cooperatives in the same geographical area.

Ratios used in this study were often chosen

because of their comparability with prior studies.

Therefore, most figures show ratios for the 11-year

period for all 1,610 cooperatives. Data for 1994 and

1995 reflect information gathered from the same 432

cooperatives that reported for both years.

Performance ratios measure various levels of

cooperative operations and generally have both a

financial and operational impact. Four categories were

used-liquidity, leverage, activity, and profitability.

Many factors underlie each ratio and examining one

ratio may not help pinpoint problems.

Net income before taxes:

Number of cooperatives:

$101,171,588 $94,112,032

287 330

17
Liquidity Ratios

Liquidity ratios, such as current and quick, measure the cooperative’s ability to meet short-term obligations. They focus on the cooperative’s ability to

remain solvent. The current ratio is current assets

divided by current liabilities. However, this ratio does

not consider the degree of liquidity of each of the components of current assets. In other words, if the current

assets of a cooperative were mainly cash, they would

be much more liquid than if comprised of mainly

inventory.

If the ratio is less than 1, current liabilities exceed

current assets and the cooperative’s liquidity is threatFigure i-Current and Quick Ratios

Ratio

21

4-=-

Quick

0 ’

I I I I I I I I I

1985 86 87 88 89 90 92 93 94 95

ened. Improvements in this ratio can be achieved by

selling additional capital stock, borrowing additional

long-term debt, or disposing of unproductive fixed

assets and retaining proceeds. Current liabilities may

also be reduced by retaining a greater portion of allocated savings (reducing the cash portion).

A high current ratio is a favorable condition

financially because it indicates the ability to pay current liabilities from the conversion of current assets

into cash. Operationally, this same high ratio tends to

increase operating freedom and reduce the probability

of bill-paying difficulty from writedowns of accounts

receivable or inventory.

Figure 1 shows the current and quick ratios for the

surveyed cooperatives. The current ratio was relatively

constant for 3 years before it took a slight downturn in

1995. The total current assets increased 24 percent

while total current liabilities increased 33 percent.

From 1994 to 1995, grains and oilseeds and farm supply inventories and dividends on equity were the only

elements of current liabilities that grew. Higher grain

and oilseed inventories are probably causing the 32-

percent increase in patron credit balances and other

liabilities (which contains grain trade payables).

The current ratio fell as cooperative size increased.

The ratio was highest for small cooperatives (2.11) and

fell to 1.19 for super cooperatives (table 17). By cooperative type, the ratio was 1.15 for marketing cooperatives and 1.82 for farm supply cooperatives (table 18).

Quick ratio is current assets minus inventories,

divided by current liabilities. Inventories are excluded-the least liquid of all current assets. All elements

of this ratio have increased. Financially, a high ratio

Table w-Financial SnalySiS ratios by COOperatiVe Sk?, 1995

Ratio

Liquidity

Current

Quick

Leverage

Debts-to-assets

Debt-to-equity

Times-interest-earned

Activity

Total-asset-turnover

Fixed-asset-turnover

Profitability

Gross profit margin

Return on total assets

before interest & taxes

Return on allocated equity

Small Medium Large Super

2.11 1.63 1.34 1.19

1.12 .80 .56 -41

.12 .19 .24 .32

.06 .ll .14 .17

6.80 5.26 4.33 3.10

1.78 1.97 2.19 2.28

8.03 7.99 8.53 9.61

15.64 12.34 10.92 8.02

8.20 8.54 8.51 7.29

12.23 13.34 13.83 14.92

18
allows little dependence on the salability of inventory

to meet current obligations. Operationally, the results

are the same as with current ratio.

The quick ratio mimicked the movement of the

current ratio. Small cooperatives (1.12) had the highest

ratio and it decreased as size increased to 0.41 for

super cooperatives (table 17). The quick ratio ranged

from a low of 0.39 for marketing cooperatives to a high

of 0.92 for farm supply cooperatives. This ratio was

highest in 1986 and lowest in 1995 (figure 1).

Figure z-Total Debt-To-Asset Ratio

Percent

0.35

0.25

0.20

0.15

0.10

0.05

n

” 1985 86 87 88 89 90 92 93 94 95

Leverage Ratios

Leverage ratios look at the long-term solvency of

the cooperative. They help to analyze the use of debt

and the ability to meet obligations in times of crisis.

Debt-to-asset ratio is defined as total debt divided by

total assets. Elements of this ratio include long-term

debt plus short-term debt and total assets. Long-term

debt increased at the same rate as total assets, which

may indicate some short-term obligations were being

carried and converted to long-term debt. With inventories increasing in the short term, quick financing is

needed, usually through the use of short-term debt.

In fact, short-term debt increased 72 percent

between 1994 and 1995 (table 5). Lenders would rather

see a low ratio indicating the cooperative’s ability to

repay the loan. Overall, this ratio increased from .21 to

.27 because assets increased by 17 percent while debt

increased by almost one-half (figure 2). Reducing debt,

increasing savings, or financing a greater portion of

assets with working capital may improve this ratio.

Larger cooperatives were financing more of their

assets with debt, but the highest ratio for any size or

type of cooperative was still only 0.32 (table 17). Small

cooperatives had the lowest use of debt at 0.12. Debt

usage was highest for marketing cooperatives at 0.32.

This was twice the ratio for farm supply cooperatives.

By type, farm supply cooperatives had the lowest use

of debt.

Debt-to-equity ratio is calculated by dividing longterm debt by member equity. This ratio shows the

financial flexibility and the long-term capital structure

of the cooperative. High ratios indicate inadequate

borrowing power of the cooperative. Debt-to-equity

Table w-financial analysis ratios by Cooperative type, 1995

Ratio

Liquidity

Current

Quick

Leverage

Debts-to-assets

Debt-to-equity

Times-interest-earned

Activity

Total-asset-turnover

Fixed-asset-turnover

Profitability

Gross profit margin

Return on total assets

before interest &taxes

Return on allocated equity

Farm Mixed farm

SUPPlY SUPPlY

1.82 1.41

.92 .62

.16 .27

.ll .14

6.04 4.13

1.81 1.87

7.25 7.06

16.68 14.94

9.27 8.42

14.06 13.35

Marketing

1.15

.39

.32

.18

2.81

2.42

10.49

5.98

6.35

13.51

Mixed

marketing

1.28

-48

.28

.13

3.73

2.32

9.83

8.18

8.09

14.65

19
ratio increased from 0.12 in 1994 to 0.14 in 1995 (figure

3 & table 19). A low ratio is more favorable and financially impacts the cooperative through independence

on outside sources of funds relative to owners’ equity.

A low ratio may also have an unfavorable impact indicating low return on equity. Operationally, a low ratio

tends to reduce interest cost. Improvement may be

gained by reducing long-term debt by disposing of

unproductive assets and using proceeds to liquidate

debt, or accelerating payments on long-term loans.

Other ways include increasing local equity by generating higher levels of local savings, slowing down equity

retirement programs, selling additional capital stock,

or retaining a greater portion of allocated savings.

As cooperative size grew, so did their use of longterm debt. The ratio for small cooperatives was 0.06

Table w-Financial analysis ratios for all cooperatives,

1995and1994

Ratio 1995 1994

Current 1.32 1.41

Quick 0.52 0.65

Debts-to-assets 0.27 0.21

Debt-to-equity 0.14 0.12

Times-interest-earned 3.65 4.65

Total-asset-turnover 2.16 2.34

Fixed-asset-turnover 6.93 8.83

Gross profit margin 9.94 10.13

Return on total assets before

interest &taxes 8.04 8.66

Return on allocated equity 13.96 12.65

Figure %--Debt-To-Equity Ratio

Percent

0.35

0.30

0.25

1985 86 67 88 89 90 92 93 94 95

20

and 0.17 for super cooperatives (table 17). Marketing

cooperatives had, at 0.18, the highest ratio by type,

while farm supply cooperatives were the lowest at

0.11. When looking at the trend, the ratio increased

slightly each year from 1992 to 1995, but is much lower

than prior years (figure 3).

Times-interest-earned ratio is the number of times

interest expense is covered by earnings. It is calculated

by dividing earnings before interest and taxes by interest expense. A ratio of one or more indicates the ability

of current earnings to pay current interest expenses.

Lending institutions are more apt to loan to cooperatives whose times-interest-earned ratio is more than

one (1) because it shows their ability to pay interest

payments. Subsequently, a lending institution may

lend funds at lower rates more readily for capital

improvements.

Times-interest-earned ratio was higher for

respondent cooperatives in 1993 before starting a

slight downward trend for the next 2 years (figure 4).

This ratio may be improved by collecting old receivables, improving inventory turnover, disposing of

assets and reducing debt with proceeds, or reducing

debt with working capital. Financially, a high ratio

impacts the return on equity and tends to increase it.

Over time operationally, a high ratio will reduce interest cost.

Interest coverage was the greatest for smaller

cooperatives and generally fell as cooperative size

increased to super cooperatives (table 17). By cooperative type, the ratio ranged from 2.81 for marketing to

6.04 for farm supply.

Figure 4-Times-interest-Earned Ratio

Ratio

” 1985 86 87 88 89 90 92 93 94 95
Activity Ratios

Activity ratios measure how well cooperatives

use assets. A low ratio could mean that the cooperative

was overcapitalized or carrying too much inventory. A

high ratio could be deceptive. A cooperative with fully

depreciated older assets could have an artificially high

ratio even though those assets were no longer operating efficiently.

Total-asset-turnover ratio was found by dividing

net sales by total cooperative assets. This ratio has

gone down slightly from 2.34 in 1994 to 2.16 in 1995

(figure 5). Both elements of this ratio increased-total

sales by 8 percent and total assets by 17 percent. A

high ratio exerts a favorable financial influence

through the reduction of financial leverage and/or

increased return on equity. A high ratio operationally

tends to reduce interest costs.

The ratio was higher for larger cooperatives

(table 17). Super cooperatives had the highest ratio at

2.28, indicating the most efficient use of assets. By

cooperative type, the total asset turnover ratio was

higher for marketing than farm supply. The total asset

turnover ratio was lowest in 1995 at 2.16 and highest

in 1989 at 3.01.

Fixed-asset-turnover ratio represents net sales

divided by net property, plant, and equipment (PP&E).

This ratio is similar to the total asset turnover ratio and

shows how well the cooperative is using its fixed

assets. This ratio by itself might not give a complete

picture of the cooperative’s financial health. A cooperative with fully depreciated assets would have an artiFigure ti--Total- and Fixed-Asset-Turnover

Ra tie

12 1

10

“I

6

Total-asset-turnover

4

2-

0’ ’

I I 1 I I I I I I

1985 a6 a7 88 a9 90 92 93 94 95

ficially high ratio. A cooperative that invested heavily

in PP&E for future expansion will have a temporarily

low ratio.

After a high in 1989 of 10.20, this ratio has

remained relatively level for the 1990s. In 1995, the

ratio was 8.93 and increased slightly from 1994

because sales increased 8 percent while investment in

fixed assets increased 7 percent. The measure for this

ratio may or may not show favorable or unfavorable

conditions. It simply reflects cooperative conditions.

An abnormally high ratio usually indicates very old,

nearly depreciated fixed assets or the leasing of property and equipment.

A high ratio financially exerts a favorable influence by increasing asset use, reducing financial leverage, and/or increasing return on equity. A high ratio,

operationally, tends to reduce depreciation and interest

costs. It may also increase costs related to operating

leases, personnel and travel or delivery expenses. This

ratio may be improved by restricting further investments in fixed assets; redesigning production, or office

facilities to increase the sales generating potential of

existing space and equipment; and/or selling idle

machinery and parts, unused vehicles, and unnecessary equipment.

By size, a fixed-asset-turnover ratio of 9.61 was

greatest for super cooperatives. By type, the ratio was

the highest (10.49) for marketing cooperatives. The

fixed-asset-turnover ratio was at its lowest in 1987 (figure 51.

Profitability Ratios

Profitability ratios, such as gross profit margin,

indicate the efficiency of the cooperative’s operations.

Because a cooperative is owned by its user-members,

many common industry profitability ratios have little

meaning. For instance, profitability ratios measuring

the return on common or preferred stock of similar

investor-oriented firms are not appropriate because

there is seldom an open market for cooperative stock.

Gross profit margin is found by subtracting the

cost of goods sold from, net sales and then dividing

this amount (gross margin) by net sales. The gross

profit margin is an important operating ratio. A small

change in the gross margin has a tremendous impact

on local savings. It indicates the cooperative’s pricing

policy and cost of goods offered for sale.

For all cooperatives, the gross profit margin averaged 9.94 percent in 1995. The gross profit margin was

the highest for respondent cooperatives in 1993 at

10.76 percent (figure 6). By size, gross profit margin

diminished as cooperative sales grew. At 15.64 percent,

21
small cooperatives had the highest gross margin. By

type, farm supply and mixed farm supply cooperatives, at 16.68 percent and 14.94 percent, had the highest margins in 1995 (table 18).

Return on total assets measures the rate of return

on total investment. It is calculated by dividing net

income by total assets and usually calculated before

interest and taxes. This ratio is a measure of performance. It is not sensitive to the leverage position of the

cooperative. Although some assets were financed

through debt, the ratio measures return to both members and lenders. This ratio declined by 0.62 percent to

8.04 percent between 1994 and 1995 (table 19).

Net savings (before income taxes) declined 1 percent while interest expense increased 42 percent during the 2-year period (table 9). For the decade, this

ratio was highest in 1992 and 1995 and has been fairly

constant (figure 7). Operationally, a high ratio tends to

reduce interest cost and financially indicates a comparatively high rate of return on assets employed.

Medium and large cooperatives had a higher

return on total assets (table 17). Medium-sized cooperatives were slightly higher at 8.54 percent. By cooperative type, return on total assets was highest for farm

supply cooperatives at 9.27 percent. Assets relative to

revenue were higher for both types of farm supply

cooperatives.

Return on allocated equity is net income divided

by allocated equity. It was determined by subtracting

unallocated equity from total member equities. It represents member investment in their cooperative and is

an important measure of profitability.

Figure 6- Gross Profit Margin

Percent

‘*ti

This ratio increased 1 percent in 1995 (table 19).

This ratio is sensitive to the amount of debt capital in

the cooperative and best used in conjunction with

other measures such as the return on total assets. Net

savings increased 14 percent while allocated equity

increased 3 percent from 1994 to 1995.

Financially, a high ratio is favorable and tends to

decrease financial leverage. However, a high ratio may

also be a symptom of low investment adequacy.

Operationally, a high ratio tends to reduce interest cost

over time but may occur when both total debt and

interest costs are on the high side.

By size, this ratio increased as the cooperative

grew in size. Super cooperatives had the highest return

on allocated equity (14.92 percent). Farm supply and

mixed farm supply cooperatives ratios were 14.06 percent and 13.35 percent and marketing and mixed marketing cooperatives were 13.51 percent and 14.65 percent (table 18).

Summary and Conclusions

Local cooperatives studied in this report generally had strong financial statements. Assets increased 17

percent from 1994 to 1995. More than half of the

accounts receivable were less than 30 days old.

Investment in W&E grew 7 percent. Owner equities

grew 5 percent and member ownership in the local

exceeds 50 percent. Net sales grew 8 percent. Total

expenses grew 13 percent while net income grew

slightly faster, at 14 percent.

Figure 7- Return on Total Assets and Allocated

Equity

Percent

20

Allocated equity

1985 86 87 88 89 90 92 93 94 95

0’ ’

I I I I 1 I I I I

1985 86 87 88 89 90 92 93 94 95

22
Agricultural cooperatives continue to play a vital

role in supplying goods and services to farmers and

marketing their products. They are also important to

rural communities, often one of the largest employers,

and provide considerable tax revenues. The extensive

consolidation of local cooperatives during the past two

decades reflects attempts to maintain an adequate size

from which to provide their members with expanded

products and markets. Despite consolidation, cooperatives studied maintained an average of two branch

locations from which to better serve members.

These cooperatives maintained strong ties to

regional cooperatives, CoBank or the Bank for

Cooperatives through which they obtained products,

gained marketing opportunities, or borrowed needed

capital. Investment in other cooperatives rose 8 percent

from 1994. In turn, patronage refunds to local cooperatives from regionals and the banks increased 37 percent and made the year profitable for 71 cooperatives

that would have otherwise had losses. But, local cooperatives cannot depend on large patronage refunds

and with numerous locals losing money, further consolidation of locals may be necessary in the future.

An area of concern in the financial statements

was the large buildup in inventories and subsequent

increases in short-term debt. Grains and oilseeds

inventories increased 51 percent; short-term debt

climbed 72 percent and pushed up interest costs 42

percent. Inventory buildup and the subsequent growth

in assets financed through additional debt had an

impact on much of the ratio analysis:

1) Liquidity ratios, current and quick, declined slightly

in 1995 due to increased grains and oilseeds and

farm supply inventories;

2) Leverage ratios-debt-to-total assets ratio, jumped

from 0.21 in 1994 to 0.27 in 1995 because assets

increased 17 percent while debt increased almost 50

percent;

3) Activity ratios-total-asset-turnover ratio fell from

2.34 in 1994 to 2.16 in 1995 because total sales

increased only 8 percent while assets increased 17

percent with much of the increase in inventories;

and finally

But increases in inventories are not expected to

be a long-term trend. More current information suggests the inventory problem will be a non-issue in FY

1996. Prices for most grains and oilseeds increased

greatly this past year and most inventories were probably liquidated to capture the higher prices. Other

pressing issues are sure to arise in the coming year.

Cooperatives are owned by their

farmer/member/patrons. As long as those farmers

want to own a business where they can purchase their

supplies and market their products, cooperatives will

continue to adapt to changing economic conditions.

Bibliography

Chesnick, David S., and E. Eldon Eversull, Analysis of

Income Statements of Local Farm Supply and

Marketing Cooperatives, U.S. Department of

Agriculture, Rural Business-Cooperative Service,

RR 134, November 1994.

Eversull, E. Eldon, and David S. Chesnick, Analysis of

Balance Sheets of Local Farm Supply and

Marketing Cooperatives, U.S. Department of

Agriculture, Rural Business-Cooperative Service,

RR 138, January 1.

4) Profitability ratios-return on total assets ratio fell

from 8.66 in 1994 to 8.04 in 1995 because total assets

increased more than net income. Total assets reflected increased inventory while increased interest costs

lowered net income.

23
Appendix table l-Common size balance sheets for farm supply cooperatives, 1995

Cooperative size

Item Small Medium Large Super

Assets

Current assets

Cash and cash equivalents

Accounts receivable

Inventories-rains and oilseeds

-farm supplies

Prepaid expenses

Other current assets

Total current assets

Investments and other assets

Investments-other cooperatives

-Bank for Cooperatives

-Total

Other assets

Total investments & other assets

Property, plant, and equipment

At cost

Less accumulated depreciation

Net PP&E

Total assets

Liabilities and owner equities

Current liabilities

Current portion of long-term debt

Notes payable-seasonal

Accounts payable

Patrons credit balances & other liabilities

Accrued taxes

Accrued expenses

Patronage refunds (cash)

Total current liabilities

Long-term debt

Total liabilities

Owner equities

Allocated equity

Unallocated equity

Total owner equities

Total liabilities and owner equities

Percent of total assets

7.59 4.39 3.92 2.91

12.94 14.97 14.55 7.17

22.67 23.01 21.99 30.22

2.51 .96 1.94 4.76

2.24 3.45 .60 9.07

47.95 46.80 43.20 54.15

27.83 25.80 23.46 18.91

34 .67 1.42 .29

28.17 26.47 24.88 19.20

1.08 1.91 4.17 84

29.25 28.38 29.05 20.04

57.81 59.84 58.88 59.79

35.01 35.02 31.13 33.98

22.80 24.82 27.75 25.81

100.00 100.00 100.00 100.00

1.87 1.75 2.51 1.94

6.45 6.75 6.14 11.33

6.61 7.25 7.92 14.26

4.61 6.00 3.68 11.65

.42 .50 .63 .58

1.37 1.58 3.12 .88

1.43 1.52 1.94 1.82

22.76 25.35 25.94 42.46

4.26 8.43 10.87 6.73

27.02 33.78 36.81 49.19

54.86 53.25 51.02 35.46

18.12 12.97 12.17 15.35

72.98 66.22 63.19 50.81

100.00 100.00 100.00 100.00

Based on total assets of: $1,490,412 $4,063,398 $6,774,303 $1 1 , 165,924

24
Appendix table 2--COfWTIOtI SiZS balance sheets for mixed fartll SUpply cOOp’atiVeZ3, 19%

Cooperative size

Item Small Medium Large Super

Assets

Current assets

Cash and cash equivalents

Accounts receivable

Inventories~rains and oilseeds

-farm supplies

Prepaid expenses

Other current assets

Percent of tote/ assets

3.18 3.12 3.36 2.00

18.06 16.64 15.66 13.49

10.92 12.02 10.92 24.42

13.61 9.97 13.34 12.57

.68 .72 .77 50

5.12 2.86 3.47 4.61

Total current assets

Investments and other assets

Investments-other cooperatives

-Bank for Cooperatives

51.57 45.33 47.51 57.59

26.41 22.85 22.09 15.08

.95 1.82 1.12 1.46

-Total 27.36 24.67 23.21 16.54

Other assets 1.82 1.92 1.23 .96

Total investments & other assets

Property, plant, and equipment

At cost

Less accumulated depreciation

29.18 26.59 24.44 17.50

72.87 67.36 72.74 65.31

53.62 39.28 44.70 40.40

Net PP&E 19.25 28.08 28.04 24.91

Total assets 100.00 100.00 100.00 100.00

Liabilities and owner equities

Current liabilities

Current portion of long-term debt

Notes payable-seasonal

Accounts payable

Patrons credit balances & other liabilities

Accrued taxes

Accrued expenses

Patronage refunds (cash)

1.70 3.06 3.45 3.07

9.87 12.20 9.27 24.29

7.70 5.76 6.18 6.66

5.09 5.06 8.47 7.11

.61 .47 .51 .62

1.84 1.51 1.75 2.22

.71 1.28 1.78 1.49

Total current liabilities

Long-term debt

Total liabilities

27.32 29.34 31.41 45.46

6.08 8.86 8.27 7.10

33.40 38.00 39.68 52.56

Owner equities

Allocated equity

Unallocated equity

48.40 49.74 50.18 37.24

18.20 12.28 10.14 10.20

Total owner equities 66.60 62.00 60.32 47.44

Total liabilities and owner equities 100.00 100.00 100.00 100.00

Based on total assets of: $1,429,714 84,041,710 $7,009,070 $15844,816

25
Appendix table 3-Common size balance sheets for mixed marketing cooperatives, 1995

Cooperative size

Item Small Medium Large Super

Assets

Current assets

Cash and cash equivalents

Accounts receivable

Inventories-grains and oilseeds

-farm supplies

Prepaid expenses

Other current assets

Percent of total assets

8.92 5.71 2.00 2.20

14.31 13.14 10.94 9.60

25.66 22.22 26.13 29.07

11.32 9.64 9.95 9.69

.23 .74 .38 .82

7.08 4.87 8.45 9.40

Total current assets

Investments and other assets

Investments-other cooperatives

-Bank for Cooperatives

-Total

Other assets

Total investments & other assets

Property, plant, and equipment

At cost

Less accumulated depreciation

67.52 56.32 57.85 60.78

12.30 19.25 15.16 13.75

.18 2.17 1.84 1.56

12.48 21.42 17.00 15.31

1.02 .48 .50 .26

13.50 21.90 17.50 15.57

73.85 81.57 83.27 61.86

54.87 59.79 58.62 38.21

Net PP&E 18.98 21.78 24.65 23.65

Total assets 100.00 100.00 100.00 100.00

Liabilities and owner equities

Current liabilities

Current portion of long-term debt

Notes payable-seasonal

Accounts payable

Patrons credit balances & other liabilities

Accrued taxes

Accrued expenses

Patronage refunds (cash)

1.05 3.24 3.83 3.26

4.44 7.08 18.08 21.74

4.46 5.12 3.61 4.53

19.13 15.57 18.09 15.86

.55 .70 .77 .77

.54 1.35 1.04 1.81

1.15 1.51 .92 1.31

Total current liabilities 31.32 34.57 46.34 49.28

Long-term debt 2.28 3.58 5.64 6.65

Total liabilities 33.60 38.15 51.98 55.93

Owner equities

Allocated equity

Unallocated equity

Total owner equities

46.17 34.99 31.96 32.10

20.23 26.86 16.04 11.97

66.40 61.85 48.02 44.07

Total liabilities and owner equities 100.00 100.00 100.00 100.00

Based on total assets of: $1,408,731 $2,984,345 $6,190,531 $16,492,384

26
Appendix table d-Common Size balance sheets for marketing cooperatives, 1995

Cooperative size

Item Small Medium Large Super

Assets

Current assets

Cash and cash equivalents

Accounts receivable

Inventories-grains and oilseeds

-farm supplies

Prepaid expenses

Other current assets

Percent of total assets

Total current assets

Investments and other assets

Investments-other cooperatives

-Bank for Cooperatives

10.09 6.38 3.38 1.59

3.33 6.44 6.71 7.30

10.71 26.53 33.41 37.35

2.61 3.12 7.06 6.22

1.74 .85 .50 .55

29.22 16.79 12.77 10.49

57.70 60.11 63.83 63.50

19.07 16.10 12.06 10.60

.13 1.43 1.09 1.88

-Total 19.20 17.53 13.15 12.48

Other assets 1.28 .20 .73 .63

Total investments & other assets

Property, plant, and equipment

At cost

Less accumulated depreciation

20.48 17.73 13.88 13.11

71.40 69.73 62.73 56.74

49.57 47.57 40.44 33.35

Net PP&E 21.82 22.16 22.29 23.39

Total assets 100.00 100.00 100.00 100.00

Liabilities and owner equities

Current liabilities

Current portion of long-term debt

Notes payable-seasonal

Accounts payable

Patrons credit balances & other liabilities

Accrued taxes

Accrued expenses

Patronage refunds (cash)

.82 7.59 6.85 3.07

.12 16.73 16.63 22.65

2.43 2.63 8.03 2.82

16.35 16.88 19.22 25.59

.20 .61 .63 .69

.64 .75 1.04 1.06

.59 .82 .78 .72

Total current liabilities 21.15 46.01 53.18 56.60

Long-term debt .77 5.14 5.12 7.40

Total liabilities 21.92 51.15 58.30 64.00

Owner equities

Allocated equity

Unallocated equity

54.58 30.22 27.81 25.43

23.50 18.63 13.89 10.57

Total owner equities

Total liabilities and owner equities

78.08 48.85 41.70 36.00

100.00 100.00 100.00 100.00

Based on total assets of: $1 ,143,857 $2,647,247 $5,492,362 $16,935,051

27
appendix table &Abbreviated income Statement as a percent of net Sale8 for farm supply cooperatives, 1995

Cooperative size

Small Medium Large Super

Percent of net sales

Net safes 100.00 100.00 100.00 100.00

Cost of goods sold 82.58 82.87 82.01 90.78

Gross margin 17.42 17.33 17.99 9.22

Service and other income 3.48 4.28 3.78 3.77

Gross revenue 20.90 21.59 21.75 12.99

Expenses

Employee f 10.09 10.09 10.18 5.59

Administrative 2 1.21 1 .oo .92 .73

General 3 4.54 5.00 5.00 3.33

Depreciation 2.32 2.40 2.24 1.47

Interest .73 .98 .92 .73

Bad debts .20 .27 .18 .08

Total expenses 19.09 19.72 19.40 11.93

Local savings 1.81 1.87 2.35 1.06

Patronage refunds received 2.72 2.49 2.17 1.60

Savings before income taxes 4.53 4.36 4.52 2.66

Less income taxes .24 .15 .30 .19

Net income 4.29 4.21 4.22 2.47

Based on sales of: $2,469,399 $6,737,019 $13,008,043 !$31,582,922

1 Employee expenses include salaries and wages, payroll taxes, employee insurance, unemployment compensation, and pension expense.

* Administrative costs include professional services, office supplies, telephone, meetings and travel, donations, dues and subscriptions,

directors’ fees and expense, and annual meetings.

3 General expenses include advertising and promotion, delivery (auto and truck), insurance, property, business and other taxes and licenses,

rent and lease expenses, plant supplies and repairs, repairs and maintenance, utilities, miscellaneous, and other.

28
Appendix table c-Abbreviated income statement as a percent of net sales for mixed farm supply COOperatiVeS, 1995

Small Medium Large Super

P efcent of net sales

Net sales 100.00 100.00 100.00 100.00

Cost of goods sold 85.12 85.80 83.44 86.13

Gross margin 14.88 14.20 16.56 13.87

Service and other income 3.76 4.51 5.65 4.81

Gross revenue 18.64 18.71 22.21 18.68

Expenses

Employee 1

Administrative 2

General 3

Depreciation

Interest

Bad debts

Total expenses 17.99 17.71 20.32 17.34

Local savings .65 1 .oo 1.89 1.34

Patronage refunds received 1.69 2.10 2.27 1.72

9.41 8.26 10.17 8.00

1.13 1.01 .86 .87

4.61 4.67 5.69 4.99

1.53 2.40 2.39 2.11

83 1.09 1.04 1.18

.48 .28 .17 .19

Savings before income taxes 2.34 3.10 4.16 3.06

Less income taxes .45 .14 .17 .21

Net income 1.89 2.96 3.99 2.85

Based on sales of: $1,429,714 $4,041,710 $7,009,070 $15,044,816

1 Employee expenses include salaries and wages, payroll taxes, employee insurance, unemployment compensation, and pension expense.

2 Administrative costs include professional services, office supplies, telephone, meetings and travel, donations, dues and subscriptions,

directors’ fees and expense, and annual meetings.

3 General expenses include advertising and promotion, delivery (auto and truck), insurance, property, business and other taxes and licenses,

rent and lease expenses, plant supplies and repairs, repairs and maintenance, utilities, miscellaneous, and other.

29
Appendix table -I-Abbreviated income statement as a percent of net sales for mixed marketing co-ops, 1995

Cooperative size

Small Medium Large Super

Percent of net sales

Net sales 100.00 100.00 100.00 100.00

Cost of goods sold 90.95 91.49 92.12 91.78

Gross margin 9.05 8.51 7.88 8.22

Service and other income 3.27 4.28 4.02 4.01

Gross revenue 12.32 12.79 11.90 12.23

Expenses

Employee 1

Administrative *

General 3

Depreciation

Interest

Bad debts

Total expenses

Local savings

Patronage refunds received

Savings before income taxes

Less income taxes

Net income

5.38 5.05 4.91 4.78

.62 .55 .42 .42

3.30 2.39 2.47 3.18

1.50 1.51 1.52 1.56

.37 .65 .98 .99

.26 -25 .23 84

11.43 10.40 10.53 10.97

.89 2.39 1.37 1.26

.80 1.28 1.27 1.09

1.69 3.67 2.64 2.35

.12 .96 1 .Ol .20

1.57 2.71 1.63 2.15

Based on assets of: $1,408,731 $2,984,345 $6,190,531 $16,492,384

1 Employee expenses include salaries and wages, payroll taxes, employee insurance, unemployment compensation, and pension expense.

2 Administrative costs include professional services, office supplies, telephone, meetings and travel, donations, dues and subscriptions,

directors’ fees and expense, and annual meetings.

3 General expenses include advertising and promotion, delivery (auto and truck), insurance, property, business and other taxes and licenses,

rent and lease expenses, plant supplies and repairs, repairs and maintenance, utilities, miscellaneous, and other.

30
Appendix table s-Abbreviated income statement as a percent of net Sales for marketing COOperatiVeS, 1995

Cooperative size

Small Medium Large Super

Percent of net sales

Net sales 100.00 100.00 100.00 100.00

Cost of goods sold 95.43 95.06 94.59 93.74

Gross margin

Gross revenue

Expenses

Employee I

Administrative *

General 3

Depreciation

Interest

Bad debts

Total expenses

Local savings

Patronage refunds received

Savings before income taxes

Less income taxes

4.57 4.94 5.41 6.26

10.40 8.12 8.49 9.93

3.95 2.93 3.13 3.45

.52 .42 .35 .32

3.08 2.12 2.32 3.09

1.33 1.16 1.16 1.21

.29 .52 .66 1.07

.07 .05 .lO .04

9.24 7.20 7.72 9.18

1.16 .92 .77 .75

1.63 .97 .65 .97

2.79 1.89 1.42 1.72

.05 .46 .16.20

Net income 2.74 1.43 1.26 1.52

Based on sales of: $1 ,143,857 $2,647,247 $5,492,362 $16,935,051

’ Employee expenses include salaries and wages, payroll taxes, employee insurance, unemployment compensation, and pension expense.

* Administrative costs include professional services, office supplies, telephone, meetings and travel, donations, dues and subscriptions,

directors’ fees and expense, and annual meetings.

3 General expenses include advertising and promotion, delivery (auto and truck), insurance, property, business and other taxes and licenses,

rent and lease expenses, plant supplies and repairs, repairs and maintenance, utilities, miscellaneous, and other.

3 1
U.S. Department of Agriculture

Rural Business-Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business-Cooperative Service (RBS) provides research, management, and

educational assistance to cooperatives to strengthen the economic position of farmers and

other rural residents. It works directly with cooperative leaders and Federal and State

agencies to improve organization, leadership, and operation of cooperatives and to give

guidance to further development.

The cooperative segment of RBS (1) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and to get better prices for

products they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve services and

operating efficiency; (4) informs members, directors, employees, and the public on how

cooperatives work and benefit their members and their communities; and (5) encourages

international cooperative programs. FIBS also publishes research and educational

materials and issues Rural Cooperatives magazine.

The United States Department of Agriculture (USDA) prohibits discrimination in its

programs on the basis of race, color, national origin, sex, religion, age, disability, political

beliefs and marital or familial status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for communication of program

information (Braille, large print, audiotape, etc.) should contact the USDA Office of

Communications at (202) 720-2791.

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,

Washington, D.C. 20250, or call l-800-245-6340 (voice) or (202) 720-l 127 (TDD). USDA

is an equal employment opportunity employer.