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Chapter

Fifteen

Analysis of farm records

Introduction
Keeping and analysing financial records of a farm is essential for efficient management
of a farming business. In this chapter, you will learn about the concept of farm records
analysis as well as how to use basic tools for analysing related financial records. The
competencies developed from this chapter will enable you to make rational financial
and production decisions, support loan applications, and comply with tax laws and
other regulations of the government.

The concept of farm records analysis
Farm record analysis refers to the act of evaluating farm records. Farm record analysis

allows the farm owner or manager to make informed decisions based on actual or
projected farm enterprise performance. At the end of every month or accounting
period, a summary of information from farm and its related records should be
prepared. Financial records of the farm for consecutive months or accounting
periods should be compared for the purpose of finding out if there are changes to
be addressed. Reasons for rising or falling of revenue should be examined and then
a good plan for improvement needs to be implemented. In analysing profits, all the

costs have to be subtracted from the sales before the farmer can tell whether his/her
enterprise makes profit or loss. When total sales are higher than total costs, it means
the business makes profit while the business makes loss when total sales are lower
than costs. Thus, analysis of financial records of a farm is commonly done for sales,
costs and profits (refer to Figure 15.1).

In medium to large farm businesses, financial records of the farm are analysed by
using financial statements. A number of financial statements can be used when

appropriate and complete farm records are available. At the end of each production
cycle, the financial information is extracted from the financial book, computed and
summarised in financial statements. Analysis of farm records can be done with the
aid of good presentation of gross margin and net worth or balance sheet. Gross
margin analysis and net worth statement are presented hereafter.

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