The balance sheet is derived, for the most part, using data already produced by the Agriculture Division. Since the capital value series uses reference data at July 1 while the balance sheet uses data at December 31, estimates for the two series are not the same. Also, the capital value series includes the personal share of assets while the balance sheet (set 2) excludes it.
In this series, data are provided only for the Balance Sheet of the Agricultural Sector (set 2). This is because set 2 most closely reflects the assets employed in the production of agricultural products. The other sets of balance sheet accounts are available on request. The four sets of aggregate balance sheets produced for Canadian agriculture are described in the attached document: Description of assets, liabilities, equity, and financial ratios.
Although not published in the capital value series, the components of farm real estate, machinery and livestock are available as a result of the estimation process used to derive the capital value and depreciation series. The business share of homes, autos and trucks are estimated using the same assumptions used in the depreciation series.
The value of assets obtained from the capital value and depreciation series represents roughly 90% of the total value of assets in the balance sheet. These estimates are considered to be of good quality. Further data quality is available by referring to the Value of farm capital (record number 3471) and Farm operating expenses and depreciation charges (record number 5214).
The other long-term assets, which include long-term investments as well as AgriInvest balances, represent roughly 1%.
The year-end value of crops, obtained from the Farm Prices Unit, represents roughly 3% of the total values of assets, and is considered to be of good quality.
The other four components of assets (cash, bonds and savings; accounts receivable; inputs; and quota) represent roughly 7% of the value of total assets. They are derived using Farm Credit Canada (FCC) survey data for the years 1980, 1983, 1987, 1989 and 1991 and the Farm Financial Survey (FFS) since 1993. In intervening years, interpolations are made.
Total liabilities are derived from the debt outstanding series of the Farm debt outstanding (record number 3472). Total debt outstanding is split between current and long-term liabilities using ratios derived from the FCC or FFS survey data. These sources are considered to be of good quality.
The personal share of long-term debt is excluded using the ratio of farm real estate excluding the personal share to farm real estate including it. It is assumed that none of the current liabilities are for personal use. These assumptions are considered reasonable.
Estimates of the balance sheet components are calculated for each province and year. Canada level estimates are derived by summing provincial estimates. Annual financial ratios are calculated separately for each province and Canada.
As the balance sheet is essentially an integrated account, incorporating data from other data series, the revision process is determined by the various sources (farm debt outstanding, farm capital value, and value added account). For a better understanding of this process, users should refer to the section of the concepts and methods of these bulletins.
Current assets are the sum of cash, bonds, and savings; accounts receivable; and inventories.
Cash, bonds, and savings estimates for sets 1 and 3 are based on FCC or FFS survey data. For sets 2 and 4, adjustments are made to exclude the personal share of farm household cash, bonds and savings. It is assumed that two-thirds of the total cash, bonds, and savings relate to the personal share of farm households. This assumption is based on U.S. farm balance sheet data. Thus, two-thirds of the estimate is deducted to exclude the personal share of farm households.
Accounts receivable estimates are based on FCC or FFS survey data. There is no adjustment between sets.
Inventory estimates are based on several sources including the Production of Poultry and Eggs survey (record number 5039) and the Biannual Livestock Survey (record number 3460) There are three components of inventories: poultry and market livestock; crops; and inputs. All of the value of inventories is assumed to pertain to farm businesses. Estimates for sets 2, 3 and 4 are the same as those for set 1.
The year-end value of poultry and market livestock is the sum of year-end values for poultry plus market livestock. These are derived by multiplying inventory figures by value per head data (from administrative sources). Market livestock include beef slaughter heifers, steers, calves, pigs other than boars or sows, and market lambs. The value of fur animals intended for pelting is not calculated separately as most fur animals are pelted in the fall.
The value of crops is derived by adding year-end values for wheat excluding durum, durum wheat, oats, barley, rye, corn, flaxseed, canola, soybeans, mustard seed, canary seed, sunflower seed, dry peas, chickpeas, lentils, tobacco, and potatoes. These year-end values are derived by multiplying averages of December and January prices by year-end stocks estimates.
Estimates of the value of inputs are based on FCC or FFS survey data.
Prior to 1991, the value of household contents is derived from the value of homes. Household contents are assumed to be 60% of the value of homes. This assumption is based on the structure of home insurance policy packages where coverage on contents is generally insured at 60% of the dwelling value. For each set, the value of household contents is calculated to be 60% of the corresponding value of homes. As described later, the value of homes estimate varies from set to set as adjustments are made to exclude the personal share and the portion leased from non-operator landlords.
Quota estimates for all sets are based on FCC or FFS survey data.
For all sets the year-end value of breeding livestock is the sum of year-end values for bulls, dairy cows, beef cows, dairy heifers, beef replacement heifers, boars, sows, rams, ewes, replacement lambs and breeding stock on fur farms. These are derived by multiplying inventory values by value per head data (from administrative sources). The value of animals on fur farms is derived by multiplying the number of animals on farms at year end by a value per head which is based on changes in pelt prices. Data for animals on fur farms are obtained from the Livestock Section of Agriculture Division and may include some animals which were not pelted during the normal fall pelting season.
There are three components of machinery: autos, trucks, and other machinery.
Auto and truck estimates for sets 1 and 3, as well as other machinery estimates for all sets, are derived from Agriculture Division's capital value series (included in this publication). July 1 values are averaged to estimate year-end values. For the most current year, the July 1 value is used as a proxy for the year-end value. Auto and truck estimates for sets 2 and 4 exclude the personal share of farm operator households.
There are three components of farm real estate: land, service buildings and homes. Estimates of these values for set 1 are derived from Agriculture Division's capital value of land and buildings series. July 1 values are averaged to estimate year-end values. For the most current year, the July 1 value is used as a proxy for the year-end value.
For set 2, the values of land and service buildings are the same as those in set 1. The farm business portion of homes is derived by multiplying the value of homes in set 1 by 15%. It is assumed that 15% of the farm operator's home is used for farm business purposes. This approach is consistent with that used in related series.
For set 3, the value of farm real estate owned by nonoperator landlords is excluded by multiplying estimates of land, service buildings and homes from set 1 by annual provincial ratios. These ratios are based on land tenure data from the FCC or FFS surveys.
For set 4, both the personal household share of the value of homes and the value of real estate leased from nonoperator landlords need to be excluded. Estimates of the value of land and service buildings are the same as those for set 3, but the value of homes from set 3 is multiplied by 15% to obtain the business share.
Other long-term assets include long-term investments based on the Farm Financial Survey, as well as AgriInvest balances (beginning in 2008). Prior to the end of the programs in 2007, and the subsequent closure of all the producer accounts in 2009, Net Income Stabilization Account (NISA) balances and, in Québec, balances in the "Compte de stabilisation du revenu agricole" (CSRA), were also included. AgriInvest, CSRA and NISA balances are all from administrative data. This series starts in 1991.
Total assets are the sum of current assets, quota, breeding livestock, machinery, farm real estate and other long-term assets.
Current liabilities are based on Agriculture Division's total debt outstanding series. Estimates of total debt outstanding for each province are multiplied by ratios of current debt to total debt which are derived from FCC or FFS survey data. No adjustments are made.
For set 1, long-term liabilities are calculated as total debt outstanding less current liabilities. Long-term liabilities are then adjusted to exclude the portions for non-operator landlords and farm operator households.
For set 2, the value of long-term liabilities (excluding the farm household) is calculated by multiplying estimates of long-term liabilities from set 1, by the ratio of the total value of farm real estate from set 2 (which excludes households), to the total value of farm real estate including households from set 1.
For set 3, the value of long-term liabilities (excluding the non-operator landlord's share) is calculated by multiplying estimates of long-term liabilities from set 1, by the ratio of the total value of farm real estate from set 3 (which excludes the non-operator landlord's share), to the total value of farm real-estate including the non-operator landlord's share from set 1.
For set 4, the non-operator landlord's share and the personal household share of long-term liabilities are both excluded. Values of long-term liabilities from set 3 (which exclude the non-operator landlord's share), are multiplied by the ratio of the total value of farm real estate from set 4 (which excludes the farm household), to the total value of farm real estate including the farm households from set 3.
Total liabilities are the sum of current and long term liabilities.
Equity equals total assets less total liabilities.
The balance sheet is used to derive all of the liquidity and solvency ratios.
To calculate the profitability and financial efficiency ratios, the balance sheet and the value added account are both used.
The current ratio (CA/CL) is calculated as current assets (CA) divided by current liabilities (CL).
The acid-test (quick) ratio [(C+AR)/CL] is cash and marketable securities plus accounts receivable, divided by current liabilities. To calculate this ratio, the value of cash, bonds and savings (C) is used as a proxy for cash plus marketable securities. The acid-test ratio is calculated as cash, bonds and savings (C) plus accounts receivable (AR), divided by current liabilities (CL).
The debt structure ratio (CL/TL) is the current liabilities (CL) divided by total liabilities (TL).
The leverage ratio (TL/E) is calculated as total liabilities (TL) divided by equity (E).
The equity ratio (E/TA) equals equity (E) divided by total assets (TA).
The debt ratio (TL/TA) is calculated as total liabilities (TL) divided by total assets (TA).
The capital turnover ratio (R/TA) is calculated as revenue divided by total assets. For our purposes, revenue (R) is derived from the value added account by summing: sales of agricultural products, sales of non-agricultural products, and other sources of the value of production. The value used for total assets (TA) is the value of total assets at the beginning of the period in which revenues were earned (i.e. the value of total assets at December 31 of the previous year).
Return on assets equals net income before taxes (NIBT) plus interest (I) expense divided by average total assets (ATA). For set 1, net income before taxes plus interest expense is derived from the value added series by adding rent to non-operators, corporate profits, wages to family, unincorporated operator returns and interest. For sets 2 and 4, wages to family are not included. Rent to nonoperators is not included for sets 3 and 4. Average total assets (ATA) are calculated as the average of total assets at the beginning and end of the year. Thus, return on assets is calculated as [(NIBT+I)/ATA].
Return on equity consists of net income divided by average equity. Because of the difficulty involved in separating the value of income taxes attributable to farm income from that attributable to non-farm income, income tax expense cannot be estimated for the agricultural sector. Thus, net income after taxes cannot be estimated for the agricultural sector, so net income before taxes (NIBT) is used a proxy for net income. For set 1, net income before taxes is derived from the value added series by adding rent to non-operators, corporate profits, wages to family, and unincorporated operator returns. For sets 2 and 4, wages to family are not included. Rent to nonoperators is not included for sets 3 and 4. Average equity (AE) is calculated as the average of equity at the beginning and end of the year. Thus, return on equity is calculated as (NIBT/AE).
The interest coverage ratio [(NIBT+I)/I] is defined as net income before taxes plus interest expense, divided by interest expense. The method for deriving the numerator (NIBT+I) is described in the earlier paragraph on the return on assets. The denominator (interest expense) is also from the value added account.