United States

Department of

Agriculture

Rural Business–

Cooperative

Service

RBS Research

Report 175

Financial Management

and Ratio Analysis for

Cooperative Enterprises
Abstract This study discusses differences in financial management and goals between the

investor-oriented firms and cooperatives. It briefly reviews what bankers look for when

appraising potential borrowers. A summary of standard financial ratios used to analyze

a variety of business structures is included, along with other modified ratios to address

deficiencies evident in standard ratios.

Key words: Cooperatives, financial ratio, liquidity, leverage, activity, profitability.

Financial Management and Ratio Analysis For Cooperative Enterprises

David S. Chesnick

Rural Business-Cooperative Service

U.S. Department of Agriculture

Research Report 175

January 2000

Price: Domestic — $5.00

Foreign — $5.50
Preface Several unique financial characteristics differentiate a cooperative from an investor-oriented firm (IOF). When evaluating the cooperative’s performance, comparing a cooperative’sfinancial position with an IOF can be misleading for those unfamiliar with

these characteristics. This report was written to help boards and managers assess the

financial performance of their cooperatives and to familiarize potential creditors with

the unique financial characteristics and performance of cooperatives.

This study discusses the differences in financial management and goals of cooperatives versus IOFs. It starts by discussing the contents of the various cooperative financial statements and follows with a view of common sizing statements for analysis.

Next, it reviews the usefulness of standard financial ratios applied to the cooperative

framework. A brief review shows what lenders look for when analyzing potential borrowers. Finally,financial ratios are developed to build on these standards with an eye

toward a comprehensive understanding of a cooperative s performance. Ratios will be

related to data during the last 18 years from the largest agricultural cooperatives.

i
Contents Preface .............................................................i

Introduction ..........................................................1

Financial Statements ...................................................2

Financial Statement Analysis .............................................4

Common-size Statements ..........................................6

Analysis of Cash Flow .............................................8

Ratio Analysis ....................................................9

Standard Financial Ratios .....................................11

Interdependence of Ratios .....................................11

Trends over Time ............................................12

Ratios for Cooperatives ................................................12

Data ..........................................................13

Conversion Period of Inventories ....................................13

Payout Ratio ....................................................14

Capitalization Growth Rate .........................................14

Profit Index .....................................................15

Local Return on Local Assets .......................................15

Earnings Variability ...............................................16

Income Quality Ratio .............................................16

Cash Interest Coverage Ratio ......................................17

Conclusion ..........................................................17

Bibliography .........................................................18

i
Contents
Financial Management and Ratio Analysis 

for Cooperative Enterprises

David S. Chesnick

RBS Agricultural Economist

Introduction

An analyst must have a clear understanding of

the firm’s objectives to effectively measure its business

performance and management. In most financial textbooks, the objective of a company is maximizing the

value of the owner’s interest in the firm. For the

investor-oriented firm (IOF), the firm’s value depends

on earnings used to reward investors and to reinvest in

productive assets that will generate future earnings.

The interdependence of a firm’s value and its

earnings has led to the theory of profit maximization.

The firm seeks optimum current and future earnings.

This ensures that the long-run return for investors is

maximized through increased returns and the firm’s

appreciating stock value.

On the other hand, cooperatives have goals other

than generating direct profits for their members. Thus,

in the cooperative environment, the interdependence

giving rise to the theory of profit maximization generally will not hold true. In a cooperative, owners are the

primary users. Cooperatives have objectives other than

generating direct profits for its owners. These unique

objectives may cause operational decisions made by

cooperative managers and directors to sometimes differfrom those made by management of IOFs.

Investment in a cooperative is primarily based on

investors use of it. Appreciation in the value of members equity is not common. Additionally,legalrequirements often limit dividends paid on cooperative stock.

As a result, the traditional theory of the firm does not

fully hold in the cooperative environment. Profit maximization translates into neither greater dividend

streams nor appreciated value of the member’s cooperative investment.

Why then would a producer invest in a cooperative? Why would someone be willing to give up access

to these funds without the traditional investment

incentives? The unique nature of the cooperative

owner/user relationship weakens this theory of profit

maximization. Benefits of ownership are not gained

from the appreciation of the cooperative stock value,

but from assured access to competitively priced supplies, assured product market through the cooperative,

or simply access to goods and services not available

elsewhere.

To further illustrate the different functions

between the cooperative and IOF, consider this example of a simplified income statement:

Sales 

Less Cost of goods sold

———————————

Equals Gross Margin

Less Operating expenses

———————————

Equals Profits

Assuming a cooperative and an IOF have identical operating expenses, profit for each is achieved by

maximizing the gross margin. If one assumes a competitive external market, then the cooperative and the

IOF must take the price each receives as given, and,

therefore, can increase gross margins only by reducing

cost of goods sold (COGS). The IOF’s function is to

return more to the investors, thereby trying to lower

the COGS and increase the profits.

In a marketing cooperative, the COGS largely

represents payments to the member/owners for products marketed through the cooperative. Therefore, the

cooperative seeks to return the highest amount to the

member,through higher COGS and lower “profits.”

1
In a farm supply cooperative, sales largely represent purchases by the member/owner for product

received from the cooperative. Again, assuming competitive external markets, both the cooperative and the

IOF must take the price at which it purchases the product for resale as given (i.e., COGS is given). Therefore,

gross margins can be increased only by raising the

sales price placed on farm supply products. While this

is sound business for an IOF, the cooperative seeks to

limit these prices for its members, thereby reducing

profits.

Another concern facing cooperatives is the treatment of equity. Under most circumstances, equity is

risk capital and usually considered permanent in IOFs.

On the other hand, Cobia and Brewer claim that much

of cooperative equity is temporary because cooperatives have an implied obligation to redeem it.

However, the equity is not temporary. Rather,itis

dynamic. Boards generally try to maintain an equity

base, but those who use the cooperative and own that

equity may change from year to year depending on the

use of it.

From an analytical point of view, the most significant information in the equity section of the balance

sheet relates to the composition of the capital accounts

and to restrictions. The analyst must know how to

reconstruct and to explain changes in the capital

accounts, especially with cooperatives.

An analysis of restrictions imposed on the distribution of equity usually sheds light on the cooperative’s freedom of action in such areas as patronage distributions and levels of working capital. Such

restrictions also note the cooperative’s bargaining

strength and standing in the credit markets. Moreover,

a careful reading of the covenants will enable the analyst to assess the potential for default.

Financial Statements

A brief review of cooperative financial statements

is warranted before starting a discussion of financial

analysis. Financial statements provide certain basic

information that focuses on the entity as a whole and

meets the common needs of external users. Three main

financial statements arerequired from businesses—a

statement of financial position (balance sheet), a statement of activities (operating statement), and a statement of cash flows.

The balance sheet states the cooperative’s assets,

liabilities, and members equity as of a particular date,

for example, as of Dec. 31, 2001. Asset values are usually stated at historical cost (what the cooperative paid

for it). However, some accounting standards prescribe

using current market values for specific assets.

The stated liabilities indicate the amount owed

and are stated at cost. Members’ equity is the difference between assets and liabilities. The balance sheet

of Farmer Cooperative is shown in table 1. Notice that

cooperative equity is divided into allocated and unallocated portions. Allocated equity is owned by specific

members. Unallocated equity is not earmarked for specific members and is used as a general reserve.

The operating statement (table 2) reveals a cooperative’s performance during a particular period of

time, such as the fiscal year ending Dec. 31, 2001. It

reports revenues from sales, services, and patronage

refunds received from other cooperatives. It also

includes various costs, including the cost of goods

sold, general and administrative expenses, interest

expenses, and taxes. Some marketing cooperatives

report the results of their commodity pools in the operating statement.

The Statement of Cash Flows (SCF) indicates cash

receipts and cash disbursements during the accounting

year. The SCF summarizes the operating, investing,

and financing activities of a business enterprise during

an accounting period and completes the disclosureof

changes in financial position that aren’t readily apparent in comparative balance sheets and income statements (table 3).

The SCF complements the financial description of

a business when used in conjunction with the operating statement and balance sheet. Looking at annual

“trends” of cash flows over several years enhances the

analysis. The SCF presents “pure cash flow” information that sometimes is difficult to glean from the other

statements.

Decisions that might not affect the long-run ability of the firm to generate a positive net income may

affect the cash flow information disclosed for a particular period. The net cash flow from operations, however, shouldn’t be viewed as a substitute for net

income. Both the cash and accrual descriptions of

events are important, and the inclusion of an SCF

ensures that both will be available for the assessment

of the future cash flow and income potential of the

cooperative.

One additional financial statement is frequently

available in the annual reports issued by cooperatives.

The Statement of Changes in Members Equity (table 4)

describes how various equity accounts areaffected

2
3

Table 1—Farmer Cooperative’s balance sheet for years ended Dec. 31, 2000 and 2001

Assets 2001 2000

Dollars

Current assets

Cash and equivalents 113 7

Accounts receivable 12,092 13,511

Inventories 21,825 20,805

Other current assets 333 274 ______ ______

Total Current Assets 34,364 34,596

Investments

Bank for Cooperatives 3,679 3,225

Other cooperatives 505 443

Other businesses 0 0

Other investments 0 0 ______ ______

Total Investments 4,184 3,668

Net plant, property and equipment 22,424 19,086

Other assets 312 301 ______ ______

Total Assets 61,283 57,652

Liabilities and Members Equity

Current liabilities

Current portion long-term debt 1,246 1,783

Seasonal notes and loans 8 9,188 ______ ______

Total Short-term Liabilities 1,254 10,971

Trade accounts payable 20,359 13,234

Cash payments to members 2,477 738

Patron and pool liabilities 0 0

Other current liabilities 2,001 1,054 ______ ______

Total Current Liabilities 26,091 25,998

Long-term Debt 10,677 9,927

Other Non-current Liabilities 0 0

Minority Interests 0 0

Members’ Equity

Allocated

Preferred stock 288 320

Common stock 89 90

Equity certificates 22,387 19,589

Unallocated capital 1,751 1,728 ______ ______

Total Member Equity 24,515 21,727 ______ ______

Total Liabilities and Equity 61,283 57,652
during the business cycle. Cooperatives generate equityfrom several sources, including net income, issuance

of stock, and per-unit capital retains.

Financial Statement Analysis

The amount of information contained in a cooperative’s financial statements is voluminous, spanning

the cooperative’s internal operations, its relationship

with the outside world, and its relationship with its

member/patrons. To be useful, this information must

be organized into an understandable, coherent, and

sufficiently limited set of data. Financial statement

analysis can be beneficial in this respect because it

highlights a firm’s strengths and weaknesses.

Data from a cooperative’s financial statements

reveal the company’s financial condition. Examining

common-size statements, cash flows, and financial

ratios provides management, members, and creditors a

glimpse of the cooperative’s strengths and weaknesses.

The value of a particular ratio compared with a target

range of values indicates the firm’s financial health,

and also identifies potential problem areas. Analysis

can also indicate areas of mismanagement and potential danger.

As with all analytical methods, common-size

statements, cash flow data, and financial ratios must

be used in the light of other relevant facts. Also, the

analyst must remember that financial statements area

“snapshot” of a firm at a particular point in the past. In

a highly seasonal industry, conclusions drawn through

4

Table 2—Farmer Cooperative’s operating statement for years ended Dec. 31, 2001 and 2000

2001 2000

Dollars

Revenues

Marketing sales 73,513 76,700

Farm supply sales 46,710 46,053 ______ ______

Total Sales 120,223 122,753

Cost of sales 98,474 106,057 ______ ______

Gross Margin 21,749 16,695

Other operating revenues 0 0 ______ ______

Total Operating Revenue 21,749 16,695

Expenses:

General and administrative 11,850 10,263

Operating 2,759 2,836 ______ ______

Net Operating Income 7,139 3,596

Other Revenues (expenses):

Patronage refunds received 483 348

Interest income 162 120

Other income 31 107

Interest expense (1,493) (2,095)

Other expenses 0 0 ______ ______

Net Income, Continuing Operations 6,322 2,076

Other margin interests 0 0

Discontinued operations 0 0

Extraordinary items 0 0 ______ ______

Net Income Before Taxes 6,322 2,076

Taxes 8 35 ______ ______

Net Income to be Distributed 6,314 2,041
5

Table 3—Farmer Cooperative’s statement of cash flows for years ended Dec. 31, 2001, and 2000

Adjustments to reconcile net margins to net cash flows from operating activities

——————————————————————————————————————

2001 2000

Dollars

Net Margins From Operations 6,314 2,041

Depreciation and amortization 2,759 2,836

Deferred taxes 0 0

Loss (Gain) from asset disposal 7 (74)

Loss (Gain) from investment disposal 0 0

Patronage refunds received, (non-cash) (232) (221)

Other cash adjustments 0 0

Other non-cash operating adjustments 0 0 ______ ______

Cash From Operating Activities 8,848 4,582

Cash Provided (Used) by Changes in Assets and Liabilities

Receivables 1,419 89

Inventories (1,022) 7,345

Other current assets (59) 88

Accounts pay 7,124 (4,188)

Due patrons 0 0

Other current liabilities 946 81

Other assets and liabilities 0 0 ______ ______

Net Cash Flow Operations 17,256 7,997 ______ ______

Net Cash Flow Discontinued Operations 0 0 ______ ______

Net Cash Flow Operating Activities 17,256 7,997

Cash Flows From Investing Activities:

Purchases property, plant, and equipment (6,113) (4,162)

Proceeds sale or disposal PP&E 9 76

Purchases, equity in cooperatives (284) (1)

Redemptions equity in cooperatives 0 11

Change in other investing activities (9) 131 ______ ______

Net Cash Flow Investing Activities (6,396) (3,946)

Cash Flow From Financing Activities:

Net change in short-term liabilities 0 0

Long-term bank debt

Proceeds 40,964 47,848

(Payments) (49,930) (49,858)

Capital lease payments 0 0

Stock transactions

Proceeds 3 1

(Redemptions) (36) (7)

Per-unit capital retains 0 0

Equity certificates issued 0 0

Equity certificates redeemed 0 0

Cash patronage refunds (1,732) (2,007)

Stock dividends (22) (28)

Other financing adjustments 0 0 ______ ______

Net Cash Flow From Financing Activities (10,753) (4,051) ______ ______

Net Change Cash and Equivalents 106 0

Cash at Beginning of Year 7 7 ______ ______

Cash at End of Year 113 7

Supplemental Information

Interest paid 1,697 2,056

Income taxes paid 26 (5)
ratio analysis might depend greatly on the period

being analyzed. Historical comparison adds to any

analysis.

Common-size Statements

When analyzing financial statements, it is helpful

to determine the proportion that a single account item

represents of a group or subgroup total. This works

especially well for comparing various sizes of cooperatives. In a balance sheet, total assets is expressed as 100

percent. Each item in a common-size balance sheet is

expressed as a percentage of the total assets. Similarly,

in the income statement, total net sales is set at 100

percent and all other items are expressed as a percentage of net sales. Tables 5 and 6 illustrate the commonsize balance sheet and income statement for Farmer

Cooperative.

The analysis of common-size financial statements

may best be described as structural. In the analysis of

the balance sheet, the structural analysis focuses on

several important aspects. What is the capital structure

of the cooperative? (E.g., how much of the cooperative’s assets is financed by current liabilities, long-term

liabilities, and member equity?) And what is the distribution of the cooperative’s assets (current, fixed, and

other)? Put another way, what is the mix of assets the

cooperative uses to conduct operations?

Common-sizing can also be used within subgroups on the financial statements. For example, it

may be of interest to know both the percentage of cash

to current assets as well as the percentage of cash to

total assets. Knowing both provides a better understanding of the cooperative’s liquidity.

In the case of the income statement, common-size

analysis is a very useful tool, perhaps more important

than the analysis of the common-size balance sheet.

The income statement lends itself to this form of analysis. Each item in it is related to a central quantity,that

is, sales. With some exceptions, such as some administration and overhead, the level of each revenue and

expense is directly related to the level of sales. Thus, it

is instructive to know what proportion of the sales dollar is absorbed by the various costs and expenses

incurred by the cooperative.

The use of common-size financial statements for

comparing cooperative financial performance over

time is valuable in focusing on changing proportions

of components within a group of assets, liabilities, revenues, expenses, and other financial categories.

However, one must be careful in interpreting

changes. For example, the percentage of accounts

receivable to total assets could show an increasing

trend. Yet, the actual dollar value of accounts receivable might be the same and the increase in the percentage is caused by a decline in total assets, e.g., because

6

Table 4—Farmer Cooperative’s statement of changes in allocated patronage refunds and capital reserve for

years ended Dec. 31, 2001 and 2000

Unallocated Allocated

Equity Equity

Dollars

Balance - Dec. 31, 1999 1,567 19,701

Net Margins 2,041

Net Margins Allocated to Patrons (1,922) 1,922

Transfer 71 (71)

7% Dividend on Stock (29)

Patronage Distributions paind in cash

40 percent 2000 Patronage Refund (738)

Allocated Patronage Revolvement (1,225) ______ ______

Balance - Dec. 31, 2000 1,728 19,589

Net Margins 6,314

Net Margins Allocated to Patrons (6,253) 6,253

Transfer (16) 16

7% Dividend on Stock (22)

Patronage Distributions paind in cash

40 percent 2000 Patronage Refund (2,477)

Allocated Patronage Revolvement (993) ______ ______

Balance - Dec. 31, 2001 1,752 22,387
7

Table 5—Farmer Cooperative’s common size balance sheet for year ended Dec. 31, 2000 and 2001

Assets 2001 2000

Percent

Current assets

Cash and equivalents 0.2 0.0

Accounts receivable 19.7 23.4

Inventories 35.6 36.1

Other current assets 0.5 0.5 ______ ______

Total Current Assets 56.1 60.0

Investments

Bank for Cooperatives 6.0 5.6

Other cooperatives 0.8 0.8

Other businesses 0.0 0.0

Other investments 0.0 0.0 ______ ______

Total Investments 6.8 6.4

Net plant, property and equipment 36.6 33.1

Other assets 0.5 0.5 ______ ______

Total Assets 100.0 100.0

Liabilities and Members Equity

Current liabilities

Current portion long-term debt 2.0 3.1

Seasonal notes and loans 0.0 15.9 ______ ______

Total Short-term Liabilities 2.0 19.0

Trade accounts payable 33.2 23.0

Cash payments to members 4.0 1.3

Patron and pool liabilities 0.0 0.0

Other current liabilities 3.3 1.8 ______ ______

Total Current Liabilities 42.6 45.1

Long-term Debt 17.4 17.2

Other Non-current Liabilities 0.0 0.0

Minority Interests 0.0 0.0

Members’ Equity

Allocated

Preferred stock 0.5 0.6

Common stock 0.1 0.2

Equity certificates 36.5 34.0

Unallocated capital 2.9 3.0 ______ ______

Total Member Equity 40.0 37.7 ______ ______

Total Liabilities and Equity 100.0 100.0
of lower fixed assets or a write-off of investments.

Because a proportion can change either in the absolute

amount of the item or in the total of the group of

which it is a part, the interpretation of a common-size

statement comparison requires an examination of the

actual figures and the basis on which they are computed.

Analysis of Cash Flow

While managers and financial officers know the

cash flow and earnings potential for their cooperative,

many potential creditors might not. Most look at the

financial statements of the cooperative and pick out

specific information to determine if the cooperative

can repay a loan.

For example, if inventory levels uncharacteristically increase without a corresponding rise in sales, the

creditor may perceive the cooperative is in a less liquid

position—unaware the cooperative is preparing for

additional seasonal demand by purchasing early to

gain preseason discounts in the current year. The

lender perceives that the uncharacteristic increase is a

sign of old inventory left over from the prior season,

leading to obsolete goods and future sales losses.

In other situations, the loan officer may not have

a clear understand of the concept of pooling. The creditor may see low profitability ratios and deny the loan

because they do not believe the cooperative can generate enough revenue. But a cooperative operating on a

pooling basis may show higher cost of goods sold

because of the way margins are distributed at the end

of the year.

It is imperative that the cooperative inform

lenders about the nature of its business and the back8

Table 6—Farmer Cooperative’s common size operating statement for year’s ended Dec. 31, 2001 and 2000

Assets 2001 2000

Percent

Revenues

Marketing sales 61.1 62.5

Farm supply sales 38.9 37.5 ______ ______

Total Sales 100.0 100.0

Cost of sales 81.9 86.4

Gross Margin 18.1 13.6

Other operating revenues 0.0 0.0 ______ ______

Total Operating Revenue 18.1 13.6

Expenses:

General and administrative 9.9 8.4 ______ ______

Operating 2.3 2.3

Net Operating Income 5.9 2.9

Other Revenues (expenses):

Patronage refunds received 0.4 0.3

Interest income 0.1 0.1

Other income 0.0 0.1

Interest expense (1.2) (1.7)

Other expenses 0.0 0.0 ______ ______

Net Income, Continuing Operations 5.3 1.7

Other margin interests 0.0 0.0

Discontinued operations 0.0 0.0

Extraordinary items 0.0 0.0 ______ ______

Net Income Before Taxes 5.3 1.7

Taxes 0.0 0.0 ______ ______

Net Income to be Distributed 5.3 1.7
ground behind sudden changes in financial position. If

left to an inexperienced or uninformed lender,the

cooperative may not receive its anticipated loan.

There are several key cash-related early warning

signs of financial difficulties. In addition to looking at

ratios, lenders often look at changes in various

accounts over time. They want to see if there are any

major changes or slow erosions taking place. In other

words, is the liquidity of the cooperative going to be a

problem before the loan is repaid? Bankers look for

early warning signs, including: continued reliance on a

line of credit, overdrafts, increases in inventory and/or

receivables, patronage refunds and other payments to

members greater than earnings, and a history of poor

cash flow from operations. Most of these changes are

evident or can be determined from the SCF.

The SCF sheds light on the effects earning activities have on cash resources and financing of the cooperative. It helps clarify the distinction between “reported net income” and “cash provided by operations”

—two different concepts. Net income can be misleading because it is influenced by several estimated values (i.e., depreciation schedules, bad debt expense,

and inventory valuation). Cash flow is “real cash”

flowing in and out due to operations, investing, and

financing activities. Consequently, cash flow should

never be confused with net income.

The ability of an enterprise to consistently generate cash from operations is an important indicator of

financial health. No cooperative can survive the long

term without generating cash from operations. While a

cooperative can inflate cash flows through both financing and investment, operations must keep the cooperative financially viable in the long run. The interpretation of cash flow from operations and related trends

must be made with care and a full understanding of all

circumstances.

Prosperous as well as failing entities may find

themselves unable to generate cash from operations at

any given time, but for different reasons. The entity

caught in the prosperity squeeze of having to invest its

cash in receivables and inventories to meet everincreasing customer demand will often find that its

profitability will facilitate financing by equity and

debt. That same profitability should, ultimately, turn

cash flow from operations into a positive figure.

The unsuccessful entity might find its cash

drained by slowdowns in receivables and inventory

turnovers, by operating losses, or by a combination of

these factors. These conditions usually contain the

seeds of further losses and cash drains that may eventually lead to the drying up of trade credit. In such

cases, a lack of cash flow from operations has a different implication.

The next SCF category is cash flows from investing activities. Most businesses must reinvest cash in

order to remain viable. The largest cash flows fro m

investments, by far,are those in property, plant, and

equipment (PP&E). For the past 5 years, PP&E purchases represented 92 percent of total cash outlays for

investments of the largest 100 agricultural cooperatives. Cash flow from investing activities generally is

negative, but not always. If a cooperative sells capital

assets or receives significant patronage refunds, the

value could be positive. However, a cooperative that

resorts to selling capital assets or productive capacity

to generate a positive cash flow cannot do so indefinitely.

Cash flow from financing activities varies

tremendously from year to year. Most inflows and outflows are either from proceeds or from repayment of

long-term debt. Between 60 and 70 percent of both

cash inflows and outflows from the 100 largest agricultural cooperatives since 1987 werefrom these two categories. However,ifthetrend for the cooperative is a

continuous inflow of cash from financing and the

cooperative is not expanding, then a closer look is warranted. For example, if the cooperative is using external funds to purchase capital assets, it is investing in

the future. On the other hand, if it is using external

funds to finance operations, the cooperative could be

heading toward a liquidity crisis.

After looking at all those sources of cash—operations, investment, and financing—a creditor can get an

idea of where the cooperative is heading financially.

Table 7 illustrates some general guidelines on whereto

focus the analysis. An analyst should look at the trends

and the magnitude of change over the years and not

just a single year of information.

Above all, the SCF must be approached with care.

The analyst must understand the concept of cash flo w

and other non-cash expenses in relation to net income.

If not, the analyst may be trapped by the numerous

cliches and useless generalizations, which are all too

often employed even by those who should know better.

Ratio Analysis

Ratios are the most widely used tools for financial analysis. Yet, their function is often misunderstood, and, consequently, their significance may easily

be overrated.

A ratio expresses the mathematical relationship

between two quantities. The ratio of 200 to 100 is

9
expressed as 2:1 or 2. While the computation of a ratio

involves a simple arithmetical operation, its interpretation is far more complex.

The ratio must express a relevant relationship.

For example, there is a clear,direct, and understandable relationship between the sales price of an item

and its cost. On the other hand, there is no realrelationship between salaries and investments in other

cooperatives.

Ratios are analysis tools that provide clues to

help identify symptoms of underlying conditions.

Analysts, depending on their needs, may differ in the

ratios they find useful when examining a cooperative’s

financial position. Short-term creditors are primarily

interested in the cooperative’s current performance

and its holdings of liquid assets that can provide a

ready source of cash to meet current cash requirements. These assets include cash, marketable securities, accounts receivable, inventory, and other assets

which can be sold for cash or can become cash through

the normal course of a business cycle. Long-term creditors and member/owners, on the other hand, are concerned with both the long-term and short-term outlook. Management will also find ratios useful in

measuring its own performance.

As a final note of caution, the analysis of ratios is

useful only when all influencing factors are interpreted

skillfully and intelligently. This is, by far, the most difficult aspect of ratio analysis. Look at a simple example relating to a non-financial problem. In comparing

the ratio of gas consumption to mileage driven, driver

A claims to be moreefficient than driver B (i.e., A gets

30 mpg and B only gets 20 mpg). Assuming that both

drive the same car, it would appear that driver A is

moreefficient. However, other facts should be considered:

● weight of the load carried,

● type of terrain (flat versus hilly),

● city or highway driving, and

● speed at which the car was driven.

10

Table 7—Cash flow analysis

Scenario

–––––––––––––––––––––––––––––––––––––––––––––––––——————–––––––––––––––––––––––

1 2 3 456 7 8

Cash From Operation + - + + - - + -

Cash From Investment + + - + - + - -

Cash From Financing + + + - + - - -

(+) increase in cash flow

(-) decrease in cash flow

Scenario

1. The cooperative is using cash flow from all three areas (operations, investments, and financing) to build up cash reserves. The cooperative

may be looking for acquisition. This position is not stable in the long run. 

2. The cooperative is subsidizing its operations through debt/equity and selling off parts of its investments. This situation is not stable in the

long run. 

3. The cooperative is expanding its operation, using the positive cash flows from operations and financing to expand its capital base. This

scenario is stable. 

4. The cooperative is selling off its assets and using the cash from operations to pay off member equity/debt. However, the cooperative can

not keep selling off its investments and survive in the long run. This is a stable scenario in the short run.

5. The cooperative could be expanding operations because of increased business or business could be in a downturn. Either way, it is not a

stable long-term position. This scenario is indeterminate. 

6. The business is contracting and the cooperative is selling off its investments to fund operations and retire its equity/debt. This situation is

not stable. 

7. The cash flows from operations are funding capital expansion and debt/equity retirement. This scenario shows very strong operations and

is stable. 

8. The cooperative is drawing down its cash reserves and may face liquidity problems in the near future. This situation is not stable.
All of these driving factors influence gasoline

efficiency. In financial analysis, the same premise

holds. The ratios should be used as a tool to help find

strengths and weaknesses but, other factors should

also be considered.

Standard Financial Ratios—Four categories of

ratios are typically used in analyzing financial

position:

● Liquidity

● Leverage

● Activity

● Profitability

Liquidity ratios measure the ability to fulfill

short-term commitments with liquid assets. Such

ratios are of particular interest to the cooperative’s

short-term creditors. These ratios compare assets that

can be converted to cash quickly to fund maturing

short-term obligations. The current ratio and the quick

ratio are the two most commonly used measures of liquidity. For most cooperatives, these two ratios provide

a good indication of liquidity. However, these ratios do

not address the quality of liquid assets.

Leverage ratios measure the extent of the firm’s

“total debt” burden. They reflect the cooperative’s

ability to meet both short- and long-term debt obligations. The ratios are computed either by comparing

earnings from the income statement to interest payments or by relating the debt and equity items fro m

the balance sheet. Creditors value these ratios because

they measure the capacity of the cooperative’s revenues to support interest and other fixed charges, and

indicate if the capital base is sufficient to pay off the

debt in the event of liquidation.

In terms of debt load, the more predictable the

returns of the firm, the more debt will be acceptable,

because the firm will be less likely to be surprised by

circumstances that prevent fulfilling debt obligations.

For example, utilities (i.e., rural electric cooperatives)

have historically had relatively stable incomes, but are

also among the industries with the heaviest debt structure. By contrast, fruit and vegetable cooperatives are

in a cyclical business, where income is greatly influenced by weather conditions, and they normally carry

a far lower proportion of debt in their capital structure.

Activity ratios show the intensity with which the

firm uses assets in generating sales. These ratios indicate whether the firm’s investment in current and

long-term assets is too large, too small, or just right. If

too large, funds may be tied up in assets that could be

used more productively. If too small, the firm may be

providing poor service to customers or inefficiently

producing products.

There are two basic approaches to the computation of activity ratios. The first looks at the average

performance of the firm over the year. The second uses

year-end balances in the calculations.

The first method is preferred if asset balances

fluctuate significantly during the year. For example,

inventory levels for most fruit and vegetable cooperatives vary significantly, depending on the time of the

season. If the fiscal year ends before the harvest, when

inventories are low, calculations using year-end balances will be biased and the resulting ratios will be of

little value for comparing between different cooperatives. The second method is the most commonly used

approach because in practice, data limitations often

force outside analysts to use year-end data.

Profitability ratios measure the success of the

firm in earning a net return on its operations. Profitis

an important objective of a cooperative, so poor performance indicates a basic failure that, if not corrected,

would probably result in the firm going out of business. Cooperatives must operate profitably, although

their definition of profitable might differfrom an

IOF’s. Hence, appropriate profitability ratios pose the

biggest challenge for analyzing cooperatives.

Patronage refund policies have a dramatic effect

on cooperative profitability ratio analysis. Some cooperatives return patronage at the end of the operating

year and show significant profits on the closing statements. Other cooperatives have different operational

policies and may show little end-of-the-year profits.

Lending institutions not familiar with these businesses

may shy away from cooperatives with low reported

net income. This will be especially true for pooling

cooperatives that generally report a minimum amount

of income at year-end.

Common ratios used to analyze the four areas of

financial performance can be found in most basic

financial textbooks and were developed to analyze a

wide variety of businesses. Most of these ratios are

applicable to the cooperative form of business, while

others should be viewed with some reservation.

Interdependence of Ratios—Ratios must be

evaluated together, not independently. A firm may

have low liquidity ratios, but more than adequate

leverage, interest coverage, and profitability ratios.

This firm would be in a good position to obtain

additional long-term funds, and in the process, pay

down short-term debt or purchase liquid assets. This

11
firm would improve its liquidity ratios while maintaining adequate levels of the remaining performance

measures.

The net operating margin (net margin/sales) will

be used to further illustrate the interdependence

between ratios. Knowing the value of the net operating

margin without knowing the level of sales is not too

helpful. The net operating ratio may be lower than the

industry average, but this might be because the firm

has cut margins to increase total sales. The result may

be that the firm’s return on assets is extremely high for

the industry, if the firms increased sales are sufficient

to compensate for the lower return per dollar of sales.

Consider this example:

In this example, if the net operating margin is

low and the assets turnover ratio (sales/assets) is high,

return on total assets may be high. Consequently,a

low operating margin due to a price cut policy that

increases sales may prove to be a very profitable situation.

Similarly, the net operating margin may be high

but the return on total assets may be poor. This occurs

when the firm has excess operating capacity and consequently a high level of non-performing fixed assets.

However, more information is needed to understand

whether or not this is a good situation for the cooperative. For example, this may be the case where the

firm’s business is contracting and could benefit by selling off unused facilities or by using the remaining

fixed assets moreefficiently. On the other hand, the

firm may experience a tremendous increase in sales

and is expanding its production facilities beyond their

current needs, expecting to grow into the facilities in

the future.

Trends over time—Historical information can be

very beneficial when analyzing financial performance.

When analysis reveals certain weaknesses in a

cooperative’s financial health, the initial management

reaction may be to take immediate action to correct the

situation. However, if historical trend analysis

indicates the situation is improving, the best remedy

may be to monitor performance for continued

improvement—in other words, don’t overreact.

Historical trends are important for other reasons

as well. During the life of the firm, pricing, credit policy,production methodology, and other areas under

managerial control can change. Each change has an

effect on the firm’s performance. Ratios analyzing

these changes provide feedback to management. A

thorough analysis of the performance ratios regarding

managerial policies in effect at each period of time

may guide future policy decisions.

Another reason to look at historical performance

of a cooperative is to avoid the difficulties encountered

when comparing two similar cooperatives. Although

comparisons should be between like firms, generally,

no two firms are exactly the same.

While two farm supply cooperatives may be of

similar size, one may sell mostly bulk feed with lower

margins, while the other sells more agronomy products, which typically carry higher margins. Also,

boards may vary on their philosophy on the ideal capitalstructure. One cooperative may be debt-free but the

another cooperative board might feel that returns fro m

leveraging the cooperative outweigh the risk of acquiring the debt.

Ratios for Cooperatives

There are some inherent problems associated

with some common ratios used in cooperative financial analysis. Some problems are intrinsic with the

ratios themselves and some are with the cooperative

structure. For instance, the current ratio is used to analyze liquidity.Itprovides a good benchmark for determining whether a cooperative has liquid assets to

cover current payments. However, interpreting these

ratios beyond the conclusion that it represents current

resources over current obligations at a given point in

time requires a more in-depth look at the trends of the

individual parts that make up the ratio. A current ratio

doesn’t show the quality of the liquid assets which can

greatly affect the “true” liquidity.

Profitability ratios can also be deceiving. As mentioned earlier, cooperatives are generally not profit

motivated. They are more concerned toward serving

member-owners. Therefore, low profit ratios can be

misleading to the analyst, especially with some pooling cooperatives.

This next section looks at limitations and tries to

remedy the shortcomings of common ratios. Along

with each ratio, a table illustrates the values from the

database of the largest agricultural cooperatives. These

values are presented to show an order of magnitude.

The average values and the high and low corresponding to the 95 percentile are included in the table. These

12

Net margins Net margins Sales —————— —————— ————— Total assets Sales Total assets

= x
ratio values might not relate to the optimal value for

efficient operations, but have value for comparison

purposes.

Data

The ratios were developed from financial data

taken from 113 cooperatives across an 18-year period—

1980-97. When two or more cooperatives merged, no

attempt was made to estimate the financial statements

as if they had merged prior to the point of merger.

Once a cooperative ceased to exist, either through

merger or through cessation of operations, it was no

longer included in the database. A ratio for each cooperative was computed from 18 years of data. If the

cooperative was less than 18 years old, the total number of years the cooperative was in service was used.

These values were then averaged.

Conversion Period of Inventories

Creditors must be concerned not only with the

current liquidity position of the firm, but also with its

overall financial position. The current or quick ratios

alone do not tell the whole story. A firm with adequate

liquidity ratios might be a greater threat to short-term

creditors if its liquidity is tied up in uncollectible

accounts receivable or outdated inventory. However,

this does not imply that liquidity ratios areirrelevant.

On the contrary, a higher liquidity ratio is generally

preferred.

A look at the quality of the current assets indicates how well the cooperative can meet current obligations. The average cooperative has more than 75 percent of current assets tied up in inventories and

accounts receivable, so the asset quality warrants closer examination. One way to examine the liquidity of

accounts receivables and inventories is to calculate the

conversion period of inventories.

Although not a cooperative-specific ratio, the

conversion period of inventories is used to analyze the

quality of the least liquid current assets—inventory

and accounts receivable. The value represents the average number of days it takes to convert inventories into

cash. The ratio is calculated in three steps. Each step is

important on its own.

The first step is to determine the number of days

it takes to sell inventory. This is calculated by dividing

the average inventory by the cost of goods sold multiplied by 360 days or 360 days divided by the inventory

turnover ratio. This ratio provides insight into how

many days the average inventory sits on the shelf or in

storage. Usually a lower value is better (Table 8).

The use of average monthly inventory is preferable to taking the beginning and ending inventory

divided by two. Many cooperatives end their fiscal

year when inventory levels are at their seasonal low.

This will suppress the value. Due to limited information, these values are calculated by taking the beginning and ending inventory levels divided by two.

However, 360 days is an arbitrary number. Most

businesses have fewer than 360 working days. But,

using a standardized number allows comparisons

between different time periods and cooperatives.

If all sales are cash, this procedure gives the number of days to convert inventory to cash. However, two

more steps are needed if there arecredit sales—calculate the days in accounts receivable and add that value

to days in inventory.To calculate this ratio, use the

average accounts receivable divided by the total credit

sales for the year multiplied by 360 days. As with the

days to sell inventory, the days in accounts receivable

is 360 days divided by accounts receivable turnover

(Table 9).

In the third step, the conversion period is calculated by adding the days to sell inventory and days in

accounts receivable. Although using credit sales to

determine days in accounts receivable is more accurate, total sales works without more detailed informa13

Average Inventory

Days to sell inventory = ———————— * 360 days

Cost of goods sold

=

Table 8—Days to sell inventory

95 Percent Confidence Interval

————————————————

Average High Low

All 49 57 40

Cotton 63 98 27

Dairy 19 26 11

Diversified 44 49 39

Farm Supply 41 52 30

Fruit/Vegetable 105 136 74

Grain 46 55 37

Poultry/Livestock 4 8 0

Rice 90 134 45

Sugar 58 78 38

Average accounts receivable

Days in accounts receivable (— — — — — — — — — — — — )* 360 days

Credit sales

=
tion. If a distinction between credit and cash sales can

be made, the following weighted average formula

should be used:

This value should help management and creditors gauge liquidity of the cooperative’s inventory and

accounts receivable. If the cooperative has a substantial percentage of current assets tied up in these two

accounts, then a high ratio number implies the cooperative’s current position might not be very liquid (Table

10).

Payout Ratio

This ratio measures the proportion of current and

past earnings returned to members during the year,

looking only at total cash disbursements. The numerator consists of all cash payments to members. This is

important because the equity portion of cooperatives is

not static. This ratio examines the equity revolvement

and dividend policy.

A value of less than 1 indicates the cooperative is

growing its equity position or not revolving member

equity, while a value of greater than 1 implies a shrinking of its equity base. While this ratio is important to

allcreditors, those with a long-term stake should look

at the trend during the past few years to see if the

cooperative’s at-risk capital is being maintained (Table

11).

Capitalization Growth Rate

The payout ratio can further determine the capitalization growth rate of the cooperative. In other

words, creditors and members may want to forecast

the growth of the cooperative’s at-risk capital base.

This will show whether the cooperative can continue

revolving member equity and still maintain the equity

base to ensure enough capital to satisfy creditors.

14

Table 9—Days in accounts receivable

95 Percent Confidence Interval

————————————————

Average High Low

All 27 30 24

Cotton 17 20 14

Dairy 26 28 23

Diversified 42 66 17

Farm Supply 30 36 23

Fruit/Vegetable 36 48 24

Grain 20 24 17

Poultry/Livestock 22 40 4

Rice 32 39 24

Sugar 25 31 19

Table 10—Conversion period of inventories

95 Percent Confidence Interval

————————————————

Average High Low

All 75 84 67

Cotton 80 116 44

Dairy 44 52 37

Diversified 86 114 57

Farm Supply 71 84 58

Fruit/Vegetable 141 169 113

Grain 66 75 58

Poultry/Livestock 26 45 7

Rice 121 165 78

Sugar 83 99 68

Percent Cash Sales * Days to Sell Inventory

+Percent Credit Sales * (Days to Sell Inventory +Days in Accounts

Receivable)

——————————————————————————————

Conversion Period of Inventories

Table 11—Payout ratio

95 Percent Confidence Interval

————————————————

Average High Low

All 0.59 0.66 0.51

Cotton 0.85 0.99 0.71

Dairy 0.72 0.84 0.60

Diversified 0.23 0.44 0.01

Farm Supply 0.46 0.61 0.32

Fruit/Vegetable 0.66 0.88 0.44

Grain 0.42 0.52 0.31

Poultry/Livestock 0.47 0.62 0.31

Rice 0.61 0.90 0.33

Sugar 0.63 1.00 0.25

Cash patronage dividends + other 

dividends + revolving equity redeemed 

Payout Ratio ———————————————————

N et margins

=
However,care must be used when interpreting the

growth rate. The analyst must look at the rate over

time to smooth out the boom/bust years (Table 12).

Profit Index

The profit index looks at pricing policy and

inventory control. Although generally associated with

retail sales, it can be used for marketing cooperatives.

However, some marketing cooperatives show higher

values due to value-added activities and timing of

inventory recording. A few of the largest cooperatives

have been using this ratio for some time in analyzing

their inventory control and pricing policy.

The ratio is calculated by taking the gross margin

percent times inventory turnover. If a cooperative

maintains its inventory and margins so that the profit

index is close to 1, the cooperative will likely be profitable. If the cooperative has certain inventory items

that have a high turnover (e.g., feed), the profit margin

will not need to be high. High volume and low margins should generate enough revenues to cover overhead expenses. However, if the cooperative has items

that don’t have a high sales volume (e.g., tractors), a

higher margin will be needed to compensate for the

low turnover (Table 13).

Local Return on Local Assets

One area in which cooperatives can get themselves into trouble is relying on patronage refunds

from other cooperatives to balance revenue against

expenses. For perspective, nine of the largest cooperatives in this database would have reported a net loss

without patronage refunds from other cooperatives in

1997. Because this income sourcerelies on the operations from an outside business, it does not reflect the

operations of the cooperative being analyzed.

Therefore, excluding this source of income will provide a more accurate analysis of the cooperative’s

operation.

Similarly, investment in other cooperatives

should not be included in the asset base when looking

atreturn on assets. The equity investment in other

cooperatives represents business conducted with them.

The investment is made at face value and later

redeemed at face value. There is no secondary market

for cooperative stock, and most cooperative stock is

non-transferable. Therefore, as an asset, it is considered a non-performing asset and should not be included within the calculation of the return on assets.

Local return on local assets is calculated by taking net income before income taxes and interest less

patronage refunds received divided by total assets less

investments in other cooperatives. This ratio provides

a better indication of the cooperative’s operation and

its ability to generate revenues (Table 14).

15

Capitalization growth rate = (1 - Payout Ratio) * Return on Equity

Table 12—Capitalization growth rate

95 Percent Confidence Interval

—————————————————

Average High Low

All .06 .07 .05

Cotton .05 .08 .03

Dairy .04 .08 .01

Diversified .07 .13 .00

Farm Supply .08 .11 .05

Fruit/Vegetable .05 .08 .01

Grain .08 .10 .06

Poultry/Livestock .07 .11 .03

Rice .02 .04 .00

Sugar .02 .04 .01

(Sales-cost of goods sold) Sales

Profit index = ——————————— * ————————

Sales A verage inventory

Table 13—Profit index

95 Percent Confidence Interval

— — — — — — — — — — — — — — — ——

Average High Low

All 2.83 4.10 1.57

Cotton 2.31 4.72 (0.09)

Dairy 4.59 7.00 2.18

Diversified 0.96 1.24 0.69

Farm Supply 1.17 1.46 0.88

Fruit/Vegetable 4.54 10.41 (1.32)

Grain 0.93 1.21 0.65

Poultry/Livestock 3.52 5.26 1.79

Rice 1.77 1.96 1.57

Sugar 2.14 2.92 1.37

Net income before interest and

income taxes - patronage refunds 

Local return on local assets = ————————————————

Total assets - investments 

in other cooperatives
Earnings Variability

Lenders are concerned with large debt burdens

only if the future earnings of the cooperative are

uncertain. While future earnings are unpredictable, a

look at the past can give a clue to the risk associated

with the cooperative’s business. A statistician defines

“risk” as the variation about the mean, or expected

return. A creditor defines “risk” as the probability of

having to take an unacceptable loss. However, these

two definitions are closely related. Both try to define

how much the actual return differsfrom the expected.

A creditor might want to look at the variability

over time of the cooperative’s earnings to see if it is

credit worthy. The income variability ratio examines

how much income varies from year to year compared

to the period-average income. It is calculated by taking

the standard deviation of the year-to-year change in

local earnings before interest and income taxes fro m

several years divided by the average level of local

earnings over the entire period analyzed. This provides a good proxy for earning variability (Table 15).

Local earnings are more appropriate and focuse on the

operations of the cooperative and don’t rely on patronage received from other cooperatives.

While there is no set rule of thumb for an income

variability value, a value between 0 and 1 indicates

fairly stable income. A negative number will indicate

that the cooperative, on average, has a negative

income. A number greater than 2 usually means that

the cooperative will have a large variance in its net

margins. This ratio works well for pooling cooperatives that report minimal net income because it doesn’t

rely on the magnitude of the earnings. While this ratio

gives the variability of a cooperative’s income, it

doesn’ t illustrate the quality of that income.

Income Quality Ratio

Both the variability and quality of a cooperative’s

earnings are important. The ratio of cash flow fro m

operations to net income provides some insight into

the quality of earnings. The cash flow from operations

has a financing rather than a profit-measurement focus

and is well suited in evaluating short-term liquidity

and long-term solvency. Cash flow from operations

represents cash in the bank that can be used to pay off

the loan. Reported net income often has estimated values placed on various revenues and expenses that can

distort the amount of funds available. A cooperative

can report a positive net income and yet not have

funds to pay offitscreditors.

The higher this ratio, the higher the quality of the

reported net income. For example, if the cooperative is

selling more products because of a relaxed credit policy, accounts receivable might be higher and less collectible. Therefore, the increase in accounts receivable

will cause the cash flow from operations to fall relative

to net income, thereby lowering the income quality

ratio (Table 16).

16

Table 14—Local return on local assets

95 Percent Confidence Interval

—————————————————

Average High Low

All .05 .06 .04

Cotton .11 .15 .06

Dairy .07 .09 .05

Diversified .03 .05 .02

Farm Supply .06 .09 .03

Fruit/Vegetable .03 .04 .02

Grain .03 .05 .02

Poultry/Livestock .06 .13 (.02)

Rice .04 .05 .03

Sugar .03 .05 .01

Standard deviation (local earningst - local earningst-1) Earnings Variability = ———————-———————

A verage local earnings

Table 15—Earnings variability

95 Percent Confidence Interval

———————————————————

Average High Low

All 1.41 1.79 1.03

Cotton 0.81 1.27 0.34

Dairy 0.93 1.31 0.55

Diversified 1.49 2.33 0.65

Farm Supply 2.50 3.93 1.07

Fruit/Vegetable 2.54 3.76 1.32

Grain 0.59 1.37 (0.19)

Poultry/Livestock 1.08 2.06 0.10

Rice 1.00 1.01 0.99

Sugar 1.47 2.24 0.70

Cash flow from operation

Income quality ratio = ———————-—————

Net income
Cash Interest Coverage Ratio

“Cold hard cash” is critical to the successful operation of any business. Fixed charges are paid with

cash. Net margins taken from the statement of operations might not provide a reliable measure of cash

available to meet these fixed-debt charges. Net margins contains many items that do not generate cash as

well as expense items that do not require the current

use of cash.

Therefore, an alternative measure is to use the

pretax cash flow from operations. The cash interest

coverage ratio is similar to the interest coverage ratio.

However, non-cash expenses are added back and noncash revenues are deducted from net margins. When

these net margins are adjusted for non-cash items, the

result is cash generated from operations. This value is

included in the cash flow statement as cash flow fro m

operations (Table 17).

Conclusion

Financial reports contain a lot of information. The

main objective of financial analysis is to sort through

that information to find useful and relevant data in

analyzing a business. Literature is rich with financial

analysis tools that examine the performance and

strength of businesses. However, not all businesses are

alike. Differences between IOFs and cooperatives

mean that some standard financial analyses do not

relate well with cooperatives. This is especially relevant for profit-oriented ratios. This report provides a

supplement to standard analysis with an eye toward

cooperatives. Some ratios help analyze the cooperative’s financial performance and cash flow analysis.

Managers and creditors should find these findings

helpful in appraising the financial strength of the

cooperative. While there is no set standard at this time,

using these analysis tools should help the cooperative

develop its own performance measurements.

17

Table 16—Income quality

95 Percent Confidence Interval

————————————————

Average High Low

All 0.77 1.00 0.53

Cotton 0.33 1.14 (0.48)

Dairy 0.82 1.01 0.64

Diversified 0.81 1.08 0.54

Farm Supply 0.58 0.80 0.36

Fruit/Vegetable 1.58 2.73 0.43

Grain 0.35 0.58 0.13

Poultry/Livestock (0.00) 0.89 (0.90)

Rice 0.75 0.90 0.60

Sugar 0.88 0.92 0.84

Cash flow operations + Income tax + 

Interest expense

Cash interest coverage ratio = ———————-———————

Interest expense

Table 17—Cash interest coverage 

95 Percent Confidence Interval

——————————————————

Average High Low

All 3.02 3.93 2.12

Cotton 4.18 10.05 (1.70)

Dairy 6.80 9.28 4.32

Diversified 1.97 3.34 0.59

Farm supply 1.98 3.42 0.55

Fruit/Vegetable 1.69 3.02 0.36

Grain 1.42 2.72 0.11

Poultry/livestock 0.30 2.70 (2.09)

Rice 1.69 2.43 0.96

Sugar 1.83 2.10 1.56
Bibliography

Brealey, Richard and Stewart Myers, Principles of

Corporate Finance, Second Edition, McGraw Hill.

1984.

Brownlee, Richard, Kenneth Ferris and Mark Haskins,

Corporate Financial Reporting, Second Edition,

Irwin. 1994.

Cobia, David ed., Cooperatives in Agriculture,PrenticeHall. 1989.

Franks, Julian, John Broyles and Willard Carleton,

Corporate Finance, Kent. 1985.

Leopold A. Bernstein, Financial Statement Analysis,

Fifth Edition, Irwin. 1993.

18
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. RBS also publishes research and

educational materials and issues Rural Cooperatives magazine.

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discrimination in all its programs and activities on the basis of

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political beliefs, sexual orientation or marital or family status.

(Not all prohibited bases apply to all programs.) Persons with

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should contact USDA s TARGET Center at 202-720-2600 (voice

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