Critical Control Points for Profitability in the Cow-Calf Enterprise

Financial, economic, and biological data collected from cow-calf producers who participated in the Illinois and Iowa Standardized Performance Analysis (SPA) programs were used in this study. Data used were collected for the 1996 through 1999 calendar years, with each herd within year representing one observation. This resulted in a final database of 225 observations (117 from Iowa and 108 from Illinois) from commercial herds with a range in size from 20 to 373 cows. Two analyses were conducted, one utilizing financial cost of production data, the other economic cost of production data. Each observation was analyzed as the difference from the mean for that given year. The independent variable utilized in both the financial and economic models as an indicator of profit was return to unpaid labor and management per cow (RLM). Used as dependent variables were the five factors that make up total annual cow cost: feed cost, operating cost, depreciation cost, capital charge, and hired labor, all on an annual cost per cow basis. In the economic analysis, family labor was also included. Production factors evaluated as dependent variables in both models were calf weight, calf price, cull weight, cull price, weaning percentage, and calving distribution. Herd size and investment were also analyzed. All financial factors analyzed were significantly correlated to RLM (P < .10) except cull weight, and cull price. All economic factors analyzed were significantly correlated to RLM (P < .10) except calf weight, cull weight and cull price. Results of the financial prediction equation indicate that there are eight measurements capable of explaining over 82 percent of the farm-to-farm variation in RLM. Feed cost is the overriding factor driving RLM in both the financial and economic stepwise regression analyses. In both analyses over 50 percent of the herd-to-herd variation in RLM could be explained by feed cost. Financial feed cost is correlated (P < .001) to operating cost, depreciation cost, and investment. Economic feed cost is correlated (P < .001) with investment and operating cost, as well as capital charge. Operating cost, depreciation, and capital charge were all negatively correlated (P < .10) to herd size, and positively correlated (P < .01) to feed cost in both analyses. Operating costs were positively correlated with capital charge and investment (P < .01) in both analyses. In the financial regression model, depreciation cost was the second critical factor explaining almost 9 percent of the herd-to-herd variation in RLM followed by operating cost (5 percent). Calf weight had a greater impact than calf price on RLM in both the financial and economic regression models. Calf weight was the fourth indicator of RLM in the financial model and was similar in magnitude to operating cost. Investment was not a significant variable in either regression model; however, it was highly correlated to a number of the significant cost variables including feed cost, depreciation cost, and operating cost (P < .001, financial; P < .10, economic). Cost factors were far more influential in driving RLM than production, reproduction, or producer controlled marketing factors. Of these cost factors, feed cost had by far the largest impact. As producers focus attention on factors that affect the profitability of the operation, feed cost is the most critical control point because it was responsible for over 50 percent of the herd-to-herd variation in profit.

Economic efficiency analysis of different strategies to control post-weaning multi-systemic wasting syndrome and porcine circovirus type 2 subclinical infection in 3-weekly batch system farms.

The study assessed the economic efficiency of different strategies for the control of post-weaning multi-systemic wasting syndrome (PMWS) and porcine circovirus type 2 subclinical infection (PCV2SI), which have a major economic impact on the pig farming industry worldwide. The control strategies investigated consisted on the combination of up to 5 different control measures. The control measures considered were: (1) PCV2 vaccination of piglets (vac); (2) ensuring age adjusted diet for growers (diets); (3) reduction of stocking density (stock); (4) improvement of biosecurity measures (bios); and (5) total depopulation and repopulation of the farm for the elimination of other major pathogens (DPRP). A model was developed to simulate 5 years production of a pig farm with a 3-weekly batch system and with 100 sows. A PMWS/PCV2SI disease and economic model, based on PMWS severity scores, was linked to the production model in order to assess disease losses. This PMWS severity scores depends on the combination post-weaning mortality, PMWS morbidity in younger pigs and proportion of PCV2 infected pigs observed on farms. The economic analysis investigated eleven different farm scenarios, depending on the number of risk factors present before the intervention. For each strategy, an investment appraisal assessed the extra costs and benefits of reducing a given PMWS severity score to the average score of a slightly affected farm. The net present value obtained for each strategy was then multiplied by the corresponding probability of success to obtain an expected value. A stochastic simulation was performed to account for uncertainty and variability. For moderately affected farms PCV2 vaccination alone was the most cost-efficient strategy, but for highly affected farms it was either PCV2 vaccination alone or in combination with biosecurity measures, with the marginal profitability between 'vac' and 'vac+bios' being small. Other strategies such as 'diets', 'vac+diets' and 'bios+diets' were frequently identified as the second or third best strategy. The mean expected values of the best strategy for a moderately and a highly affected farm were £14,739 and £57,648 after 5 years, respectively. This is the first study to compare economic efficiency of control strategies for PMWS and PCV2SI. The results demonstrate the economic value of PCV2 vaccination, and highlight that on highly affected farms biosecurity measures are required to achieve optimal profitability. The model developed has potential as a farm-level decision support tool for the control of this economically important syndrome.

Economic benefits and costs of Sustainable Land Management Technologies: An analysis of WOCAT's global data

Perceived profitability is a key factor in explaining farmers' decision to adopt or not adopt sustainable land management (SLM) technologies. Despite this importance, relatively little is known about the economics of SLM. This paper contributes to the literature by analysing data on costs and perceived cost/benefit ratios of SLM technologies. Data are taken from the World Overview of Conservation Approaches and Technologies technology database and cover 363 case studies conducted in a variety of countries between 1990 and 2012. Based on an in-depth descriptive analysis, we determine what costs accrue to local stakeholders and assess perceived short-term and long-term cost/benefit ratios. Our results show that a large majority of the technologies in our sample are perceived as being profitable: 73% were perceived to have a positive or at least neutral cost/benefit ratio in the short term, while 97% were perceived to have a positive or very positive cost/benefit ratio in the long term. An additional empirical analysis confirms that economic factors are key determinants of land users' decisions to adopt or not adopt SLM technologies. We conclude that a wide range of existing SLM practices generate considerable benefits not only for land users, but for other stakeholders as well. High initial investment costs associated with some practices may, however, constitute a barrier to their adoption; short-term support for land users can help to promote these practices where appropriate.

Economic analysis of soil conservation: Case studies from the highlands of Amhara Region, Ethiopia

Soil degradation is widespread in the Ethiopian Highlands. Its negative impacts on soil productivity contribute to the extreme poverty of the rural population. Soil conservation is propagated as a means of reducing soil erosion, however, it is a costly investment for small-scale farming households. The present study is an attempt to show whether or not selected mechanical Soil and Water Conservation (SWC) technologies are profitable from a farmer’s point of view. A financial Cost-Benefit Analysis (CBA) is carried out to assess whether or not the considered SWC technologies are profitable from a farmer’s point of view. The CBA is supplemented by an evaluation of aspects from the economic and institutional environment. Whether or not soil conservation is profitable from a farmer’s point of view depends on a broad range of factors from the ecological, economic, political, institutional and socio-cultural sphere and also depends on the technology and the prevailing farming system. Because these factors are closely interlinked, it is often not sufficient to change or influence one to make SWC profitable. Several recommendations are formulated with regard to improving the profitability of SWC investments from a farmer’s point of view. Because the reasons for unsustainable resource use are manifold and highly interlinked, only a multi-stakeholder, multi-level and multi-objective approach is likely to offer solutions that address the underlying problems adequately.

Sustainability of irrigated farming systems in a Tunisian region: A recursive stochastic programming analysis

The aim of this study was to evaluate the sustainability of farm irrigation systems in the Cébalat district in northern Tunisia. It addressed the challenging topic of sustainable agriculture through a bio-economic approach linking a biophysical model to an economic optimisation model. A crop growth simulation model (CropSyst) was used to build a database to determine the relationships between agricultural practices, crop yields and environmental effects (salt accumulation in soil and leaching of nitrates) in a context of high climatic variability. The database was then fed into a recursive stochastic model set for a 10-year plan that allowed analysing the effects of cropping patterns on farm income, salt accumulation and nitrate leaching. We assumed that the long-term sustainability of soil productivity might be in conflict with farm profitability in the short-term. Assuming a discount rate of 10% (for the base scenario), the model closely reproduced the current system and allowed to predict the degradation of soil quality due to long-term salt accumulation. The results showed that there was more accumulation of salt in the soil for the base scenario than for the alternative scenario (discount rate of 0%). This result was induced by applying a higher quantity of water per hectare for the alternative as compared to a base scenario. The results also showed that nitrogen leaching is very low for the two discount rates and all climate scenarios. In conclusion, the results show that the difference in farm income between the alternative and base scenarios increases over time to attain 45% after 10 years.

Probabilistic cost benefit analysis of generation investment in a deregulated electricity market

A new methodology is proposed for the analysis of generation capacity investment in a deregulated market environment. This methodology proposes to make the investment appraisal using a probabilistic framework. The probabilistic production simulation (PPC) algorithm is used to compute the expected energy generated, taking into account system load variations and plant forced outage rates, while the Monte Carlo approach has been applied to model the electricity price variability seen in a realistic network. The model is able to capture the price and hence the profitability uncertainties for generator companies. Seasonal variation in the electricity prices and the system demand are independently modeled. The method is validated on IEEE RTS system, augmented with realistic market and plant data, by using it to compare the financial viability of several generator investments applying either conventional or directly connected generator (powerformer) technologies. The significance of the results is assessed using several financial risk measures.

The analysis and case studies of successful express logistics companies

With the globalisation of world business, the border-crossing activities between organisations have substantially increased. Organisations not only need to handle supply functions, but also play a tremendous role in demand simulation through integration both inside the firm and outside with business partners and customers. Logistics has become more and more mature and sophisticated by taking on an external focus, incorporating suppliers and customers in the business processes, with all the supply chain functions integrated into a whole. By minimising the costs in the value chain or providing customised services, logistics acts as a major source of competitive advantages and profitability. To meet this goal, it would require the integration of activities to focus on customer-oriented measures. Customer service and logistics activities are a chain of interdependent activities that supplement each other to facilitate the flow of information, goods and cash within the value chain. The absence of one activity may imply some specific channels need to supplement another unit. Generally, this paper is to study the impact of corporate strategy, technology and customer satisfaction on the firm’s performance, filling the gap of good customer service effects on long-term profits. Two international delivery providers, UPS and FedEx, are studied to realise the critical success factors of express logistics.

Profitability of a sample of Portuguese bank branches and its decomposition into technical and allocative components

The efficiency literature, both using parametric and non-parametric methods, has been focusing mainly on cost efficiency analysis rather than on profit efficiency. In for-profit organisations, however, the measurement of profit efficiency and its decomposition into technical and allocative efficiency is particularly relevant. In this paper a newly developed method is used to measure profit efficiency and to identify the sources of any shortfall in profitability (technical and/or allocative inefficiency). The method is applied to a set of Portuguese bank branches first assuming long run and then a short run profit maximisation objective. In the long run most of the scope for profit improvement of bank branches is by becoming more allocatively efficient. In the short run most of profit gain can be realised through higher technical efficiency. © 2003 Elsevier B.V. All rights reserved.

An after tax economic analysis of home equity conversion for the elderly

The FHA program to insure reverse mortgages has brought additional attention to the use of home equity conversion to increase income to the elderly. Using simulation, this study compares the economic consequences of the FHA reverse mortgage with two alternative conversion vehicles: sale of a remainder interest and sale-leaseback. An FHA insured plan is devised for each vehicle, structured to represent fair substitutes for the FHA mortgage. In addition, the FHA mortgage is adjusted to allow for a 4 percent annual increase in distributions to the homeowner. The viability of each plan for the homeowner, the financial institution and the FHA is investigated using different assumptions for house appreciation, tax rates, and homeowners' initial ages. For the homeowner, the return of each vehicle is compared with the choice of not employing home equity conversion. The study examines the impact of tax and accounting rules on the selection of alternatives. The study investigates the sensitivity of the FHA model to some of its assumptions.^ Although none of the vehicles is Pareato optimal, the study shows that neither the sale of a remainder interest nor the sale-leaseback is a viable alternative vehicle to the homeowner. While each of these vehicles is profitable to the financial institution, the profits are not high enough to transfer benefits to the homeowner and still be workable. The effects of tax rate, house appreciation rate, and homeowner's initial age are surprisingly small. As a general rule, none of these factors materially impact the decision of either the homeowner or the financial institution. Tax and accounting rules were found to have minimal impact on the selection of vehicles. The sensitivity analysis indicates that none of the variables studied alone is likely to materially affect the FHA's profitability. ^

Customer relationship management: A content analysis of issues and best practices

This dissertation is a study of customer relationship management theory and practice. Customer Relationship Management (CRM) is a business strategy whereby companies build strong relationships with existing and prospective customers with the goal of increasing organizational profitability. It is also a learning process involving managing change in processes, people, and technology. CRM implementation and its ramifications are also not completely understood as evidenced by the high number of failures in CRM implementation in organizations and the resulting disappointments. ^ The goal of this dissertation is to study emerging issues and trends in CRM, including the effect of computer software and the accompanying new management processes on organizations, and the dynamics of the alignment of marketing, sales and services, and all other functions responsible for delivering customers a satisfying experience. ^ In order to understand CRM better a content analysis of more than a hundred articles and documents from academic and industry sources was undertaken using a new methodological twist to the traditional method. An Internet domain name (http://crm.fiu.edu) was created for the purpose of this research by uploading an initial one hundred plus abstracts of articles and documents onto it to form a knowledge database. Once the database was formed a search engine was developed to enable the search of abstracts using relevant CRM keywords to reveal emergent dominant CRM topics. The ultimate aim of this website is to serve as an information hub for CRM research, as well as a search engine where interested parties can enter CRM-relevant keywords or phrases to access abstracts, as well as submit abstracts to enrich the knowledge hub. ^ Research questions were investigated and answered by content analyzing the interpretation and discussion of dominant CRM topics and then amalgamating the findings. This was supported by comparisons within and across individual, paired, and sets-of-three occurrences of CRM keywords in the article abstracts. ^ Results show that there is a lack of holistic thinking and discussion of CRM in both academics and industry which is required to understand how the people, process, and technology in CRM impact each other to affect successful implementation. Industry has to get their heads around CRM and holistically understand how these important dimensions affect each other. Only then will organizational learning occur, and overtime result in superior processes leading to strong profitable customer relationships and a hard to imitate competitive advantage. ^

Does Financial Performance Depend on Hotel Size? Analysis of the Financial Profile of the U.S. Lodging Industry

This research presents a financial profile of the U.S. Lodging Industry based on an analysis of 2,091 financial statements (fiscal year 2011) for individual hotels ranging in asset size of $500 thousand to $250 million. The study analyzes summary results of the financial position and profitability of hotels based on a common size analysis of Balance Sheets and Income Statements. Furthermore, the study analyzes 10 key performance benchmarks as measured by Liquidity, Solvency and Operating Ratios. The results of the study show a divergence in the hotel industry’s financial performance based on the size of the hotel and by upper, median and lower quartiles of the study sample.

The quality of financial information in the extractive industries: a value relevance analysis

The extractive industry is characterized by high levels of risk and uncertainty. These attributes create challenges when applying traditional accounting concepts (such as the revenue recognition and matching concepts) to the preparation of financial statements in the industry. The International Accounting Standards Board (2010) states that the objective of general purpose financial statements is to provide useful financial information to assist the capital allocation decisions of existing and potential providers of capital. The usefulness of information is defined as being relevant and faithfully represented so as to best aid in the investment decisions of capital providers. Value relevance research utilizes adaptations of the Ohlson (1995) to assess the attribute of value relevance which is one part of the attributes resulting in useful information. This study firstly examines the value relevance of the financial information disclosed in the financial reports of extractive firms. The findings reveal that the value relevance of information disclosed in the financial reports depends on the circumstances of the firm including sector, size and profitability. Traditional accounting concepts such as the matching concept can be ineffective when applied to small firms who are primarily engaged in nonproduction activities that involve significant levels of uncertainty such as exploration activities or the development of sites. Standard setting bodies such as the International Accounting Standards Board and the Financial Accounting Standards Board have addressed the financial reporting challenges in the extractive industry by allowing a significant amount of accounting flexibility in industryspecific accounting standards, particularly in relation to the accounting treatment of exploration and evaluation expenditure. Therefore, secondly this study examines whether the choice of exploration accounting policy has an effect on the value relevance of information disclosed in the financial reports. The findings show that, in general, the Successful Efforts method produces value relevant information in the financial reports of profitable extractive firms. However, specifically in the oil & gas sector, the Full Cost method produces value relevant asset disclosures if the firm is lossmaking. This indicates that investors in production and non-production orientated firms have different information needs and these needs cannot be simultaneously fulfilled by a single accounting policy. In the mining sector, a preference by large profitable mining companies towards a more conservative policy than either the Full Cost or Successful Efforts methods does not result in more value relevant information being disclosed in the financial reports. This finding supports the fact that the qualitative characteristic of prudence is a form of bias which has a downward effect on asset values. The third aspect of this study is an examination of the effect of corporate governance on the value relevance of disclosures made in the financial reports of extractive firms. The findings show that the key factor influencing the value relevance of financial information is the ability of the directors to select accounting policies which reflect the economic substance of the particular circumstances facing the firms in an effective way. Corporate governance is found to have an effect on value relevance, particularly in the oil & gas sector. However, there is no significant difference between the exploration accounting policy choices made by directors of firms with good systems of corporate governance and those with weak systems of corporate governance.

A Flow-Through Analysis of the US Lodging Industry During the Great Recession

Purpose – The objective of this exploratory study is to investigate the “flow-through” or relationship between top-line measures of hotel operating performance (occupancy, average daily rate and revenue per available room) and bottom-line measures of profitability (gross operating profit and net operating income), before and during the recent great recession. Design/methodology/approach – This study uses data provided by PKF Hospitality Research for the period from 2007-2009. A total of 714 hotels were analyzed and various top-line and bottom-line profitability changes were computed using both absolute levels and percentages. Multiple regression analysis was used to examine the relationship between top and bottom line measures, and to derive flow-through ratios. Findings – The results show that average daily rate (ADR) and occupancy are significantly and positively related to gross operating profit per available room (GOPPAR) and net operating income per available room (NOIPAR). The evidence indicates that ADR, rather than occupancy, appears to be the stronger predictor and better measure of RevPAR growth and bottom-line profitability. The correlations and explained variances are also higher than those reported in prior research. Flow-through ratios range between 1.83 and 1.91 for NOIPAR, and between 1.55 and 1.65 for GOPPAR, across all chain-scales. Research limitations/implications – Limitations of this study include the limited number of years in the study period, limited number of hotels in a competitive set, and self-selection of hotels by the researchers. Practical implications – While ADR and occupancy work in combination to drive profitability, the authors' study shows that ADR is the stronger predictor of profitability. Hotel managers can use flow-through ratios to make financial forecasts, or use them as inputs in valuation models, to forecast future profitability. Originality/value – This paper extends prior research on the relationship between top-line measures and bottom-line profitability and serves to inform lodging owners, operators and asset managers about flow-through ratios, and how these ratios impact hotel profitability.

Use of business analysis in beef businesses to direct management practice change for climate adaptation outcomes

Beef businesses in northern Australia are facing increased pressure to be productive and profitable with challenges such as climate variability and poor financial performance over the past decade. Declining terms of trade, limited recent gains in on-farm productivity, low profit margins under current management systems and current climatic conditions will leave little capacity for businesses to absorb climate change-induced losses. In order to generate a whole-of-business focus towards management change, the Climate Clever Beef project in the Maranoa-Balonne region of Queensland trialled the use of business analysis with beef producers to improve financial literacy, provide a greater understanding of current business performance and initiate changes to current management practices. Demonstration properties were engaged and a systematic approach was used to assess current business performance, evaluate impacts of management changes on the business and to trial practices and promote successful outcomes to the wider industry. Focus was concentrated on improving financial literacy skills, understanding the business’ key performance indicators and modifying practices to improve both business productivity and profitability. To best achieve the desired outcomes, several extension models were employed: the ‘group facilitation/empowerment model’, the ‘individual consultant/mentor model’ and the ‘technology development model’. Providing producers with a whole-of-business approach and using business analysis in conjunction with on-farm trials and various extension methods proved to be a successful way to encourage producers in the region to adopt new practices into their business, in the areas of greatest impact. The areas targeted for development within businesses generally led to improvements in animal performance and grazing land management further improving the prospects for climate resilience.

Rangeland profitability in the northern Gulf region of Queensland: understanding beef business complexity and the subsequent impact on land resource management and environmental outcomes

The farm-gate value of extensive beef production from the northern Gulf region of Queensland, Australia, is ~$150 million annually. Poor profitability and declining equity are common issues for most beef businesses in the region. The beef industry relies primarily on native pasture systems and studies continue to report a decline in the condition and productivity of important land types in the region. Governments and Natural Resource Management groups are investing significant resources to restore landscape health and productivity. Fundamental community expectations also include broader environmental outcomes such as reducing beef industry greenhouse gas emissions. Whole-of-business analysis results are presented from 18 extensive beef businesses (producers) to highlight the complex social and economic drivers of management decisions that impact on the natural resource and environment. Business analysis activities also focussed on improving enterprise performance. Profitability, herd performance and greenhouse emission benchmarks are documented and discussed.