Breedcow Dynama - User contributions [en]

Additional Information

2021-10-12T23:34:46Z

FinlayV:

''The below has been taken from the Breedcow and Dynama user manual version 6.02 Holmes WE, Chudleigh F and Simpson G (2017)''

==Accounting and budgeting processes used in Breedcow and Dynama==
The Breedcow and Dynama package is based on conventional accounting and budgeting concepts, as adapted to extensive beef cattle enterprises. The concepts of net income, the return on capital, net worth, gross margins and cash flow are employed in the construction of these software programs.

Breedcow and Dynama analyses are used to make better decisions on sales, investment and adoption or non-adoption of husbandry practices.
Beef cattle enterprises operate on a production cycle of up to five years for turnoff stock, and ten or eleven years for breeders. Cash flow budgeting measures usually cut the production cycle into segments of one year and cash transactions occurring in one year do not tell the whole story, since changes in herd composition also add value to the business or take it away. Keeping track of the livestock numbers and values enables inventory changes to be valued and incorporated in analyses of profit.

For this reason, the Dynamaplus program pays special attention to calculating herd structures and projecting stock numbers by age and sex.
The budgeting processes of the Breedcow and Dynama suite of programs use the same concepts and measures of financial outcome as used in accounting, although accounting records and analyses past performance, while budgeting attempts to plan or predict future performance.

===Tax accounting versus management accounting===
Tax accounting uses rules which simplify the more comprehensive ‘management accounting’ but may end up giving a less than true picture of the financial result for that year. Examples include:
# The treatment of livestock trading accounts. For cattle enterprises, inventory values (the values of opening and closing stock) in tax accounts of $40 or $50 per head are typically shown, while the real values may be more like $400 to $400 per head. Tax based estimates of “net income” will thus be understated in years when cattle numbers increase and will be overstated in years when the herd is sold down.
# Balance sheet adjustments. Most assets will be shown at their original purchase cost or at unrealistically low written down values in taxation accounts (due to higher than actual depreciation rates being applied). Consequently the balance sheet may not give a true representation of the current value of the business and of the owner’s net worth. Major listed companies solve this problem by periodic asset revaluations (up or down) to ensure that the balance sheet shows a true picture, and a better one to present to a lender.
# Depreciation rates. Machinery has, in the past especially, been written off in taxation accounts at a rate well in excess of its real loss in value and some long lived water improvements have been written off either in one year or over three years. Consequently, most tax depreciation schedules now show only some of the plant and equipment still being used and some depreciation rates will be excessive. These effects might or might not cancel each other.
# Tax accounts may have the business spread over several accounting entities. One or more partnerships (or sole traders, or companies, or trustees) may own the land and the improvements on it, while another entity operates it.

Some grazing businesses address these shortcomings in the tax accounts by having their accountants prepare both management and tax accounts from the same set of figures.

The Breedcow and Dynama suite of programs (except Taxinc) assume the use of management accounting values and processes in all budgets. The accounting entity analysed need not be the same as analysed by the tax return(s). Livestock trading accounts are calculated with inventory values based on sale prices (these may be adjusted in Dynama+). Asset values and depreciation should be stated at realistic market (not tax) values.

===How the accounting measures fit together===
Key measures of business performance and position include net income (or net profit), cash flow, gross margins and net worth.
Net profit is the primary measure of business performance and includes cash and non-cash components. It is a measure of outcome for a specific time period, e.g. the financial year 1st July 2011 to 30th June 2012.

In a beef business, net profit equals
* livestock trading profit, plus
* sundry income from other sources, less
* cash business expenses, less
* non-cash business expenses

The main non-cash business expense is depreciation, although the value of inventory change (plus or minus) may be included if there are variable quantities of fuel, fodder etc. on hand. (The value of livestock inventory change is dealt with in the livestock trading accounts).

Net profit represents a return to equity (net worth) and unpaid labour.

Livestock trading profit (or loss) also has cash and non-cash components. The cash component is the value of sales less purchases. The non-cash component is the increase or decrease in livestock inventory value.
Cash flow, for a specific time period, comprises all cash coming into the business, less all cash passing out of the business. The cash flow calculation includes the cash components of net income plus any capital transactions plus non-business outlays (drawings).

A gross margin is a subset of net income. It is a measure used on one component of the business at a time, e.g. the cattle enterprise or the haymaking enterprise. The gross margin comprises the income from the enterprise, including inventory value increase or decrease, less the variable costs of the enterprise. The gross margin per unit of enterprise measures the effect on net income of adding or removing one unit of that enterprise.

The relationship among net income, cash flow and gross margin is shown in the following table, using the same set of figures to compile all measures.

[[file:Measures_of_Income_July_1st_2011_to_June_30th_2012.PNG|frame|left|px300|Measures of Income July 1st 2011 to June 30th 2012]]

Note that the purchase and sale of machinery is a capital transaction, and therefore included in cash flow but not in net income – though those transactions will affect depreciation, which does feature in the net income calculation. Thus, over time, the cost of providing machinery (and other depreciable capital) for the business will be written off against net income as depreciation.

Net income as a concept is intended to measure the surplus generated by the business, over a period (normally a year), including an allowance for the change in the value of stock on hand. Depreciation can be viewed as just another example of allowing for change in the value of something used in the business (plant and improvements). Net income, as a measure, is used to assess the performance of the business, and to indicate to the owner the appropriate amount to distribute as dividends.

Cash flow is used mainly in budgeting to indicate future needs for new loans or future capacity to repay existing loans.

Net income measures change in '''wealth''', while cash flow measures just the cash component of it.

A gross margin is used to identify the impact on the business of reducing or increasing the enterprise by one unit. For example, if the accounts shown in the table (above) relate to a business running 2,000 adult equivalents, gross margin per adult equivalent comes out at $52.50. Ignoring stocking rate effects on per head productivity, carrying one more adult equivalent would increase net income by $52.50; carrying one less adult equivalent would reduce net income by $52.50. This is because the gross margin includes only the income from the cattle enterprise, and only those costs that will change proportionately when enterprise size changes and which meet the test of one more animal equals one more unit of cost.

A gross margin is useful only if it can be compared with another gross margin. This comparison may be of gross margin per hectare from cattle versus sorghum. Alternately, it may be gross margin per adult equivalent from running the cattle one way, as against the gross margin per adult equivalent from running them some other way, given the same number of adult equivalents in each side of the comparison. It could also be gross margin per area when they are run at one stocking rate, versus gross margin per area when they are run at a different stocking rate (with productivity responses factored in).
When comparing options for the business, potential improvement is measured by how much better the gross margin is for the “change” option versus the “without change” option. The budgeted difference in gross margins will be exactly equal to the difference in budgeted net incomes.

Net worth as at a certain date is a balance sheet measure. Net worth has already been defined as the total value of assets (including cash, livestock, land, and plant) less total liabilities (debts).
There exists a mechanical link between net worth, net income, and drawings. If net income exactly equals drawings for the year, net worth at the end of the period will be the same as net worth at the start of the period (ignoring changes in underlying land values over the accounting period, which are handled by periodic asset revaluations).

The following is an example of balance sheet, profit and loss and cash flow linkages, using figures from the previous table:

[[file:Figure_95.PNG|left|frame|px300|Balance Sheet as at 1st July 2011 and 30th June 2021]]

The balance sheet changes can be explained entirely by net income, drawings, asset revaluation, and cash flow. Net income for the year was $20,000, drawings were $36,000, asset revaluation (on land) was +$50,000, and cash flow was negative $21,000.
* Because drawings exceeded net income by $16,000, net worth would have gone down by $16,000, from $1,060,000 to $1,044,000, but asset revaluation (increase) of $50,000 brought it back up to $1,094,000.
* Because cash flow was negative $21,000, bank overdraft increased by $21,000 from $40,000 to $61,000.
* Component changes included:
** Unimproved land up $50,000 from $500,000 to $550,000 (asset revaluation)
*** Plant and improvements down $15,000, comprising a purchase of $10,000 (increase), a sale of $5,000 (decrease), and depreciation of $20,000 (decrease). ($10,000 - $5,000 - $20,000 = $15,000)
*** Term loans up $10,000, comprising new loans of $20,000, less loan repayment of $10,000

Other examples of connections between worth and net income (not shown in the table) could include:

# Capital purchase (without depreciation), e.g. unimproved land, cost $50,000. What was cash at the start of the year becomes land of the same value at the end of the year. There is no effect on the calculation of net income, and no effect on net worth.
# Capital purchase of a depreciable item, cost $10,000, depreciation $1,000. What was $10,000 of cash in the opening net worth becomes $9,000 of asset in closing net worth. An extra $1,000 of depreciation is deducted in calculating net income, thereby reducing net income by that amount. Closing net worth is $1,000 less than it would have been without the purchase. Net income (hence also net income less drawings) is also $1,000 less than it would have been without the purchase. The reduction in net income less drawings is matched exactly by the reduction of closing net worth.
# Unspent net income of $10,000. If net income was $20,000, but only $10,000 was drawn, net worth at end of year would be $10,000 higher than at the start. The difference would be seen in the cash (or debt) accounts, unless the surplus was used for asset purchase, when it would show as extra non-cash assets.

Additional Information

2021-10-12T23:34:05Z

FinlayV:

Additional Information

2021-10-12T03:55:33Z

FinlayV: /* How the accounting measures fit together */

Additional Information

2021-10-12T03:53:51Z

FinlayV: /* How the accounting measures fit together */

''The below has been taken from the Breedcow and Dynama user manual version 6.02 Holmes WE, Chudleigh F and Simpson G (2017)''

==Accounting and budgeting processes used in Breedcow and Dynama==
The Breedcow and Dynama package is based on conventional accounting and budgeting concepts, as adapted to extensive beef cattle enterprises. The concepts of net income, the return on capital, net worth, gross margins and cash flow are employed in the construction of these software programs.

Breedcow and Dynama analyses are used to make better decisions on sales, investment and adoption or non-adoption of husbandry practices.
Beef cattle enterprises operate on a production cycle of up to five years for turnoff stock, and ten or eleven years for breeders. Cash flow budgeting measures usually cut the production cycle into segments of one year and cash transactions occurring in one year do not tell the whole story, since changes in herd composition also add value to the business or take it away. Keeping track of the livestock numbers and values enables inventory changes to be valued and incorporated in analyses of profit.

For this reason, the Dynamaplus program pays special attention to calculating herd structures and projecting stock numbers by age and sex.
The budgeting processes of the Breedcow and Dynama suite of programs use the same concepts and measures of financial outcome as used in accounting, although accounting records and analyses past performance, while budgeting attempts to plan or predict future performance.

===Tax accounting versus management accounting===
Tax accounting uses rules which simplify the more comprehensive ‘management accounting’ but may end up giving a less than true picture of the financial result for that year. Examples include:
# The treatment of livestock trading accounts. For cattle enterprises, inventory values (the values of opening and closing stock) in tax accounts of $40 or $50 per head are typically shown, while the real values may be more like $400 to $400 per head. Tax based estimates of “net income” will thus be understated in years when cattle numbers increase and will be overstated in years when the herd is sold down.
# Balance sheet adjustments. Most assets will be shown at their original purchase cost or at unrealistically low written down values in taxation accounts (due to higher than actual depreciation rates being applied). Consequently the balance sheet may not give a true representation of the current value of the business and of the owner’s net worth. Major listed companies solve this problem by periodic asset revaluations (up or down) to ensure that the balance sheet shows a true picture, and a better one to present to a lender.
# Depreciation rates. Machinery has, in the past especially, been written off in taxation accounts at a rate well in excess of its real loss in value and some long lived water improvements have been written off either in one year or over three years. Consequently, most tax depreciation schedules now show only some of the plant and equipment still being used and some depreciation rates will be excessive. These effects might or might not cancel each other.
# Tax accounts may have the business spread over several accounting entities. One or more partnerships (or sole traders, or companies, or trustees) may own the land and the improvements on it, while another entity operates it.

Some grazing businesses address these shortcomings in the tax accounts by having their accountants prepare both management and tax accounts from the same set of figures.

The Breedcow and Dynama suite of programs (except Taxinc) assume the use of management accounting values and processes in all budgets. The accounting entity analysed need not be the same as analysed by the tax return(s). Livestock trading accounts are calculated with inventory values based on sale prices (these may be adjusted in Dynama+). Asset values and depreciation should be stated at realistic market (not tax) values.

===How the accounting measures fit together===
Key measures of business performance and position include net income (or net profit), cash flow, gross margins and net worth.
Net profit is the primary measure of business performance and includes cash and non-cash components. It is a measure of outcome for a specific time period, e.g. the financial year 1st July 2011 to 30th June 2012.

In a beef business, net profit equals
* livestock trading profit, plus
* sundry income from other sources, less
* cash business expenses, less
* non-cash business expenses

The main non-cash business expense is depreciation, although the value of inventory change (plus or minus) may be included if there are variable quantities of fuel, fodder etc. on hand. (The value of livestock inventory change is dealt with in the livestock trading accounts).

Net profit represents a return to equity (net worth) and unpaid labour.

Livestock trading profit (or loss) also has cash and non-cash components. The cash component is the value of sales less purchases. The non-cash component is the increase or decrease in livestock inventory value.
Cash flow, for a specific time period, comprises all cash coming into the business, less all cash passing out of the business. The cash flow calculation includes the cash components of net income plus any capital transactions plus non-business outlays (drawings).

A gross margin is a subset of net income. It is a measure used on one component of the business at a time, e.g. the cattle enterprise or the haymaking enterprise. The gross margin comprises the income from the enterprise, including inventory value increase or decrease, less the variable costs of the enterprise. The gross margin per unit of enterprise measures the effect on net income of adding or removing one unit of that enterprise.

The relationship among net income, cash flow and gross margin is shown in the following table, using the same set of figures to compile all measures.

[[file:Measures_of_Income_July_1st_2011_to_June_30th_2012.PNG|frame|left|px300|Measures of Income July 1st 2011 to June 30th 2012]]

Note that the purchase and sale of machinery is a capital transaction, and therefore included in cash flow but not in net income – though those transactions will affect depreciation, which does feature in the net income calculation. Thus, over time, the cost of providing machinery (and other depreciable capital) for the business will be written off against net income as depreciation.

Net income as a concept is intended to measure the surplus generated by the business, over a period (normally a year), including an allowance for the change in the value of stock on hand. Depreciation can be viewed as just another example of allowing for change in the value of something used in the business (plant and improvements). Net income, as a measure, is used to assess the performance of the business, and to indicate to the owner the appropriate amount to distribute as dividends.

Cash flow is used mainly in budgeting to indicate future needs for new loans or future capacity to repay existing loans.

Net income measures change in '''wealth''', while cash flow measures just the cash component of it.

A gross margin is used to identify the impact on the business of reducing or increasing the enterprise by one unit. For example, if the accounts shown in the table (above) relate to a business running 2,000 adult equivalents, gross margin per adult equivalent comes out at $52.50. Ignoring stocking rate effects on per head productivity, carrying one more adult equivalent would increase net income by $52.50; carrying one less adult equivalent would reduce net income by $52.50. This is because the gross margin includes only the income from the cattle enterprise, and only those costs that will change proportionately when enterprise size changes and which meet the test of one more animal equals one more unit of cost.

A gross margin is useful only if it can be compared with another gross margin. This comparison may be of gross margin per hectare from cattle versus sorghum. Alternately, it may be gross margin per adult equivalent from running the cattle one way, as against the gross margin per adult equivalent from running them some other way, given the same number of adult equivalents in each side of the comparison. It could also be gross margin per area when they are run at one stocking rate, versus gross margin per area when they are run at a different stocking rate (with productivity responses factored in).
When comparing options for the business, potential improvement is measured by how much better the gross margin is for the “change” option versus the “without change” option. The budgeted difference in gross margins will be exactly equal to the difference in budgeted net incomes.

Net worth as at a certain date is a balance sheet measure. Net worth has already been defined as the total value of assets (including cash, livestock, land, and plant) less total liabilities (debts).
There exists a mechanical link between net worth, net income, and drawings. If net income exactly equals drawings for the year, net worth at the end of the period will be the same as net worth at the start of the period (ignoring changes in underlying land values over the accounting period, which are handled by periodic asset revaluations).

The following is an example of balance sheet, profit and loss and cash flow linkages, using figures from the previous table:

[[file:Figure_95.PNG|left|frame|px300|Balance Sheet as at 1st July 2011 and 30th June 2021]]

The balance sheet changes can be explained entirely by net income, drawings, asset revaluation, and cash flow. Net income for the year was $20,000, drawings were $36,000, asset revaluation (on land) was +$50,000, and cash flow was negative $21,000.
* Because drawings exceeded net income by $16,000, net worth would have gone down by $16,000, from $1,060,000 to $1,044,000, but asset revaluation (increase) of $50,000 brought it back up to $1,094,000.
* Because cash flow was negative $21,000, bank overdraft increased by $21,000 from $40,000 to $61,000.
* Component changes included:
*** Unimproved land up $50,000 from $500,000 to $550,000 (asset revaluation).
*** Plant and improvements down $15,000, comprising a purchase of $10,000 (increase), a sale of $5,000 (decrease), and depreciation of $20,000 (decrease). ($10,000 - $5,000 - $20,000 = $15,000)
*** Term loans up $10,000, comprising new loans of $20,000, less loan repayment of $10,000.

Additional Information

2021-10-12T03:47:36Z

FinlayV:

''The below has been taken from the Breedcow and Dynama user manual version 6.02 Holmes WE, Chudleigh F and Simpson G (2017)''

==Accounting and budgeting processes used in Breedcow and Dynama==
The Breedcow and Dynama package is based on conventional accounting and budgeting concepts, as adapted to extensive beef cattle enterprises. The concepts of net income, the return on capital, net worth, gross margins and cash flow are employed in the construction of these software programs.

Breedcow and Dynama analyses are used to make better decisions on sales, investment and adoption or non-adoption of husbandry practices.
Beef cattle enterprises operate on a production cycle of up to five years for turnoff stock, and ten or eleven years for breeders. Cash flow budgeting measures usually cut the production cycle into segments of one year and cash transactions occurring in one year do not tell the whole story, since changes in herd composition also add value to the business or take it away. Keeping track of the livestock numbers and values enables inventory changes to be valued and incorporated in analyses of profit.

For this reason, the Dynamaplus program pays special attention to calculating herd structures and projecting stock numbers by age and sex.
The budgeting processes of the Breedcow and Dynama suite of programs use the same concepts and measures of financial outcome as used in accounting, although accounting records and analyses past performance, while budgeting attempts to plan or predict future performance.

===Tax accounting versus management accounting===
Tax accounting uses rules which simplify the more comprehensive ‘management accounting’ but may end up giving a less than true picture of the financial result for that year. Examples include:
# The treatment of livestock trading accounts. For cattle enterprises, inventory values (the values of opening and closing stock) in tax accounts of $40 or $50 per head are typically shown, while the real values may be more like $400 to $400 per head. Tax based estimates of “net income” will thus be understated in years when cattle numbers increase and will be overstated in years when the herd is sold down.
# Balance sheet adjustments. Most assets will be shown at their original purchase cost or at unrealistically low written down values in taxation accounts (due to higher than actual depreciation rates being applied). Consequently the balance sheet may not give a true representation of the current value of the business and of the owner’s net worth. Major listed companies solve this problem by periodic asset revaluations (up or down) to ensure that the balance sheet shows a true picture, and a better one to present to a lender.
# Depreciation rates. Machinery has, in the past especially, been written off in taxation accounts at a rate well in excess of its real loss in value and some long lived water improvements have been written off either in one year or over three years. Consequently, most tax depreciation schedules now show only some of the plant and equipment still being used and some depreciation rates will be excessive. These effects might or might not cancel each other.
# Tax accounts may have the business spread over several accounting entities. One or more partnerships (or sole traders, or companies, or trustees) may own the land and the improvements on it, while another entity operates it.

Some grazing businesses address these shortcomings in the tax accounts by having their accountants prepare both management and tax accounts from the same set of figures.

The Breedcow and Dynama suite of programs (except Taxinc) assume the use of management accounting values and processes in all budgets. The accounting entity analysed need not be the same as analysed by the tax return(s). Livestock trading accounts are calculated with inventory values based on sale prices (these may be adjusted in Dynama+). Asset values and depreciation should be stated at realistic market (not tax) values.

===How the accounting measures fit together===
Key measures of business performance and position include net income (or net profit), cash flow, gross margins and net worth.
Net profit is the primary measure of business performance and includes cash and non-cash components. It is a measure of outcome for a specific time period, e.g. the financial year 1st July 2011 to 30th June 2012.

In a beef business, net profit equals
* livestock trading profit, plus
* sundry income from other sources, less
* cash business expenses, less
* non-cash business expenses

The main non-cash business expense is depreciation, although the value of inventory change (plus or minus) may be included if there are variable quantities of fuel, fodder etc. on hand. (The value of livestock inventory change is dealt with in the livestock trading accounts).

Net profit represents a return to equity (net worth) and unpaid labour.

Livestock trading profit (or loss) also has cash and non-cash components. The cash component is the value of sales less purchases. The non-cash component is the increase or decrease in livestock inventory value.
Cash flow, for a specific time period, comprises all cash coming into the business, less all cash passing out of the business. The cash flow calculation includes the cash components of net income plus any capital transactions plus non-business outlays (drawings).

A gross margin is a subset of net income. It is a measure used on one component of the business at a time, e.g. the cattle enterprise or the haymaking enterprise. The gross margin comprises the income from the enterprise, including inventory value increase or decrease, less the variable costs of the enterprise. The gross margin per unit of enterprise measures the effect on net income of adding or removing one unit of that enterprise.

The relationship among net income, cash flow and gross margin is shown in the following table, using the same set of figures to compile all measures.

[[file:Measures_of_Income_July_1st_2011_to_June_30th_2012.PNG|frame|left|px300|Measures of Income July 1st 2011 to June 30th 2012]]

Note that the purchase and sale of machinery is a capital transaction, and therefore included in cash flow but not in net income – though those transactions will affect depreciation, which does feature in the net income calculation. Thus, over time, the cost of providing machinery (and other depreciable capital) for the business will be written off against net income as depreciation.

Net income as a concept is intended to measure the surplus generated by the business, over a period (normally a year), including an allowance for the change in the value of stock on hand. Depreciation can be viewed as just another example of allowing for change in the value of something used in the business (plant and improvements). Net income, as a measure, is used to assess the performance of the business, and to indicate to the owner the appropriate amount to distribute as dividends.

Cash flow is used mainly in budgeting to indicate future needs for new loans or future capacity to repay existing loans.

Net income measures change in '''wealth''', while cash flow measures just the cash component of it.

A gross margin is used to identify the impact on the business of reducing or increasing the enterprise by one unit. For example, if the accounts shown in the table (above) relate to a business running 2,000 adult equivalents, gross margin per adult equivalent comes out at $52.50. Ignoring stocking rate effects on per head productivity, carrying one more adult equivalent would increase net income by $52.50; carrying one less adult equivalent would reduce net income by $52.50. This is because the gross margin includes only the income from the cattle enterprise, and only those costs that will change proportionately when enterprise size changes and which meet the test of one more animal equals one more unit of cost.

A gross margin is useful only if it can be compared with another gross margin. This comparison may be of gross margin per hectare from cattle versus sorghum. Alternately, it may be gross margin per adult equivalent from running the cattle one way, as against the gross margin per adult equivalent from running them some other way, given the same number of adult equivalents in each side of the comparison. It could also be gross margin per area when they are run at one stocking rate, versus gross margin per area when they are run at a different stocking rate (with productivity responses factored in).
When comparing options for the business, potential improvement is measured by how much better the gross margin is for the “change” option versus the “without change” option. The budgeted difference in gross margins will be exactly equal to the difference in budgeted net incomes.

Net worth as at a certain date is a balance sheet measure. Net worth has already been defined as the total value of assets (including cash, livestock, land, and plant) less total liabilities (debts).
There exists a mechanical link between net worth, net income, and drawings. If net income exactly equals drawings for the year, net worth at the end of the period will be the same as net worth at the start of the period (ignoring changes in underlying land values over the accounting period, which are handled by periodic asset revaluations).

The following is an example of balance sheet, profit and loss and cash flow linkages, using figures from the previous table:

[[file:Figure_95.PNG|left|frame|px300|Balance Sheet as at 1st July 2011 and 30th June 2021]]

The balance sheet changes can be explained entirely by net income, drawings, asset revaluation, and cash flow. Net income for the year was $20,000, drawings were $36,000, asset revaluation (on land) was +$50,000, and cash flow was negative $21,000.
*Because drawings exceeded net income by $16,000, net worth would have gone down by $16,000, from $1,060,000 to $1,044,000, but asset revaluation (increase) of $50,000 brought it back up to $1,094,000.
*Because cash flow was negative $21,000, bank overdraft increased by $21,000 from $40,000 to $61,000.
*Component changes included:
**Unimproved land up $50,000 from $500,000 to $550,000 (asset revaluation).
**Plant and improvements down $15,000, comprising a purchase of $10,000 (increase), a sale of $5,000 (decrease), and depreciation of $20,000 (decrease). ($10,000 - $5,000 - $20,000 = $15,000)
**Term loans up $10,000, comprising new loans of $20,000, less loan repayment of $10,000.

File:Figure 95.PNG

2021-10-12T03:44:12Z

FinlayV:

Additional Information

2021-10-12T00:38:11Z

FinlayV: /* How the accounting measures fit together */

Additional Information

2021-10-12T00:37:36Z

FinlayV: /* How the accounting measures fit together */

''The below has been taken from the Breedcow and Dynama user manual version 6.02 Holmes WE, Chudleigh F and Simpson G (2017)''

==Accounting and budgeting processes used in Breedcow and Dynama==
The Breedcow and Dynama package is based on conventional accounting and budgeting concepts, as adapted to extensive beef cattle enterprises. The concepts of net income, the return on capital, net worth, gross margins and cash flow are employed in the construction of these software programs.

Breedcow and Dynama analyses are used to make better decisions on sales, investment and adoption or non-adoption of husbandry practices.
Beef cattle enterprises operate on a production cycle of up to five years for turnoff stock, and ten or eleven years for breeders. Cash flow budgeting measures usually cut the production cycle into segments of one year and cash transactions occurring in one year do not tell the whole story, since changes in herd composition also add value to the business or take it away. Keeping track of the livestock numbers and values enables inventory changes to be valued and incorporated in analyses of profit.

For this reason, the Dynamaplus program pays special attention to calculating herd structures and projecting stock numbers by age and sex.
The budgeting processes of the Breedcow and Dynama suite of programs use the same concepts and measures of financial outcome as used in accounting, although accounting records and analyses past performance, while budgeting attempts to plan or predict future performance.

===Tax accounting versus management accounting===
Tax accounting uses rules which simplify the more comprehensive ‘management accounting’ but may end up giving a less than true picture of the financial result for that year. Examples include:
# The treatment of livestock trading accounts. For cattle enterprises, inventory values (the values of opening and closing stock) in tax accounts of $40 or $50 per head are typically shown, while the real values may be more like $400 to $400 per head. Tax based estimates of “net income” will thus be understated in years when cattle numbers increase and will be overstated in years when the herd is sold down.
# Balance sheet adjustments. Most assets will be shown at their original purchase cost or at unrealistically low written down values in taxation accounts (due to higher than actual depreciation rates being applied). Consequently the balance sheet may not give a true representation of the current value of the business and of the owner’s net worth. Major listed companies solve this problem by periodic asset revaluations (up or down) to ensure that the balance sheet shows a true picture, and a better one to present to a lender.
# Depreciation rates. Machinery has, in the past especially, been written off in taxation accounts at a rate well in excess of its real loss in value and some long lived water improvements have been written off either in one year or over three years. Consequently, most tax depreciation schedules now show only some of the plant and equipment still being used and some depreciation rates will be excessive. These effects might or might not cancel each other.
# Tax accounts may have the business spread over several accounting entities. One or more partnerships (or sole traders, or companies, or trustees) may own the land and the improvements on it, while another entity operates it.

Some grazing businesses address these shortcomings in the tax accounts by having their accountants prepare both management and tax accounts from the same set of figures.

The Breedcow and Dynama suite of programs (except Taxinc) assume the use of management accounting values and processes in all budgets. The accounting entity analysed need not be the same as analysed by the tax return(s). Livestock trading accounts are calculated with inventory values based on sale prices (these may be adjusted in Dynama+). Asset values and depreciation should be stated at realistic market (not tax) values.

===How the accounting measures fit together===
Key measures of business performance and position include net income (or net profit), cash flow, gross margins and net worth.
Net profit is the primary measure of business performance and includes cash and non-cash components. It is a measure of outcome for a specific time period, e.g. the financial year 1st July 2011 to 30th June 2012.

In a beef business, net profit equals
* livestock trading profit, plus
* sundry income from other sources, less
* cash business expenses, less
* non-cash business expenses

The main non-cash business expense is depreciation, although the value of inventory change (plus or minus) may be included if there are variable quantities of fuel, fodder etc. on hand. (The value of livestock inventory change is dealt with in the livestock trading accounts).

Net profit represents a return to equity (net worth) and unpaid labour.

Livestock trading profit (or loss) also has cash and non-cash components. The cash component is the value of sales less purchases. The non-cash component is the increase or decrease in livestock inventory value.
Cash flow, for a specific time period, comprises all cash coming into the business, less all cash passing out of the business. The cash flow calculation includes the cash components of net income plus any capital transactions plus non-business outlays (drawings).

A gross margin is a subset of net income. It is a measure used on one component of the business at a time, e.g. the cattle enterprise or the haymaking enterprise. The gross margin comprises the income from the enterprise, including inventory value increase or decrease, less the variable costs of the enterprise. The gross margin per unit of enterprise measures the effect on net income of adding or removing one unit of that enterprise.

The relationship among net income, cash flow and gross margin is shown in the following table, using the same set of figures to compile all measures.

[[file:Measures_of_Income_July_1st_2011_to_June_30th_2012.PNG|frame|left|px300|Measures of Income July 1st 2011 to June 30th 2012]]

Note that the purchase and sale of machinery is a capital transaction, and therefore included in cash flow but not in net income – though those transactions will affect depreciation, which does feature in the net income calculation. Thus, over time, the cost of providing machinery (and other depreciable capital) for the business will be written off against net income as depreciation.

Net income as a concept is intended to measure the surplus generated by the business, over a period (normally a year), including an allowance for the change in the value of stock on hand. Depreciation can be viewed as just another example of allowing for change in the value of something used in the business (plant and improvements). Net income, as a measure, is used to assess the performance of the business, and to indicate to the owner the appropriate amount to distribute as dividends.

Cash flow is used mainly in budgeting to indicate future needs for new loans or future capacity to repay existing loans.

Net income measures change in ''wealth'', while cash flow measures just the cash component of it.

A gross margin is used to identify the impact on the business of reducing or increasing the enterprise by one unit. For example, if the accounts shown in the table (above) relate to a business running 2,000 adult equivalents, gross margin per adult equivalent comes out at $52.50. Ignoring stocking rate effects on per head productivity, carrying one more adult equivalent would increase net income by $52.50; carrying one less adult equivalent would reduce net income by $52.50. This is because the gross margin includes only the income from the cattle enterprise, and only those costs that will change proportionately when enterprise size changes and which meet the test of one more animal equals one more unit of cost.

A gross margin is useful only if it can be compared with another gross margin. This comparison may be of gross margin per hectare from cattle versus sorghum. Alternately, it may be gross margin per adult equivalent from running the cattle one way, as against the gross margin per adult equivalent from running them some other way, given the same number of adult equivalents in each side of the comparison. It could also be gross margin per area when they are run at one stocking rate, versus gross margin per area when they are run at a different stocking rate (with productivity responses factored in).
When comparing options for the business, potential improvement is measured by how much better the gross margin is for the “change” option versus the “without change” option. The budgeted difference in gross margins will be exactly equal to the difference in budgeted net incomes.

Net worth as at a certain date is a balance sheet measure. Net worth has already been defined as the total value of assets (including cash, livestock, land, and plant) less total liabilities (debts).
There exists a mechanical link between net worth, net income, and drawings. If net income exactly equals drawings for the year, net worth at the end of the period will be the same as net worth at the start of the period (ignoring changes in underlying land values over the accounting period, which are handled by periodic asset revaluations).

Additional Information

2021-10-12T00:36:37Z

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''The below has been taken from the Breedcow and Dynama user manual version 6.02 Holmes WE, Chudleigh F and Simpson G (2017)''

==Accounting and budgeting processes used in Breedcow and Dynama==
The Breedcow and Dynama package is based on conventional accounting and budgeting concepts, as adapted to extensive beef cattle enterprises. The concepts of net income, the return on capital, net worth, gross margins and cash flow are employed in the construction of these software programs.

Breedcow and Dynama analyses are used to make better decisions on sales, investment and adoption or non-adoption of husbandry practices.
Beef cattle enterprises operate on a production cycle of up to five years for turnoff stock, and ten or eleven years for breeders. Cash flow budgeting measures usually cut the production cycle into segments of one year and cash transactions occurring in one year do not tell the whole story, since changes in herd composition also add value to the business or take it away. Keeping track of the livestock numbers and values enables inventory changes to be valued and incorporated in analyses of profit.

For this reason, the Dynamaplus program pays special attention to calculating herd structures and projecting stock numbers by age and sex.
The budgeting processes of the Breedcow and Dynama suite of programs use the same concepts and measures of financial outcome as used in accounting, although accounting records and analyses past performance, while budgeting attempts to plan or predict future performance.

===Tax accounting versus management accounting===
Tax accounting uses rules which simplify the more comprehensive ‘management accounting’ but may end up giving a less than true picture of the financial result for that year. Examples include:
# The treatment of livestock trading accounts. For cattle enterprises, inventory values (the values of opening and closing stock) in tax accounts of $40 or $50 per head are typically shown, while the real values may be more like $400 to $400 per head. Tax based estimates of “net income” will thus be understated in years when cattle numbers increase and will be overstated in years when the herd is sold down.
# Balance sheet adjustments. Most assets will be shown at their original purchase cost or at unrealistically low written down values in taxation accounts (due to higher than actual depreciation rates being applied). Consequently the balance sheet may not give a true representation of the current value of the business and of the owner’s net worth. Major listed companies solve this problem by periodic asset revaluations (up or down) to ensure that the balance sheet shows a true picture, and a better one to present to a lender.
# Depreciation rates. Machinery has, in the past especially, been written off in taxation accounts at a rate well in excess of its real loss in value and some long lived water improvements have been written off either in one year or over three years. Consequently, most tax depreciation schedules now show only some of the plant and equipment still being used and some depreciation rates will be excessive. These effects might or might not cancel each other.
# Tax accounts may have the business spread over several accounting entities. One or more partnerships (or sole traders, or companies, or trustees) may own the land and the improvements on it, while another entity operates it.

Some grazing businesses address these shortcomings in the tax accounts by having their accountants prepare both management and tax accounts from the same set of figures.

The Breedcow and Dynama suite of programs (except Taxinc) assume the use of management accounting values and processes in all budgets. The accounting entity analysed need not be the same as analysed by the tax return(s). Livestock trading accounts are calculated with inventory values based on sale prices (these may be adjusted in Dynama+). Asset values and depreciation should be stated at realistic market (not tax) values.

===How the accounting measures fit together===
Key measures of business performance and position include net income (or net profit), cash flow, gross margins and net worth.
Net profit is the primary measure of business performance and includes cash and non-cash components. It is a measure of outcome for a specific time period, e.g. the financial year 1st July 2011 to 30th June 2012.

In a beef business, net profit equals
* livestock trading profit, plus
* sundry income from other sources, less
* cash business expenses, less
* non-cash business expenses

The main non-cash business expense is depreciation, although the value of inventory change (plus or minus) may be included if there are variable quantities of fuel, fodder etc. on hand. (The value of livestock inventory change is dealt with in the livestock trading accounts).

Net profit represents a return to equity (net worth) and unpaid labour.

Livestock trading profit (or loss) also has cash and non-cash components. The cash component is the value of sales less purchases. The non-cash component is the increase or decrease in livestock inventory value.
Cash flow, for a specific time period, comprises all cash coming into the business, less all cash passing out of the business. The cash flow calculation includes the cash components of net income plus any capital transactions plus non-business outlays (drawings).

A gross margin is a subset of net income. It is a measure used on one component of the business at a time, e.g. the cattle enterprise or the haymaking enterprise. The gross margin comprises the income from the enterprise, including inventory value increase or decrease, less the variable costs of the enterprise. The gross margin per unit of enterprise measures the effect on net income of adding or removing one unit of that enterprise.

The relationship among net income, cash flow and gross margin is shown in the following table, using the same set of figures to compile all measures.

[[file:Measures_of_Income_July_1st_2011_to_June_30th_2012.PNG|frame|left|px300|Measures of Income July 1st 2011 to June 30th 2012]]

Note that the purchase and sale of machinery is a capital transaction, and therefore included in cash flow but not in net income – though those transactions will affect depreciation, which does feature in the net income calculation. Thus, over time, the cost of providing machinery (and other depreciable capital) for the business will be written off against net income as depreciation.

Net income as a concept is intended to measure the surplus generated by the business, over a period (normally a year), including an allowance for the change in the value of stock on hand. Depreciation can be viewed as just another example of allowing for change in the value of something used in the business (plant and improvements). Net income, as a measure, is used to assess the performance of the business, and to indicate to the owner the appropriate amount to distribute as dividends.

Cash flow is used mainly in budgeting to indicate future needs for new loans or future capacity to repay existing loans.

Net income measures change in wealth, while cash flow measures just the cash component of it.

A gross margin is used to identify the impact on the business of reducing or increasing the enterprise by one unit. For example, if the accounts shown in the table (above) relate to a business running 2,000 adult equivalents, gross margin per adult equivalent comes out at $52.50. Ignoring stocking rate effects on per head productivity, carrying one more adult equivalent would increase net income by $52.50; carrying one less adult equivalent would reduce net income by $52.50. This is because the gross margin includes only the income from the cattle enterprise, and only those costs that will change proportionately when enterprise size changes and which meet the test of one more animal equals one more unit of cost.

A gross margin is useful only if it can be compared with another gross margin. This comparison may be of gross margin per hectare from cattle versus sorghum. Alternately, it may be gross margin per adult equivalent from running the cattle one way, as against the gross margin per adult equivalent from running them some other way, given the same number of adult equivalents in each side of the comparison. It could also be gross margin per area when they are run at one stocking rate, versus gross margin per area when they are run at a different stocking rate (with productivity responses factored in).
When comparing options for the business, potential improvement is measured by how much better the gross margin is for the “change” option versus the “without change” option. The budgeted difference in gross margins will be exactly equal to the difference in budgeted net incomes.

Net worth as at a certain date is a balance sheet measure. Net worth has already been defined as the total value of assets (including cash, livestock, land, and plant) less total liabilities (debts).
There exists a mechanical link between net worth, net income, and drawings. If net income exactly equals drawings for the year, net worth at the end of the period will be the same as net worth at the start of the period (ignoring changes in underlying land values over the accounting period, which are handled by periodic asset revaluations).

Additional Information

2021-10-12T00:35:36Z

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File:Measures of Income July 1st 2011 to June 30th 2012.PNG

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Additional Information

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Additional Information

2021-10-11T05:23:45Z

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==Accounting and budgeting processes used in Breedcow and Dynama==
The Breedcow and Dynama package is based on conventional accounting and budgeting concepts, as adapted to extensive beef cattle enterprises. The concepts of net income, the return on capital, net worth, gross margins and cash flow are employed in the construction of these software programs.

Breedcow and Dynama analyses are used to make better decisions on sales, investment and adoption or non-adoption of husbandry practices.
Beef cattle enterprises operate on a production cycle of up to five years for turnoff stock, and ten or eleven years for breeders. Cash flow budgeting measures usually cut the production cycle into segments of one year and cash transactions occurring in one year do not tell the whole story, since changes in herd composition also add value to the business or take it away. Keeping track of the livestock numbers and values enables inventory changes to be valued and incorporated in analyses of profit.

For this reason, the Dynamaplus program pays special attention to calculating herd structures and projecting stock numbers by age and sex.
The budgeting processes of the Breedcow and Dynama suite of programs use the same concepts and measures of financial outcome as used in accounting, although accounting records and analyses past performance, while budgeting attempts to plan or predict future performance.

Main Page

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==Welcome to the Breedcow and Dynama Wiki==

This "wiki" is your step by step guide and user help manual, helping you get the most out of the Breedcow and Dynama herd budgeting software package. '''Tip:''' have the Breedcow and Dynama website opened in a separate window while following along step by step in the wiki.

The [https://breedcowdynama.com.au Breedcow and Dynama] software is used to assess choices for the management of beef cattle herds run under extensive conditions. It is not an accounting package or a paddock records package and does not record individual animals. It presents budgeting processes, adapted to the special needs of extensive beef producers.

[[file: Flowchart.PNG|frame|left|px300|Breedcow and Dynama suite of programs]]

'''Breedcow and Dynama programs are based on four budgeting processes:'''

# Comparing the likely profitability of the herd under different management or turnoff systems '''| [[Breedcow+]] program'''
# Making forward projections of stock numbers, sales, cash flow, net income, debt and net worth '''| [[Dynama+]] program'''
# Deciding what to sell when the plan goes sour or what to buy when there is an opportunity '''| [[Bullocks]] | [[Dry Cattle Trading|Dry Cattle Trading]]''' and '''[[Cowtrade]] programs'''
# Evaluating investments in herd or property improvement to determine the rate of return on extra capital, the number of years to breakeven and the peak debt '''| [[Investan]] program'''

In short, Breedcow+ is a steady state herd model that generates its own structure around a starting number of weaner heifers retained and Dynama+ program is a ten year herd budgeting program that usually starts with the current herd numbers and structure.

There are two additional programs, firstly '''[[Splitsal]]''' which can be used to estimate the weights and proportions of leads and tails in a mob of cattle, and secondly the '''[[LWG Calculator]]''' which can be used to estimate live weight gains in dry cattle on known nutrition.

The term “herd budgeting” is used to emphasise the central role of herd dynamics in cattle enterprise budgeting. For a more in-depth overview of the programs see the [[software overview]].

Additional information and insights that have been gathered over the years can be found on the [[Additional Information]] page.

==How to use the Breedcow & Dynama Wiki==

The Breedcow & Dynama wiki is growing all the time, constantly being updated with great tips on how to use the program and great information on all sorts of science of cattle and pasture. Don't be daunted by finding things, simply navigate your way from the main page. For example, if you want to find something out about the Breedcow+ program, simply click any Breedcow+ link - it will start you on your journey. Alternatively, search for any key term in the search box at the top right of the page. It works just like google!

==Contact Us==

Don't hesitate to [https://breedcowdynama.com.au/contact-us Contact Us] if you need extra assistance, have a request or feedback or simply can't find what you are looking for - it may not yet exist on the wiki.

Growth Path

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The Growth Path tool is guide that helps you visualise and estimate the weights of your cattle at certain ages. This will assist you in filling out the [[Breedcow+ AE Calc]] and the [[Dynama+ AECalc]] sheets. It's also very hand in the [[Bullocks]] tool.

Important! The Growth Path tool does not automatically fill out the AE Calc sheets.

==How to use the Growth Path tool==

Upon entering the Growth Path page, the following screen should be displayed. It has some example values - but these won't necessarily match yours.(Hint: Click the picture to make it bigger!).

[[File:GrowthPathWiki.jpg|frameless|Figure 1 - Growth Path Default Screen]]
===Entering the data===

Step 1: The "One Calving Period Growth Model"

Firstly, forget the words "One Calving Period Growth Model". Think of the model as the ability to forecast a growth path for an individual animal and then use the forecast to assist in filling out AECalc. Next, think of your weaner mob as an average, individual animal.

For instance, what date would the "average" weaner in your herd be born? If you joined the bulls in January, and approximately 50% of your cattle were pregnant by March, in 9 months time you will have 50% of your calves! So we might expect average calving date to be sometime in December. In this example, we expect that to be 15/12/2019. Weaning date is typically the date when you wean - if you do several rounds of weaning - think about the "average" weaner.

The next yellow box "Male calf average daily gain birth to weaning" is used mostly so that our weaning weight is about right for our herd. We can check that a little later on.

The last yellow box in section 1 is "Percentage reduction in heifer growth rate compared to steers" - typically we use about 5%, however, if you have great data on this, feel free to change it.

[[File:GrowthPathSection1.jpg|centre|frame|Figure 2 - One Calving Period Growth Model]]

Step 2: Average daily liveweight gains by month.

Using the arrows, or entering directly into the cell, add in your average liveweight gains you expect in the varies months. For instance, in the following image (Figure 3), we expect the cattle to put on 1kg per day during January, February and March. So we add 1 to each of those months. For each month, add in your expected, or average, liveweight gains.

[[File:LWG.JPG|centre|frame|Figure 3 - Average Daily Liveweight Gain by month]]

===Reading the results===

Depending on your screen size, or how you are accessing the wiki, A table will appear to the right of, or below, the liveweight gain by month input table. This will help with two things.
1. It will allow you to see whether your liveweight gain entries are correct
2. It will suggest data that can be added to AECalc.

An example in the following image (Figrue 4) demonstrates how to interpret the results.
For instance, the green line, is the "weaning weight line" and provides a weaning weight of 199kg for steers and 191 kg for heifers, with an average of 195kg. This weight can then be used in AECalc, if selling weaners. If this weight doesn't align with your historical experiences on your property, you will need to change the calf average daily gain until it does. As a note, it is possible to change the birth weight at the top of the table. A default value has been provided based on our experiences, but this can be changed, depending on your region and breed.
Another data point to check is the saleweights. For example, if you are turning off 365kg 2 (24 months) year old steers, reading the 24 month old row (in this case highlighted in orange) shows our steers are at 365kg. This means we have confidence our growth path is correct. If for example, that was reading 400kg, not 365, we know our growth path daily gains are too high and must be re-adjusted (see Step 2 above).
Importantly, the growth path provides a "5 month old" weight, this weight is important in the AECalc spreadsheets. In this case it is 168.5kg

[[File:Growthpathsection3.JPG|centre|frame|Figure 4 - Expected steer and heifer growth path]]

Steady state herd

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[[Breedcow+]] is a steady state (stable) herd and as such there is no inventory change.

The value of inventory change is a vitally important component of the gross margin calculation in any accounting type historical or dynamic analysis. Given the seasonal variation in much of Australia, it is not unusual for this inventory change, when valued at market (not tax) values, to be at least equal in value to sales less purchases. Calculated gross margins will then vary according to the inventory values used, and the conclusions drawn from comparing such gross margins will also change according to the inventory values used.

Inventory valuations are much less of a problem with defined groups of turnoff cattle, as analysed for example in the [[Cowtrade]] or [[Bullocks]] programs. With a breeding herd the problem is that there is a multiplicity of groups, so overall changes in value depend on changing herd composition as well as on change in total numbers. Even with herd composition taken into account, decisions have to be made on valuing or not valuing changes in weight or body condition.

It was to avoid this problem of gross margins distorted by uncertainty over inventory valuations that the concept of the steady state herd was adopted for the Breedcow+ program. '''In a steady state (stable) herd there is no inventory change, hence no valuation issue.''' This simplification is satisfactory and desirable for comparing future management strategies where the objective is to compare the likely profitability of different turnoff or husbandry options.

'''Where a significant change in herd structure is shown in a steady state analysis, the criterion for comparison is the Gross Margin per Adult Equivalent after interest.''' In this case, the gross margin is adjusted for the change in herd capital between the two steady state models being compared thereby allowing for the opportunity cost of the change in herd capital.

In interpreting these gross margins users should remember that a gross margin is a profit measure that has both cash and non-cash elements. A herd undergoing build-up will show a cash surplus (sales less purchases less variable costs) which may be much less than the gross margin. The gross margin in this instance can be viewed as the total of the gain in cash and the gain in kind (cattle).

Given the problems of inventory valuation, a steady state model based on the known variables of weaning and death rates, sale values and husbandry costs will give a more consistent estimate of the underlying gross margin than the traditional accounting approach.

Internal rate of return (IRR)

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'''The Internal Rate of Return (IRR)''' – this is the discount rate at which the Present Value of inflows equals the Present Value of outflows. It is internal because it is calculated independently of the cost of borrowed funds. It represents the maximum rate of interest that could be paid if all funds for the investment were borrowed and the investment was to break even. It also identifies the average return on the extra capital required to undertake the investment.

Net present value (NPV)

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'''Net Present Value (NPV)''' - the stream of future cash flows is reduced to a single figure. The NPV is the difference between the Present Value of the inflows and the Present Value of the outflows. An investment is acceptable if the NPV is positive.

Dynama+ Assumptions

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==The concepts underpinning the Dynama+ program==
The core of Dynama+ is a ten year livestock schedule that shows the annual flow of cattle through the herd. The flow of cattle and the performance described for the herd drives all of the outputs of the model.

===Measures of profit and cash flow in Dynama+===
The [[Dynama+]] program calculates a range of financial measures that include both cash and non-cash components in their construction. The key measures calculated are net worth, cash flow for debt service, net income and return on total capital (in dollars and percent). The relationships between these measures and what they mean is discussed in detail in the appendix of this user manual.
In summary:
* Net worth is calculated as the total asset value less total debt as at a particular date. Net worth is also known as “equity” and may be expressed as a percentage.
* Cash flow for debt service is calculated by deducting all cash outgoings ('''except loan service''') from all cash inflows. Note that this differs from the definition of cash flow in the discussion of accounting measures in the appendix, which is net of debt service. In Dynama+, the cash flow for debt service is put first towards the service of term loans, with any surplus going into the working accounts and any shortfall funded from working accounts.
* Cash in and cash out include all cash components of the net income calculation, plus items of a private or capital nature that are not part of the net income calculation. The latter include family living expenses and taxation, capital expenditures, receipts and other capital transactions including gifts given or received and transfers to or from other accounting entities.
* Depreciation and livestock inventory change, which are part of the net income calculation, are not included in the cash flow calculation since they are not cash.
* Net income is defined in Dynama+ as being equal to gross income, including the increase or decrease in livestock inventory value, less all variable and fixed costs including interest and depreciation. Net income includes some non-cash items (inventory change and depreciation) and excludes some cash items (tax, family expenses, capital transactions and loan reductions). '''Net income is thus not the same thing as net cash flow.'''
* Depreciation is the annual provision made in profit budgets to spread the cost of capital items such as vehicles, machinery and fences over the period of use of these items. Such capital costs, rather than being charged against net income as they occur, are smoothed over time and charged annually as depreciation. These capital costs will show up in a cash flow budget (and in Dynama) as lump sum outlays. If funded by borrowing, there will also be a cash inflow as the loan is received, and a series of outflows as the loan is repaid. Leased capital does not show up in the depreciation calculation (or in the balance sheet) but appears as a lease payment in the calculation of net cash flow or net income.

Budgets constructed in Dynama+ need to observe the limits on stocking rate ([[Adult equivalent|adult equivalents]]), working account balances and total debt that apply in the real world of the beef enterprise being modelled.

===Profit versus cash flow===

A profit and loss statement is one of the three main ways used to look at overall business outlook and performance - the cash flow budget (or statement of sources and uses of cash) and the statement of assets and liabilities being the other two.

Cash flow statements and budgets are regularly drawn up to monitor or predict short term cash flow but looking at short term cash flow on its own can paint a very misleading picture of the direction of a beef business. A cash-flow statement /budget show the cash expected to come into and go out of a business over a given period. It can indicate the amount of working capital that may be needed from outside sources and whether it is possible to fund the production cycles of the business within the current borrowing limits negotiated with the lender.

A cash-flow budget can bear little relationship to the actual profitability of the business as it may include things like capital income and expenditure, new loans, off farm income and personal expenses. A cash-flow budget also does not reflect the non-cash items such as unpaid operator’s allowance, depreciation or increases/decreases in the value of inventories. Estimating these things in a profit budget allows a more accurate estimate of how efficiently resources are being used.

Profit and loss statements or budgets are constructed to estimate the profit of a business over a given period so therefore focus on the efficiency of resource use within the business.
It can be argued that profit can only really be measured once the investment is finalised and all of the inflows and outflows accounted for. As most beef businesses have an effective investment life that may span decades, the estimates of profit derived will apportion values to capital at the start and end of the time period of the analysis. In this way any improvement in the underlying value of capital or a change in the livestock and plant inventory due to a change in strategy can be included in the estimate of profit made.

Figures 26 and 27 indicate the differences in the standard measures of farm performance when profit and cash flow are being considered. Figure 26 identifies the various components of how we estimate profit (efficiency). The direct links between the change in equity over the period and profit can be identified.

[[file: Figure 26.png|frame|center|Figure 26: Profit diagram <ref> Source: The Farming Game: Agricultural Management and Marketing by Bill Malcolm, Jack Makeham and Vic Wright., Cambridge University Press, 2005.</ref>]]

The important thing about Figure 26 is the direct link between profit and growth in wealth.

Figure 27 indicates the calculation of liquidity and the net cash flow before and after debt servicing. When Figures 26 and 27 are taken together they represent the balance sheet of the business, the profit and the net cash flow.

[[file: Figure 27.png|frame|center|Figure 27: Cash diagram]]

Figure 28 provides a typical layout of a livestock trading schedule compiled to calculate the trading profit of loss on a beef enterprise. Note that livestock sales does not always (rarely) equals livestock trading profit.

[[file: Figure 28.PNG|frame|center|Figure 28: Livestock trading schedule]]

Figure 29 shows the profit analysis for the example beef enterprise. The trading profit or loss calculated in the schedule is transferred to the profit and loss statement.

[[file: Figure 29.PNG|frame|center|Figure 29: Farm management profit and loss statement for a beef enterprise]]

A livestock gross margin is the gross income from an enterprise less the variable costs incurred in achieving it. It excludes fixed or overhead costs.

The total cash costs need to be allocated to five main subheadings when profit is being calculated and profit budgets are to be prepared:

* Variable costs: costs which change according to the size of an activity. The essential characteristic of a variable cost is that it changes proportionately to changes in enterprise size (or to change in components of the enterprise). Variable costs are the total of selling costs and husbandry costs in Breedcow and Dynama.
* Fixed (or overhead) costs – These are defined as costs which are not affected by the scale of the activities in the farm business. They must be met in the operation of the farm. Examples include: wages and employee on-costs, repairs, insurance, shire rates and land taxes, depreciation of plant and improvements, consultants fees, operators allowance for labour and management. Some fixed costs (like depreciation or operator’s allowance) are not cash costs and will be estimated for inclusion in the calculation of operating profit. It is also usual to count the smaller amounts of interest paid on a typical overdraft or short term working capital as an operating expense (fixed cost) and deduct them in the calculation of operating profit. In a profit analysis, the larger amounts of interest or leases are defined as the returns to lenders of fixed capital and not as a cost. They are deducted in the calculation of net profit as non-operating expenses.
* Non-operating expenses (including the returns to lenders of fixed capital) - These are items unrelated to the farm business operational activity. They generally cover the amounts allocated to such things as interest, rent and leases. They include amounts paid by the business for the use of capital provided by various lenders of capital external to the business and are deducted from operating profit to calculate net profit.
* Personal costs - Family and other personal costs not incurred in operating the business and would largely continue if the business was wound up.
* Capital costs - purchases of significant capital equipment. The cost to the business of capital equipment is apportioned as depreciation in a profit analysis. Depreciation is a form of overhead or fixed cost that allows for the use / fall in value of assets that have a life of more than one production period. It is an allowance deducted from gross revenue each year so that all of the costs of producing an output in that year are set against all of the revenues produced in that year.

===Profit terms===

'''Operating Profit''': is the return to total capital invested after the variable and overhead (fixed) costs involved in earning the revenue have been deducted. Operating profit represents the reward to all of the capital managed by the business.

Operating profit = (total receipts – variable costs = total gross margin) – overheads

When operating profit is expressed as a percentage return to total capital it indicates the efficiency of the use of all of the capital managed by the farm business.

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses). As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.

Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = '''change in equity'''. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[file: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

How useful a measure is the percentage return on total capital or the percentage return on equity? When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses included in later exercises will apply a partial discounted cash flow budgeting method that looks at the difference between two strategies over time. This is done in the [[Investan]] program.

===Notes===
<references />

===How adult equivalents, prices and variable costs are calculated in Dynama+===

The calculation of adult equivalents and husbandry (variable) costs is based on the number of livestock carried for the whole year plus (sale) stock carried for only part of the year. '''''The number carried is calculated as the opening number plus purchases minus sales minus spays'''''. For spays, the calculation is the opening number plus new spays minus sales.

Husbandry costs are applied to each age and sex group of “kept” cattle (on hand for the whole year) and to each age and sex group of sale cattle.

Sale prices of cattle are entered in the [[Dynama+ Prices|Prices]] worksheet and are transferred net of selling and freight costs to the [[Dynama+ Dynama|Dynama]] worksheet. Prices for purchased cattle should be entered as landed prices (including any inwards freight or other buying costs) unless inwards livestock freight and other associated purchase costs cannot be separated out of the general running costs of the business.

Variable costs and [[Adult equivalent|adult equivalents]] can be allocated to both the “number carried” and sale stock but deaths cannot be allocated to stock identified for sale. This is because animals identified as being sold in any period are no longer in the “number carried” and cannot have deaths put against them.

'''If deaths in sale stock are likely to be an issue''', the expected losses in that class of livestock will need to be increased in the period prior to sale. Since sale cattle are generally sold in northern Australia before the dry season, when mortality rates increase, assuming zero losses over the wet, i.e. on sale cattle, is unlikely to be a serious error.

Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.

Special attention should be paid to the variable cost entries for weaners, since the husbandry costs for weaners cover the weaning operation itself as well as the period following weaning. Weaning costs such as vaccinations and hay need to be applied to both kept and sold weaners, while subsequent supplementation, the application of a growth promotant etc. may apply only to the “kept” (unsold) weaners.

Adult equivalents are applied to the weaner group from age five months until twelve months of age. All other non-sale groups have adult equivalents applied for twelve months. Sale groups of livestock have an adult equivalent rating applied for the period from the month of average age of calving (“birthday month”) to the month of sale. These ratings are applied in the AECalc worksheet and can be varied across the ten years of the Dynama+ program.

====What are adult equivalents?====

Adult Equivalents are calculated using the same process in all Breedcow and Dynama programs with Dynama+ allowing users to consider the impact of change on both cash flow and grazing pressure over time.

For all Breedcow and Dynama software, the default value used for an adult equivalent is for a non-pregnant, non-lactating beast of average weight 455 kg (1,000 lbs) carried for 12 months.
Animals of average weight over the 12 months of more than or less than 455 kg are rated in proportion to their average bodyweight over the period. Thus a beast growing from 450 kg to 600 kg (average 525 kg) would be rated at 1.15 adult equivalents for twelve months.

Animals carried for periods other than twelve months, e.g. sale cattle carried three months into the budget year are rated on time carried as a fraction of twelve months. A beast carried 3 months and growing from 400 to 440 kg (average 420 = 0.92 adult equivalents if carried for 12 months) would be rated at 0.23 adult equivalents (a quarter of 0.92).

An additional allowance of 0.35 adult equivalents is made for breeders rearing a calf. This allowance covers the extra nutritional requirements of pregnancy, lactation and incidental forage consumption by the calf until age five months. The rating is placed on the calves themselves, effectively from conception to age five months. Their mothers are rated entirely on weight.

Five months is an arbitrary age beyond which the former “calves” are rated purely on weight. This age may bear no relationship to the age at which they are actually weaned.

The AECalc worksheet is used to calculate adult equivalent ratings, based on weights and months carried, for each group. Values for the AECalc worksheet in Dynama+ can be imported from an AECalc sheet in Breedcow+. The values for the first year in the Dynama+ AECalc sheet are automatically transferred to the remaining nine years but can be overwritten where weights or appetite change over time. This is important where a supplement feeding program is under consideration or being altered.

=====Adult equivalents and feeding supplements=====
There are some adult equivalent calculation issues that arise with cattle receiving feed supplements that may need to be considered if systems that provide supplements are to be compared to systems that do not.

The adult equivalent rating is used to represent comparative pasture consumption. Since phosphorus and non-protein nitrogen (e.g. urea) supplements work in part by increasing feed consumption, the potentially increased consumption of the supplemented herd may only be partly captured through the increased weight of supplemented cattle. One solution is to use a lower weight as the adult equivalent standard for supplemented cattle, thereby calculating higher adult equivalent ratings for them.

There may also be issues with energy supplements such as molasses if the adult equivalents are being supported in part by pasture and in part by the supplement. A possible solution is to increase the stocking rate limit by an amount equivalent to the feed value of the energy supplement.

These issues are especially important when assessing the economics of supplementation. Care needs to be taken when comparing supplemented herds with herds that are not supplemented to avoid overgrazing. Appetite and pasture consumption may vary by more than 30% for a breeding herd depending on the level and type of supplementation.

One solution is to initially calculate the AE rating for the herd that does not receive supplements and then reduce the AE rating for the herd that does receive supplements by (an initial) 30%. Once the expected benefits of the supplementation program have been implemented in the “with supplements” model the differences between the profit, cash flow and herd numbers in the two models can be compared.

Where a supplementation program is being implemented over time and some delay is expected in the impact on such things as conception and mortality rates, the two Dynama+ models (with and without supplementation) can be compared with [[Investan]] to identify the net benefit of the strategy over time.

If the supplementation strategy is profitable at a 30% reduction if AE’s, the strategy can be tested again at a 40% reduction to test the assumptions further. This is little available evidence to identify the actual impact of a supplementation regime on consumption in the paddock so some sensitivity testing is warranted.

===Age groups in the Dynama+ program===

In the Dynama+ program, groups are defined either by their age at the start of the year or by a specific age. Prices on sale cattle are generally applied at a specific age.

The meanings of age group descriptions can be established early by starting the budgeting exercise in the AECalc worksheet. The peak calving time, expected live weights, sale weights and sale months for each class of cattle are declared in the AECalc worksheet.

The tables in the Prices worksheet use headings which refer to a specific age at which cattle are sold, e.g. weaners, one year, two years etc. In practice, people sell their cattle throughout the year at ages such as 15 months, 18 months, 20 months etc. One label may have to cover everything from say 12 months to nearly two years. Sale ages are defined in months in the AECalc worksheet.

In the Dynama worksheet there is provision for trading “New Calves (mixed)”. This includes purchasing calves on their mothers and selling calves in the same year they were born. Sale and Purchase prices for “New Calves” in the Prices worksheet refer to these transactions, and Table 7 of the Dynama worksheet has provision for entering sales and purchases of “New Calves”. Beneath Table 7 there is also an entry for “Closing new calves female”. This is used, if for instance a group of steer calves has been sold, to ensure correct numbers of weaner heifers versus steers going into the following year.

===How mating, calving and death rates are calculated in Dynama+===

====Weaning rate calculations in Dynama+====

The [[Dynama+]] program can be set for one of two options as to how the number calves to be weaned is calculated.

The first option calculates new calves by multiplying the nominated weaning rate for a group of females by opening breeders plus purchases minus sales minus spays. In this option, the weaning rate is specified as calves weaned from cows mated and kept. '''''This method is consistent with that used in the [[Breedcow+]] program, and thus must be used if the [[Dynama+]] program is to use data transferred from the Breedcow+ program.'''''

The second option calculates new calves from the breeders on hand at the start of the budget year and assumes that all purchases, sales or spaying are done after calving. This option may be preferred if budgeting is done on a financial year rather than a production year.

These definitions, although mathematically convenient, are at odds with the “true” expression of weaning rate, which is the number of calves weaned divided by total cows mated. To satisfy the requirement for a “true” expression of weaning rate, the ratio of total calves weaned to total females mated is calculated and displayed as an output in the Dynama worksheet. '''Users need to identify the number of females sold after mating in each year for the figure to be accurate.'''

====Spaying in Dynama+====

The term “spaying” can have a variety of meanings in the [[Dynama+]] program. It broadly refers to keeping a group of cows out of the mating group, thus “spaying” will include females that are set aside after surgical spaying before mating, or it can just mean keeping female livestock in a separate paddock away from bulls. Conversely, late spaying (or “webbing”) which will allow the cow to calve, or spaying after calving, should not be entered in the current year as spaying (though these cows will certainly be “spays” in the following year and can be shown as being spayed then if not already sold).

====Calculating Dynama+ herd bull requirements====

The Dynama+ program calculates bull requirements by multiplying the figure entered for the bull cow ratio (or bull percentage) by total cows mated, including those sold after mating.

If the calculation of new calves is set for mating and calving in the same budget year, the bull requirements calculated will relate to that calving. If budgeting on a financial year, with a midsummer calving, the mating for that financial year will actually relate to the next year’s calving, so the formulas will be of no use.

Manual entries may be made for bull purchases and retention of BYO (Breed Your Own) bulls. These entries will override the formulas that would otherwise have calculated retentions of home-bred bulls, sales and purchases.

====Calculating the number of calves in Dynama+====

Calves produced for the year are shown as “new calves” at the end of the year. If calving is towards the end of the budget year, “new calves” may include an allowance for a tail of calves unbranded or still to be born. These new calves are split into weaner heifers and weaner steers as they graduate to the start of the next budget year. '''Some of these “weaners” may be very young indeed, i.e. birth still expected.'''

If the [[Dynama+]] herd is based on dates that place calving early to mid-year, rather than at the end of the year, it may be set to calculate calves from opening breeder numbers.

Calculations beneath Table 7 in the Dynama worksheet for cows mated and kept to calve, and total cows mated for “new calves” produced, are used to calculate “weaning rate on cows kept” and “weaning rate on all cows mated”.

If breeder numbers are thrown out by choice of budget year or sales after mating, the “cows mated” numbers can be overridden to ensure correct weaning % outcomes. '''These rates are for display only, so the adjustment is strictly optional.'''

====Deaths in Dynama+====

Deaths for all groups, male and female, are calculated as the mortality rate times the opening number plus purchases minus spays minus sales. Spays are transferred from the breeder groups to spay groups, where mortalities are calculated as spay mortality rate times the opening number plus new spays minus sales.

Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.

Dynama+ Assumptions

2020-08-26T07:42:58Z

FinlayV: /* The concepts underpinning the Dynama+ program */

Dynama+ Assumptions

2020-08-26T07:41:49Z

FinlayV: /* Deaths in Dynama+ */

==The concepts underpinning the Dynama+ program==
The core of Dynama+ is a ten year livestock schedule that shows the annual flow of cattle through the herd. The flow of cattle and the performance described for the herd drives all of the outputs of the model.

===Measures of profit and cash flow in Dynama+===
The [[Dynama+]] program calculates a range of financial measures that include both cash and non-cash components in their construction. The key measures calculated are net worth, cash flow for debt service, net income and return on total capital (in dollars and percent). The relationships between these measures and what they mean is discussed in detail in the appendix of this user manual.
In summary:
* Net worth is calculated as the total asset value less total debt as at a particular date. Net worth is also known as “equity” and may be expressed as a percentage.
* Cash flow for debt service is calculated by deducting all cash outgoings ('''except loan service''') from all cash inflows. Note that this differs from the definition of cash flow in the discussion of accounting measures in the appendix, which is net of debt service. In Dynama+, the cash flow for debt service is put first towards the service of term loans, with any surplus going into the working accounts and any shortfall funded from working accounts.
* Cash in and cash out include all cash components of the net income calculation, plus items of a private or capital nature that are not part of the net income calculation. The latter include family living expenses and taxation, capital expenditures, receipts and other capital transactions including gifts given or received and transfers to or from other accounting entities.
* Depreciation and livestock inventory change, which are part of the net income calculation, are not included in the cash flow calculation since they are not cash.
* Net income is defined in Dynama+ as being equal to gross income, including the increase or decrease in livestock inventory value, less all variable and fixed costs including interest and depreciation. Net income includes some non-cash items (inventory change and depreciation) and excludes some cash items (tax, family expenses, capital transactions and loan reductions). '''Net income is thus not the same thing as net cash flow.'''
* Depreciation is the annual provision made in profit budgets to spread the cost of capital items such as vehicles, machinery and fences over the period of use of these items. Such capital costs, rather than being charged against net income as they occur, are smoothed over time and charged annually as depreciation. These capital costs will show up in a cash flow budget (and in Dynama) as lump sum outlays. If funded by borrowing, there will also be a cash inflow as the loan is received, and a series of outflows as the loan is repaid. Leased capital does not show up in the depreciation calculation (or in the balance sheet) but appears as a lease payment in the calculation of net cash flow or net income.

Budgets constructed in Dynama+ need to observe the limits on stocking rate ([[Adult equivalent|adult equivalents]]), working account balances and total debt that apply in the real world of the beef enterprise being modelled.

===Profit versus cash flow===

A profit and loss statement is one of the three main ways used to look at overall business outlook and performance - the cash flow budget (or statement of sources and uses of cash) and the statement of assets and liabilities being the other two.

Cash flow statements and budgets are regularly drawn up to monitor or predict short term cash flow but looking at short term cash flow on its own can paint a very misleading picture of the direction of a beef business. A cash-flow statement /budget show the cash expected to come into and go out of a business over a given period. It can indicate the amount of working capital that may be needed from outside sources and whether it is possible to fund the production cycles of the business within the current borrowing limits negotiated with the lender.

A cash-flow budget can bear little relationship to the actual profitability of the business as it may include things like capital income and expenditure, new loans, off farm income and personal expenses. A cash-flow budget also does not reflect the non-cash items such as unpaid operator’s allowance, depreciation or increases/decreases in the value of inventories. Estimating these things in a profit budget allows a more accurate estimate of how efficiently resources are being used.

Profit and loss statements or budgets are constructed to estimate the profit of a business over a given period so therefore focus on the efficiency of resource use within the business.
It can be argued that profit can only really be measured once the investment is finalised and all of the inflows and outflows accounted for. As most beef businesses have an effective investment life that may span decades, the estimates of profit derived will apportion values to capital at the start and end of the time period of the analysis. In this way any improvement in the underlying value of capital or a change in the livestock and plant inventory due to a change in strategy can be included in the estimate of profit made.

Figures 26 and 27 indicate the differences in the standard measures of farm performance when profit and cash flow are being considered. Figure 26 identifies the various components of how we estimate profit (efficiency). The direct links between the change in equity over the period and profit can be identified.

[[file: Figure 26.png|frame|center|Figure 26: Profit diagram <ref> Source: The Farming Game: Agricultural Management and Marketing by Bill Malcolm, Jack Makeham and Vic Wright., Cambridge University Press, 2005.</ref>]]

The important thing about Figure 26 is the direct link between profit and growth in wealth.

Figure 27 indicates the calculation of liquidity and the net cash flow before and after debt servicing. When Figures 26 and 27 are taken together they represent the balance sheet of the business, the profit and the net cash flow.

[[file: Figure 27.png|frame|center|Figure 27: Cash diagram]]

Figure 28 provides a typical layout of a livestock trading schedule compiled to calculate the trading profit of loss on a beef enterprise. Note that livestock sales does not always (rarely) equals livestock trading profit.

[[file: Figure 28.PNG|frame|center|Figure 28: Livestock trading schedule]]

Figure 29 shows the profit analysis for the example beef enterprise. The trading profit or loss calculated in the schedule is transferred to the profit and loss statement.

[[file: Figure 29.PNG|frame|center|Figure 29: Farm management profit and loss statement for a beef enterprise]]

A livestock gross margin is the gross income from an enterprise less the variable costs incurred in achieving it. It excludes fixed or overhead costs.

The total cash costs need to be allocated to five main subheadings when profit is being calculated and profit budgets are to be prepared:

* Variable costs: costs which change according to the size of an activity. The essential characteristic of a variable cost is that it changes proportionately to changes in enterprise size (or to change in components of the enterprise). Variable costs are the total of selling costs and husbandry costs in Breedcow and Dynama.
* Fixed (or overhead) costs – These are defined as costs which are not affected by the scale of the activities in the farm business. They must be met in the operation of the farm. Examples include: wages and employee on-costs, repairs, insurance, shire rates and land taxes, depreciation of plant and improvements, consultants fees, operators allowance for labour and management. Some fixed costs (like depreciation or operator’s allowance) are not cash costs and will be estimated for inclusion in the calculation of operating profit. It is also usual to count the smaller amounts of interest paid on a typical overdraft or short term working capital as an operating expense (fixed cost) and deduct them in the calculation of operating profit. In a profit analysis, the larger amounts of interest or leases are defined as the returns to lenders of fixed capital and not as a cost. They are deducted in the calculation of net profit as non-operating expenses.
* Non-operating expenses (including the returns to lenders of fixed capital) - These are items unrelated to the farm business operational activity. They generally cover the amounts allocated to such things as interest, rent and leases. They include amounts paid by the business for the use of capital provided by various lenders of capital external to the business and are deducted from operating profit to calculate net profit.
* Personal costs - Family and other personal costs not incurred in operating the business and would largely continue if the business was wound up.
* Capital costs - purchases of significant capital equipment. The cost to the business of capital equipment is apportioned as depreciation in a profit analysis. Depreciation is a form of overhead or fixed cost that allows for the use / fall in value of assets that have a life of more than one production period. It is an allowance deducted from gross revenue each year so that all of the costs of producing an output in that year are set against all of the revenues produced in that year.

===Profit terms===

'''Operating Profit''': is the return to total capital invested after the variable and overhead (fixed) costs involved in earning the revenue have been deducted. Operating profit represents the reward to all of the capital managed by the business.

Operating profit = (total receipts – variable costs = total gross margin) – overheads

When operating profit is expressed as a percentage return to total capital it indicates the efficiency of the use of all of the capital managed by the farm business.

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses). As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.

Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = '''change in equity'''. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[file: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

How useful a measure is the percentage return on total capital or the percentage return on equity? When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses included in later exercises will apply a partial discounted cash flow budgeting method that looks at the difference between two strategies over time. This is done in the [[Investan]] program.

===Notes===
<references />

===How adult equivalents, prices and variable costs are calculated in Dynama+===

The calculation of adult equivalents and husbandry (variable) costs is based on the number of livestock carried for the whole year plus (sale) stock carried for only part of the year. '''''The number carried is calculated as the opening number plus purchases minus sales minus spays'''''. For spays, the calculation is the opening number plus new spays minus sales.

Husbandry costs are applied to each age and sex group of “kept” cattle (on hand for the whole year) and to each age and sex group of sale cattle.

Sale prices of cattle are entered in the [[Dynama+ Prices|Prices]] worksheet and are transferred net of selling and freight costs to the [[Dynama+ Dynama|Dynama]] worksheet. Prices for purchased cattle should be entered as landed prices (including any inwards freight or other buying costs) unless inwards livestock freight and other associated purchase costs cannot be separated out of the general running costs of the business.

Variable costs and [[Adult equivalent|adult equivalents]] can be allocated to both the “number carried” and sale stock but deaths cannot be allocated to stock identified for sale. This is because animals identified as being sold in any period are no longer in the “number carried” and cannot have deaths put against them.

'''If deaths in sale stock are likely to be an issue''', the expected losses in that class of livestock will need to be increased in the period prior to sale. Since sale cattle are generally sold in northern Australia before the dry season, when mortality rates increase, assuming zero losses over the wet, i.e. on sale cattle, is unlikely to be a serious error.

Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.

Special attention should be paid to the variable cost entries for weaners, since the husbandry costs for weaners cover the weaning operation itself as well as the period following weaning. Weaning costs such as vaccinations and hay need to be applied to both kept and sold weaners, while subsequent supplementation, the application of a growth promotant etc. may apply only to the “kept” (unsold) weaners.

Adult equivalents are applied to the weaner group from age five months until twelve months of age. All other non-sale groups have adult equivalents applied for twelve months. Sale groups of livestock have an adult equivalent rating applied for the period from the month of average age of calving (“birthday month”) to the month of sale. These ratings are applied in the AECalc worksheet and can be varied across the ten years of the Dynama+ program.

====What are adult equivalents?====

Adult Equivalents are calculated using the same process in all Breedcow and Dynama programs with Dynama+ allowing users to consider the impact of change on both cash flow and grazing pressure over time.

For all Breedcow and Dynama software, the default value used for an adult equivalent is for a non-pregnant, non-lactating beast of average weight 455 kg (1,000 lbs) carried for 12 months.
Animals of average weight over the 12 months of more than or less than 455 kg are rated in proportion to their average bodyweight over the period. Thus a beast growing from 450 kg to 600 kg (average 525 kg) would be rated at 1.15 adult equivalents for twelve months.

Animals carried for periods other than twelve months, e.g. sale cattle carried three months into the budget year are rated on time carried as a fraction of twelve months. A beast carried 3 months and growing from 400 to 440 kg (average 420 = 0.92 adult equivalents if carried for 12 months) would be rated at 0.23 adult equivalents (a quarter of 0.92).

An additional allowance of 0.35 adult equivalents is made for breeders rearing a calf. This allowance covers the extra nutritional requirements of pregnancy, lactation and incidental forage consumption by the calf until age five months. The rating is placed on the calves themselves, effectively from conception to age five months. Their mothers are rated entirely on weight.

Five months is an arbitrary age beyond which the former “calves” are rated purely on weight. This age may bear no relationship to the age at which they are actually weaned.

The AECalc worksheet is used to calculate adult equivalent ratings, based on weights and months carried, for each group. Values for the AECalc worksheet in Dynama+ can be imported from an AECalc sheet in Breedcow+. The values for the first year in the Dynama+ AECalc sheet are automatically transferred to the remaining nine years but can be overwritten where weights or appetite change over time. This is important where a supplement feeding program is under consideration or being altered.

=====Adult equivalents and feeding supplements=====
There are some adult equivalent calculation issues that arise with cattle receiving feed supplements that may need to be considered if systems that provide supplements are to be compared to systems that do not.

The adult equivalent rating is used to represent comparative pasture consumption. Since phosphorus and non-protein nitrogen (e.g. urea) supplements work in part by increasing feed consumption, the potentially increased consumption of the supplemented herd may only be partly captured through the increased weight of supplemented cattle. One solution is to use a lower weight as the adult equivalent standard for supplemented cattle, thereby calculating higher adult equivalent ratings for them.

There may also be issues with energy supplements such as molasses if the adult equivalents are being supported in part by pasture and in part by the supplement. A possible solution is to increase the stocking rate limit by an amount equivalent to the feed value of the energy supplement.

These issues are especially important when assessing the economics of supplementation. Care needs to be taken when comparing supplemented herds with herds that are not supplemented to avoid overgrazing. Appetite and pasture consumption may vary by more than 30% for a breeding herd depending on the level and type of supplementation.

One solution is to initially calculate the AE rating for the herd that does not receive supplements and then reduce the AE rating for the herd that does receive supplements by (an initial) 30%. Once the expected benefits of the supplementation program have been implemented in the “with supplements” model the differences between the profit, cash flow and herd numbers in the two models can be compared.

Where a supplementation program is being implemented over time and some delay is expected in the impact on such things as conception and mortality rates, the two Dynama+ models (with and without supplementation) can be compared with [[Investan]] to identify the net benefit of the strategy over time.

If the supplementation strategy is profitable at a 30% reduction if AE’s, the strategy can be tested again at a 40% reduction to test the assumptions further. This is little available evidence to identify the actual impact of a supplementation regime on consumption in the paddock so some sensitivity testing is warranted.

===How mating, calving and death rates are calculated in Dynama+===

====Weaning rate calculations in Dynama+====

The [[Dynama+]] program can be set for one of two options as to how the number calves to be weaned is calculated.

The first option calculates new calves by multiplying the nominated weaning rate for a group of females by opening breeders plus purchases minus sales minus spays. In this option, the weaning rate is specified as calves weaned from cows mated and kept. '''''This method is consistent with that used in the [[Breedcow+]] program, and thus must be used if the [[Dynama+]] program is to use data transferred from the Breedcow+ program.'''''

The second option calculates new calves from the breeders on hand at the start of the budget year and assumes that all purchases, sales or spaying are done after calving. This option may be preferred if budgeting is done on a financial year rather than a production year.

These definitions, although mathematically convenient, are at odds with the “true” expression of weaning rate, which is the number of calves weaned divided by total cows mated. To satisfy the requirement for a “true” expression of weaning rate, the ratio of total calves weaned to total females mated is calculated and displayed as an output in the Dynama worksheet. '''Users need to identify the number of females sold after mating in each year for the figure to be accurate.'''

====Spaying in Dynama+====

The term “spaying” can have a variety of meanings in the [[Dynama+]] program. It broadly refers to keeping a group of cows out of the mating group, thus “spaying” will include females that are set aside after surgical spaying before mating, or it can just mean keeping female livestock in a separate paddock away from bulls. Conversely, late spaying (or “webbing”) which will allow the cow to calve, or spaying after calving, should not be entered in the current year as spaying (though these cows will certainly be “spays” in the following year and can be shown as being spayed then if not already sold).

====Calculating Dynama+ herd bull requirements====

The Dynama+ program calculates bull requirements by multiplying the figure entered for the bull cow ratio (or bull percentage) by total cows mated, including those sold after mating.

If the calculation of new calves is set for mating and calving in the same budget year, the bull requirements calculated will relate to that calving. If budgeting on a financial year, with a midsummer calving, the mating for that financial year will actually relate to the next year’s calving, so the formulas will be of no use.

Manual entries may be made for bull purchases and retention of BYO (Breed Your Own) bulls. These entries will override the formulas that would otherwise have calculated retentions of home-bred bulls, sales and purchases.

====Calculating the number of calves in Dynama+====

Calves produced for the year are shown as “new calves” at the end of the year. If calving is towards the end of the budget year, “new calves” may include an allowance for a tail of calves unbranded or still to be born. These new calves are split into weaner heifers and weaner steers as they graduate to the start of the next budget year. '''Some of these “weaners” may be very young indeed, i.e. birth still expected.'''

If the [[Dynama+]] herd is based on dates that place calving early to mid-year, rather than at the end of the year, it may be set to calculate calves from opening breeder numbers.

Calculations beneath Table 7 in the Dynama worksheet for cows mated and kept to calve, and total cows mated for “new calves” produced, are used to calculate “weaning rate on cows kept” and “weaning rate on all cows mated”.

If breeder numbers are thrown out by choice of budget year or sales after mating, the “cows mated” numbers can be overridden to ensure correct weaning % outcomes. '''These rates are for display only, so the adjustment is strictly optional.'''

====Deaths in Dynama+====

Deaths for all groups, male and female, are calculated as the mortality rate times the opening number plus purchases minus spays minus sales. Spays are transferred from the breeder groups to spay groups, where mortalities are calculated as spay mortality rate times the opening number plus new spays minus sales.

Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.

===Age groups in the Dynama+ program===

In the Dynama+ program, groups are defined either by their age at the start of the year or by a specific age. Prices on sale cattle are generally applied at a specific age.

The meanings of age group descriptions can be established early by starting the budgeting exercise in the AECalc worksheet. The peak calving time, expected live weights, sale weights and sale months for each class of cattle are declared in the AECalc worksheet.

The tables in the Prices worksheet use headings which refer to a specific age at which cattle are sold, e.g. weaners, one year, two years etc. In practice, people sell their cattle throughout the year at ages such as 15 months, 18 months, 20 months etc. One label may have to cover everything from say 12 months to nearly two years. Sale ages are defined in months in the AECalc worksheet.

In the Dynama worksheet there is provision for trading “New Calves (mixed)”. This includes purchasing calves on their mothers and selling calves in the same year they were born. Sale and Purchase prices for “New Calves” in the Prices worksheet refer to these transactions, and Table 7 of the Dynama worksheet has provision for entering sales and purchases of “New Calves”. Beneath Table 7 there is also an entry for “Closing new calves female”. This is used, if for instance a group of steer calves has been sold, to ensure correct numbers of weaner heifers versus steers going into the following year.

Dynama+ Assumptions

2020-08-26T07:41:19Z

FinlayV: /* Calculating the number of calves in Dynama+ */

==The concepts underpinning the Dynama+ program==
The core of Dynama+ is a ten year livestock schedule that shows the annual flow of cattle through the herd. The flow of cattle and the performance described for the herd drives all of the outputs of the model.

===Measures of profit and cash flow in Dynama+===
The [[Dynama+]] program calculates a range of financial measures that include both cash and non-cash components in their construction. The key measures calculated are net worth, cash flow for debt service, net income and return on total capital (in dollars and percent). The relationships between these measures and what they mean is discussed in detail in the appendix of this user manual.
In summary:
* Net worth is calculated as the total asset value less total debt as at a particular date. Net worth is also known as “equity” and may be expressed as a percentage.
* Cash flow for debt service is calculated by deducting all cash outgoings ('''except loan service''') from all cash inflows. Note that this differs from the definition of cash flow in the discussion of accounting measures in the appendix, which is net of debt service. In Dynama+, the cash flow for debt service is put first towards the service of term loans, with any surplus going into the working accounts and any shortfall funded from working accounts.
* Cash in and cash out include all cash components of the net income calculation, plus items of a private or capital nature that are not part of the net income calculation. The latter include family living expenses and taxation, capital expenditures, receipts and other capital transactions including gifts given or received and transfers to or from other accounting entities.
* Depreciation and livestock inventory change, which are part of the net income calculation, are not included in the cash flow calculation since they are not cash.
* Net income is defined in Dynama+ as being equal to gross income, including the increase or decrease in livestock inventory value, less all variable and fixed costs including interest and depreciation. Net income includes some non-cash items (inventory change and depreciation) and excludes some cash items (tax, family expenses, capital transactions and loan reductions). '''Net income is thus not the same thing as net cash flow.'''
* Depreciation is the annual provision made in profit budgets to spread the cost of capital items such as vehicles, machinery and fences over the period of use of these items. Such capital costs, rather than being charged against net income as they occur, are smoothed over time and charged annually as depreciation. These capital costs will show up in a cash flow budget (and in Dynama) as lump sum outlays. If funded by borrowing, there will also be a cash inflow as the loan is received, and a series of outflows as the loan is repaid. Leased capital does not show up in the depreciation calculation (or in the balance sheet) but appears as a lease payment in the calculation of net cash flow or net income.

Budgets constructed in Dynama+ need to observe the limits on stocking rate ([[Adult equivalent|adult equivalents]]), working account balances and total debt that apply in the real world of the beef enterprise being modelled.

===Profit versus cash flow===

A profit and loss statement is one of the three main ways used to look at overall business outlook and performance - the cash flow budget (or statement of sources and uses of cash) and the statement of assets and liabilities being the other two.

Cash flow statements and budgets are regularly drawn up to monitor or predict short term cash flow but looking at short term cash flow on its own can paint a very misleading picture of the direction of a beef business. A cash-flow statement /budget show the cash expected to come into and go out of a business over a given period. It can indicate the amount of working capital that may be needed from outside sources and whether it is possible to fund the production cycles of the business within the current borrowing limits negotiated with the lender.

A cash-flow budget can bear little relationship to the actual profitability of the business as it may include things like capital income and expenditure, new loans, off farm income and personal expenses. A cash-flow budget also does not reflect the non-cash items such as unpaid operator’s allowance, depreciation or increases/decreases in the value of inventories. Estimating these things in a profit budget allows a more accurate estimate of how efficiently resources are being used.

Profit and loss statements or budgets are constructed to estimate the profit of a business over a given period so therefore focus on the efficiency of resource use within the business.
It can be argued that profit can only really be measured once the investment is finalised and all of the inflows and outflows accounted for. As most beef businesses have an effective investment life that may span decades, the estimates of profit derived will apportion values to capital at the start and end of the time period of the analysis. In this way any improvement in the underlying value of capital or a change in the livestock and plant inventory due to a change in strategy can be included in the estimate of profit made.

Figures 26 and 27 indicate the differences in the standard measures of farm performance when profit and cash flow are being considered. Figure 26 identifies the various components of how we estimate profit (efficiency). The direct links between the change in equity over the period and profit can be identified.

[[file: Figure 26.png|frame|center|Figure 26: Profit diagram <ref> Source: The Farming Game: Agricultural Management and Marketing by Bill Malcolm, Jack Makeham and Vic Wright., Cambridge University Press, 2005.</ref>]]

The important thing about Figure 26 is the direct link between profit and growth in wealth.

Figure 27 indicates the calculation of liquidity and the net cash flow before and after debt servicing. When Figures 26 and 27 are taken together they represent the balance sheet of the business, the profit and the net cash flow.

[[file: Figure 27.png|frame|center|Figure 27: Cash diagram]]

Figure 28 provides a typical layout of a livestock trading schedule compiled to calculate the trading profit of loss on a beef enterprise. Note that livestock sales does not always (rarely) equals livestock trading profit.

[[file: Figure 28.PNG|frame|center|Figure 28: Livestock trading schedule]]

Figure 29 shows the profit analysis for the example beef enterprise. The trading profit or loss calculated in the schedule is transferred to the profit and loss statement.

[[file: Figure 29.PNG|frame|center|Figure 29: Farm management profit and loss statement for a beef enterprise]]

A livestock gross margin is the gross income from an enterprise less the variable costs incurred in achieving it. It excludes fixed or overhead costs.

The total cash costs need to be allocated to five main subheadings when profit is being calculated and profit budgets are to be prepared:

* Variable costs: costs which change according to the size of an activity. The essential characteristic of a variable cost is that it changes proportionately to changes in enterprise size (or to change in components of the enterprise). Variable costs are the total of selling costs and husbandry costs in Breedcow and Dynama.
* Fixed (or overhead) costs – These are defined as costs which are not affected by the scale of the activities in the farm business. They must be met in the operation of the farm. Examples include: wages and employee on-costs, repairs, insurance, shire rates and land taxes, depreciation of plant and improvements, consultants fees, operators allowance for labour and management. Some fixed costs (like depreciation or operator’s allowance) are not cash costs and will be estimated for inclusion in the calculation of operating profit. It is also usual to count the smaller amounts of interest paid on a typical overdraft or short term working capital as an operating expense (fixed cost) and deduct them in the calculation of operating profit. In a profit analysis, the larger amounts of interest or leases are defined as the returns to lenders of fixed capital and not as a cost. They are deducted in the calculation of net profit as non-operating expenses.
* Non-operating expenses (including the returns to lenders of fixed capital) - These are items unrelated to the farm business operational activity. They generally cover the amounts allocated to such things as interest, rent and leases. They include amounts paid by the business for the use of capital provided by various lenders of capital external to the business and are deducted from operating profit to calculate net profit.
* Personal costs - Family and other personal costs not incurred in operating the business and would largely continue if the business was wound up.
* Capital costs - purchases of significant capital equipment. The cost to the business of capital equipment is apportioned as depreciation in a profit analysis. Depreciation is a form of overhead or fixed cost that allows for the use / fall in value of assets that have a life of more than one production period. It is an allowance deducted from gross revenue each year so that all of the costs of producing an output in that year are set against all of the revenues produced in that year.

===Profit terms===

'''Operating Profit''': is the return to total capital invested after the variable and overhead (fixed) costs involved in earning the revenue have been deducted. Operating profit represents the reward to all of the capital managed by the business.

Operating profit = (total receipts – variable costs = total gross margin) – overheads

When operating profit is expressed as a percentage return to total capital it indicates the efficiency of the use of all of the capital managed by the farm business.

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses). As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.

Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = '''change in equity'''. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[file: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

How useful a measure is the percentage return on total capital or the percentage return on equity? When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses included in later exercises will apply a partial discounted cash flow budgeting method that looks at the difference between two strategies over time. This is done in the [[Investan]] program.

===Notes===
<references />

===How adult equivalents, prices and variable costs are calculated in Dynama+===

The calculation of adult equivalents and husbandry (variable) costs is based on the number of livestock carried for the whole year plus (sale) stock carried for only part of the year. '''''The number carried is calculated as the opening number plus purchases minus sales minus spays'''''. For spays, the calculation is the opening number plus new spays minus sales.

Husbandry costs are applied to each age and sex group of “kept” cattle (on hand for the whole year) and to each age and sex group of sale cattle.

Sale prices of cattle are entered in the [[Dynama+ Prices|Prices]] worksheet and are transferred net of selling and freight costs to the [[Dynama+ Dynama|Dynama]] worksheet. Prices for purchased cattle should be entered as landed prices (including any inwards freight or other buying costs) unless inwards livestock freight and other associated purchase costs cannot be separated out of the general running costs of the business.

Variable costs and [[Adult equivalent|adult equivalents]] can be allocated to both the “number carried” and sale stock but deaths cannot be allocated to stock identified for sale. This is because animals identified as being sold in any period are no longer in the “number carried” and cannot have deaths put against them.

'''If deaths in sale stock are likely to be an issue''', the expected losses in that class of livestock will need to be increased in the period prior to sale. Since sale cattle are generally sold in northern Australia before the dry season, when mortality rates increase, assuming zero losses over the wet, i.e. on sale cattle, is unlikely to be a serious error.

Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.

Special attention should be paid to the variable cost entries for weaners, since the husbandry costs for weaners cover the weaning operation itself as well as the period following weaning. Weaning costs such as vaccinations and hay need to be applied to both kept and sold weaners, while subsequent supplementation, the application of a growth promotant etc. may apply only to the “kept” (unsold) weaners.

Adult equivalents are applied to the weaner group from age five months until twelve months of age. All other non-sale groups have adult equivalents applied for twelve months. Sale groups of livestock have an adult equivalent rating applied for the period from the month of average age of calving (“birthday month”) to the month of sale. These ratings are applied in the AECalc worksheet and can be varied across the ten years of the Dynama+ program.

====What are adult equivalents?====

Adult Equivalents are calculated using the same process in all Breedcow and Dynama programs with Dynama+ allowing users to consider the impact of change on both cash flow and grazing pressure over time.

For all Breedcow and Dynama software, the default value used for an adult equivalent is for a non-pregnant, non-lactating beast of average weight 455 kg (1,000 lbs) carried for 12 months.
Animals of average weight over the 12 months of more than or less than 455 kg are rated in proportion to their average bodyweight over the period. Thus a beast growing from 450 kg to 600 kg (average 525 kg) would be rated at 1.15 adult equivalents for twelve months.

Animals carried for periods other than twelve months, e.g. sale cattle carried three months into the budget year are rated on time carried as a fraction of twelve months. A beast carried 3 months and growing from 400 to 440 kg (average 420 = 0.92 adult equivalents if carried for 12 months) would be rated at 0.23 adult equivalents (a quarter of 0.92).

An additional allowance of 0.35 adult equivalents is made for breeders rearing a calf. This allowance covers the extra nutritional requirements of pregnancy, lactation and incidental forage consumption by the calf until age five months. The rating is placed on the calves themselves, effectively from conception to age five months. Their mothers are rated entirely on weight.

Five months is an arbitrary age beyond which the former “calves” are rated purely on weight. This age may bear no relationship to the age at which they are actually weaned.

The AECalc worksheet is used to calculate adult equivalent ratings, based on weights and months carried, for each group. Values for the AECalc worksheet in Dynama+ can be imported from an AECalc sheet in Breedcow+. The values for the first year in the Dynama+ AECalc sheet are automatically transferred to the remaining nine years but can be overwritten where weights or appetite change over time. This is important where a supplement feeding program is under consideration or being altered.

=====Adult equivalents and feeding supplements=====
There are some adult equivalent calculation issues that arise with cattle receiving feed supplements that may need to be considered if systems that provide supplements are to be compared to systems that do not.

The adult equivalent rating is used to represent comparative pasture consumption. Since phosphorus and non-protein nitrogen (e.g. urea) supplements work in part by increasing feed consumption, the potentially increased consumption of the supplemented herd may only be partly captured through the increased weight of supplemented cattle. One solution is to use a lower weight as the adult equivalent standard for supplemented cattle, thereby calculating higher adult equivalent ratings for them.

There may also be issues with energy supplements such as molasses if the adult equivalents are being supported in part by pasture and in part by the supplement. A possible solution is to increase the stocking rate limit by an amount equivalent to the feed value of the energy supplement.

These issues are especially important when assessing the economics of supplementation. Care needs to be taken when comparing supplemented herds with herds that are not supplemented to avoid overgrazing. Appetite and pasture consumption may vary by more than 30% for a breeding herd depending on the level and type of supplementation.

One solution is to initially calculate the AE rating for the herd that does not receive supplements and then reduce the AE rating for the herd that does receive supplements by (an initial) 30%. Once the expected benefits of the supplementation program have been implemented in the “with supplements” model the differences between the profit, cash flow and herd numbers in the two models can be compared.

Where a supplementation program is being implemented over time and some delay is expected in the impact on such things as conception and mortality rates, the two Dynama+ models (with and without supplementation) can be compared with [[Investan]] to identify the net benefit of the strategy over time.

If the supplementation strategy is profitable at a 30% reduction if AE’s, the strategy can be tested again at a 40% reduction to test the assumptions further. This is little available evidence to identify the actual impact of a supplementation regime on consumption in the paddock so some sensitivity testing is warranted.

===How mating, calving and death rates are calculated in Dynama+===

====Weaning rate calculations in Dynama+====

The [[Dynama+]] program can be set for one of two options as to how the number calves to be weaned is calculated.

The first option calculates new calves by multiplying the nominated weaning rate for a group of females by opening breeders plus purchases minus sales minus spays. In this option, the weaning rate is specified as calves weaned from cows mated and kept. '''''This method is consistent with that used in the [[Breedcow+]] program, and thus must be used if the [[Dynama+]] program is to use data transferred from the Breedcow+ program.'''''

The second option calculates new calves from the breeders on hand at the start of the budget year and assumes that all purchases, sales or spaying are done after calving. This option may be preferred if budgeting is done on a financial year rather than a production year.

These definitions, although mathematically convenient, are at odds with the “true” expression of weaning rate, which is the number of calves weaned divided by total cows mated. To satisfy the requirement for a “true” expression of weaning rate, the ratio of total calves weaned to total females mated is calculated and displayed as an output in the Dynama worksheet. '''Users need to identify the number of females sold after mating in each year for the figure to be accurate.'''

====Spaying in Dynama+====

The term “spaying” can have a variety of meanings in the [[Dynama+]] program. It broadly refers to keeping a group of cows out of the mating group, thus “spaying” will include females that are set aside after surgical spaying before mating, or it can just mean keeping female livestock in a separate paddock away from bulls. Conversely, late spaying (or “webbing”) which will allow the cow to calve, or spaying after calving, should not be entered in the current year as spaying (though these cows will certainly be “spays” in the following year and can be shown as being spayed then if not already sold).

====Calculating Dynama+ herd bull requirements====

The Dynama+ program calculates bull requirements by multiplying the figure entered for the bull cow ratio (or bull percentage) by total cows mated, including those sold after mating.

If the calculation of new calves is set for mating and calving in the same budget year, the bull requirements calculated will relate to that calving. If budgeting on a financial year, with a midsummer calving, the mating for that financial year will actually relate to the next year’s calving, so the formulas will be of no use.

Manual entries may be made for bull purchases and retention of BYO (Breed Your Own) bulls. These entries will override the formulas that would otherwise have calculated retentions of home-bred bulls, sales and purchases.

====Calculating the number of calves in Dynama+====

Calves produced for the year are shown as “new calves” at the end of the year. If calving is towards the end of the budget year, “new calves” may include an allowance for a tail of calves unbranded or still to be born. These new calves are split into weaner heifers and weaner steers as they graduate to the start of the next budget year. '''Some of these “weaners” may be very young indeed, i.e. birth still expected.'''

If the [[Dynama+]] herd is based on dates that place calving early to mid-year, rather than at the end of the year, it may be set to calculate calves from opening breeder numbers.

Calculations beneath Table 7 in the Dynama worksheet for cows mated and kept to calve, and total cows mated for “new calves” produced, are used to calculate “weaning rate on cows kept” and “weaning rate on all cows mated”.

If breeder numbers are thrown out by choice of budget year or sales after mating, the “cows mated” numbers can be overridden to ensure correct weaning % outcomes. '''These rates are for display only, so the adjustment is strictly optional.'''

====Deaths in Dynama+====

===Age groups in the Dynama+ program===

In the Dynama+ program, groups are defined either by their age at the start of the year or by a specific age. Prices on sale cattle are generally applied at a specific age.

The meanings of age group descriptions can be established early by starting the budgeting exercise in the AECalc worksheet. The peak calving time, expected live weights, sale weights and sale months for each class of cattle are declared in the AECalc worksheet.

The tables in the Prices worksheet use headings which refer to a specific age at which cattle are sold, e.g. weaners, one year, two years etc. In practice, people sell their cattle throughout the year at ages such as 15 months, 18 months, 20 months etc. One label may have to cover everything from say 12 months to nearly two years. Sale ages are defined in months in the AECalc worksheet.

In the Dynama worksheet there is provision for trading “New Calves (mixed)”. This includes purchasing calves on their mothers and selling calves in the same year they were born. Sale and Purchase prices for “New Calves” in the Prices worksheet refer to these transactions, and Table 7 of the Dynama worksheet has provision for entering sales and purchases of “New Calves”. Beneath Table 7 there is also an entry for “Closing new calves female”. This is used, if for instance a group of steer calves has been sold, to ensure correct numbers of weaner heifers versus steers going into the following year.

Dynama+ Assumptions

2020-08-26T07:40:37Z

FinlayV: /* How mating, calving and death rates are calculated in Dynama+ */

==The concepts underpinning the Dynama+ program==
The core of Dynama+ is a ten year livestock schedule that shows the annual flow of cattle through the herd. The flow of cattle and the performance described for the herd drives all of the outputs of the model.

===Measures of profit and cash flow in Dynama+===
The [[Dynama+]] program calculates a range of financial measures that include both cash and non-cash components in their construction. The key measures calculated are net worth, cash flow for debt service, net income and return on total capital (in dollars and percent). The relationships between these measures and what they mean is discussed in detail in the appendix of this user manual.
In summary:
* Net worth is calculated as the total asset value less total debt as at a particular date. Net worth is also known as “equity” and may be expressed as a percentage.
* Cash flow for debt service is calculated by deducting all cash outgoings ('''except loan service''') from all cash inflows. Note that this differs from the definition of cash flow in the discussion of accounting measures in the appendix, which is net of debt service. In Dynama+, the cash flow for debt service is put first towards the service of term loans, with any surplus going into the working accounts and any shortfall funded from working accounts.
* Cash in and cash out include all cash components of the net income calculation, plus items of a private or capital nature that are not part of the net income calculation. The latter include family living expenses and taxation, capital expenditures, receipts and other capital transactions including gifts given or received and transfers to or from other accounting entities.
* Depreciation and livestock inventory change, which are part of the net income calculation, are not included in the cash flow calculation since they are not cash.
* Net income is defined in Dynama+ as being equal to gross income, including the increase or decrease in livestock inventory value, less all variable and fixed costs including interest and depreciation. Net income includes some non-cash items (inventory change and depreciation) and excludes some cash items (tax, family expenses, capital transactions and loan reductions). '''Net income is thus not the same thing as net cash flow.'''
* Depreciation is the annual provision made in profit budgets to spread the cost of capital items such as vehicles, machinery and fences over the period of use of these items. Such capital costs, rather than being charged against net income as they occur, are smoothed over time and charged annually as depreciation. These capital costs will show up in a cash flow budget (and in Dynama) as lump sum outlays. If funded by borrowing, there will also be a cash inflow as the loan is received, and a series of outflows as the loan is repaid. Leased capital does not show up in the depreciation calculation (or in the balance sheet) but appears as a lease payment in the calculation of net cash flow or net income.

Budgets constructed in Dynama+ need to observe the limits on stocking rate ([[Adult equivalent|adult equivalents]]), working account balances and total debt that apply in the real world of the beef enterprise being modelled.

===Profit versus cash flow===

A profit and loss statement is one of the three main ways used to look at overall business outlook and performance - the cash flow budget (or statement of sources and uses of cash) and the statement of assets and liabilities being the other two.

Cash flow statements and budgets are regularly drawn up to monitor or predict short term cash flow but looking at short term cash flow on its own can paint a very misleading picture of the direction of a beef business. A cash-flow statement /budget show the cash expected to come into and go out of a business over a given period. It can indicate the amount of working capital that may be needed from outside sources and whether it is possible to fund the production cycles of the business within the current borrowing limits negotiated with the lender.

A cash-flow budget can bear little relationship to the actual profitability of the business as it may include things like capital income and expenditure, new loans, off farm income and personal expenses. A cash-flow budget also does not reflect the non-cash items such as unpaid operator’s allowance, depreciation or increases/decreases in the value of inventories. Estimating these things in a profit budget allows a more accurate estimate of how efficiently resources are being used.

Profit and loss statements or budgets are constructed to estimate the profit of a business over a given period so therefore focus on the efficiency of resource use within the business.
It can be argued that profit can only really be measured once the investment is finalised and all of the inflows and outflows accounted for. As most beef businesses have an effective investment life that may span decades, the estimates of profit derived will apportion values to capital at the start and end of the time period of the analysis. In this way any improvement in the underlying value of capital or a change in the livestock and plant inventory due to a change in strategy can be included in the estimate of profit made.

Figures 26 and 27 indicate the differences in the standard measures of farm performance when profit and cash flow are being considered. Figure 26 identifies the various components of how we estimate profit (efficiency). The direct links between the change in equity over the period and profit can be identified.

[[file: Figure 26.png|frame|center|Figure 26: Profit diagram <ref> Source: The Farming Game: Agricultural Management and Marketing by Bill Malcolm, Jack Makeham and Vic Wright., Cambridge University Press, 2005.</ref>]]

The important thing about Figure 26 is the direct link between profit and growth in wealth.

Figure 27 indicates the calculation of liquidity and the net cash flow before and after debt servicing. When Figures 26 and 27 are taken together they represent the balance sheet of the business, the profit and the net cash flow.

[[file: Figure 27.png|frame|center|Figure 27: Cash diagram]]

Figure 28 provides a typical layout of a livestock trading schedule compiled to calculate the trading profit of loss on a beef enterprise. Note that livestock sales does not always (rarely) equals livestock trading profit.

[[file: Figure 28.PNG|frame|center|Figure 28: Livestock trading schedule]]

Figure 29 shows the profit analysis for the example beef enterprise. The trading profit or loss calculated in the schedule is transferred to the profit and loss statement.

[[file: Figure 29.PNG|frame|center|Figure 29: Farm management profit and loss statement for a beef enterprise]]

A livestock gross margin is the gross income from an enterprise less the variable costs incurred in achieving it. It excludes fixed or overhead costs.

The total cash costs need to be allocated to five main subheadings when profit is being calculated and profit budgets are to be prepared:

* Variable costs: costs which change according to the size of an activity. The essential characteristic of a variable cost is that it changes proportionately to changes in enterprise size (or to change in components of the enterprise). Variable costs are the total of selling costs and husbandry costs in Breedcow and Dynama.
* Fixed (or overhead) costs – These are defined as costs which are not affected by the scale of the activities in the farm business. They must be met in the operation of the farm. Examples include: wages and employee on-costs, repairs, insurance, shire rates and land taxes, depreciation of plant and improvements, consultants fees, operators allowance for labour and management. Some fixed costs (like depreciation or operator’s allowance) are not cash costs and will be estimated for inclusion in the calculation of operating profit. It is also usual to count the smaller amounts of interest paid on a typical overdraft or short term working capital as an operating expense (fixed cost) and deduct them in the calculation of operating profit. In a profit analysis, the larger amounts of interest or leases are defined as the returns to lenders of fixed capital and not as a cost. They are deducted in the calculation of net profit as non-operating expenses.
* Non-operating expenses (including the returns to lenders of fixed capital) - These are items unrelated to the farm business operational activity. They generally cover the amounts allocated to such things as interest, rent and leases. They include amounts paid by the business for the use of capital provided by various lenders of capital external to the business and are deducted from operating profit to calculate net profit.
* Personal costs - Family and other personal costs not incurred in operating the business and would largely continue if the business was wound up.
* Capital costs - purchases of significant capital equipment. The cost to the business of capital equipment is apportioned as depreciation in a profit analysis. Depreciation is a form of overhead or fixed cost that allows for the use / fall in value of assets that have a life of more than one production period. It is an allowance deducted from gross revenue each year so that all of the costs of producing an output in that year are set against all of the revenues produced in that year.

===Profit terms===

'''Operating Profit''': is the return to total capital invested after the variable and overhead (fixed) costs involved in earning the revenue have been deducted. Operating profit represents the reward to all of the capital managed by the business.

Operating profit = (total receipts – variable costs = total gross margin) – overheads

When operating profit is expressed as a percentage return to total capital it indicates the efficiency of the use of all of the capital managed by the farm business.

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses). As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.

Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = '''change in equity'''. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[file: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

How useful a measure is the percentage return on total capital or the percentage return on equity? When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses included in later exercises will apply a partial discounted cash flow budgeting method that looks at the difference between two strategies over time. This is done in the [[Investan]] program.

===Notes===
<references />

===How adult equivalents, prices and variable costs are calculated in Dynama+===

The calculation of adult equivalents and husbandry (variable) costs is based on the number of livestock carried for the whole year plus (sale) stock carried for only part of the year. '''''The number carried is calculated as the opening number plus purchases minus sales minus spays'''''. For spays, the calculation is the opening number plus new spays minus sales.

Husbandry costs are applied to each age and sex group of “kept” cattle (on hand for the whole year) and to each age and sex group of sale cattle.

Sale prices of cattle are entered in the [[Dynama+ Prices|Prices]] worksheet and are transferred net of selling and freight costs to the [[Dynama+ Dynama|Dynama]] worksheet. Prices for purchased cattle should be entered as landed prices (including any inwards freight or other buying costs) unless inwards livestock freight and other associated purchase costs cannot be separated out of the general running costs of the business.

Variable costs and [[Adult equivalent|adult equivalents]] can be allocated to both the “number carried” and sale stock but deaths cannot be allocated to stock identified for sale. This is because animals identified as being sold in any period are no longer in the “number carried” and cannot have deaths put against them.

'''If deaths in sale stock are likely to be an issue''', the expected losses in that class of livestock will need to be increased in the period prior to sale. Since sale cattle are generally sold in northern Australia before the dry season, when mortality rates increase, assuming zero losses over the wet, i.e. on sale cattle, is unlikely to be a serious error.

Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.

Special attention should be paid to the variable cost entries for weaners, since the husbandry costs for weaners cover the weaning operation itself as well as the period following weaning. Weaning costs such as vaccinations and hay need to be applied to both kept and sold weaners, while subsequent supplementation, the application of a growth promotant etc. may apply only to the “kept” (unsold) weaners.

Adult equivalents are applied to the weaner group from age five months until twelve months of age. All other non-sale groups have adult equivalents applied for twelve months. Sale groups of livestock have an adult equivalent rating applied for the period from the month of average age of calving (“birthday month”) to the month of sale. These ratings are applied in the AECalc worksheet and can be varied across the ten years of the Dynama+ program.

====What are adult equivalents?====

Adult Equivalents are calculated using the same process in all Breedcow and Dynama programs with Dynama+ allowing users to consider the impact of change on both cash flow and grazing pressure over time.

For all Breedcow and Dynama software, the default value used for an adult equivalent is for a non-pregnant, non-lactating beast of average weight 455 kg (1,000 lbs) carried for 12 months.
Animals of average weight over the 12 months of more than or less than 455 kg are rated in proportion to their average bodyweight over the period. Thus a beast growing from 450 kg to 600 kg (average 525 kg) would be rated at 1.15 adult equivalents for twelve months.

Animals carried for periods other than twelve months, e.g. sale cattle carried three months into the budget year are rated on time carried as a fraction of twelve months. A beast carried 3 months and growing from 400 to 440 kg (average 420 = 0.92 adult equivalents if carried for 12 months) would be rated at 0.23 adult equivalents (a quarter of 0.92).

An additional allowance of 0.35 adult equivalents is made for breeders rearing a calf. This allowance covers the extra nutritional requirements of pregnancy, lactation and incidental forage consumption by the calf until age five months. The rating is placed on the calves themselves, effectively from conception to age five months. Their mothers are rated entirely on weight.

Five months is an arbitrary age beyond which the former “calves” are rated purely on weight. This age may bear no relationship to the age at which they are actually weaned.

The AECalc worksheet is used to calculate adult equivalent ratings, based on weights and months carried, for each group. Values for the AECalc worksheet in Dynama+ can be imported from an AECalc sheet in Breedcow+. The values for the first year in the Dynama+ AECalc sheet are automatically transferred to the remaining nine years but can be overwritten where weights or appetite change over time. This is important where a supplement feeding program is under consideration or being altered.

=====Adult equivalents and feeding supplements=====
There are some adult equivalent calculation issues that arise with cattle receiving feed supplements that may need to be considered if systems that provide supplements are to be compared to systems that do not.

The adult equivalent rating is used to represent comparative pasture consumption. Since phosphorus and non-protein nitrogen (e.g. urea) supplements work in part by increasing feed consumption, the potentially increased consumption of the supplemented herd may only be partly captured through the increased weight of supplemented cattle. One solution is to use a lower weight as the adult equivalent standard for supplemented cattle, thereby calculating higher adult equivalent ratings for them.

There may also be issues with energy supplements such as molasses if the adult equivalents are being supported in part by pasture and in part by the supplement. A possible solution is to increase the stocking rate limit by an amount equivalent to the feed value of the energy supplement.

These issues are especially important when assessing the economics of supplementation. Care needs to be taken when comparing supplemented herds with herds that are not supplemented to avoid overgrazing. Appetite and pasture consumption may vary by more than 30% for a breeding herd depending on the level and type of supplementation.

One solution is to initially calculate the AE rating for the herd that does not receive supplements and then reduce the AE rating for the herd that does receive supplements by (an initial) 30%. Once the expected benefits of the supplementation program have been implemented in the “with supplements” model the differences between the profit, cash flow and herd numbers in the two models can be compared.

Where a supplementation program is being implemented over time and some delay is expected in the impact on such things as conception and mortality rates, the two Dynama+ models (with and without supplementation) can be compared with [[Investan]] to identify the net benefit of the strategy over time.

If the supplementation strategy is profitable at a 30% reduction if AE’s, the strategy can be tested again at a 40% reduction to test the assumptions further. This is little available evidence to identify the actual impact of a supplementation regime on consumption in the paddock so some sensitivity testing is warranted.

===How mating, calving and death rates are calculated in Dynama+===

====Weaning rate calculations in Dynama+====

The [[Dynama+]] program can be set for one of two options as to how the number calves to be weaned is calculated.

The first option calculates new calves by multiplying the nominated weaning rate for a group of females by opening breeders plus purchases minus sales minus spays. In this option, the weaning rate is specified as calves weaned from cows mated and kept. '''''This method is consistent with that used in the [[Breedcow+]] program, and thus must be used if the [[Dynama+]] program is to use data transferred from the Breedcow+ program.'''''

The second option calculates new calves from the breeders on hand at the start of the budget year and assumes that all purchases, sales or spaying are done after calving. This option may be preferred if budgeting is done on a financial year rather than a production year.

These definitions, although mathematically convenient, are at odds with the “true” expression of weaning rate, which is the number of calves weaned divided by total cows mated. To satisfy the requirement for a “true” expression of weaning rate, the ratio of total calves weaned to total females mated is calculated and displayed as an output in the Dynama worksheet. '''Users need to identify the number of females sold after mating in each year for the figure to be accurate.'''

====Spaying in Dynama+====

The term “spaying” can have a variety of meanings in the [[Dynama+]] program. It broadly refers to keeping a group of cows out of the mating group, thus “spaying” will include females that are set aside after surgical spaying before mating, or it can just mean keeping female livestock in a separate paddock away from bulls. Conversely, late spaying (or “webbing”) which will allow the cow to calve, or spaying after calving, should not be entered in the current year as spaying (though these cows will certainly be “spays” in the following year and can be shown as being spayed then if not already sold).

====Calculating Dynama+ herd bull requirements====

The Dynama+ program calculates bull requirements by multiplying the figure entered for the bull cow ratio (or bull percentage) by total cows mated, including those sold after mating.

If the calculation of new calves is set for mating and calving in the same budget year, the bull requirements calculated will relate to that calving. If budgeting on a financial year, with a midsummer calving, the mating for that financial year will actually relate to the next year’s calving, so the formulas will be of no use.

Manual entries may be made for bull purchases and retention of BYO (Breed Your Own) bulls. These entries will override the formulas that would otherwise have calculated retentions of home-bred bulls, sales and purchases.

====Calculating the number of calves in Dynama+====

====Deaths in Dynama+====

===Age groups in the Dynama+ program===

In the Dynama+ program, groups are defined either by their age at the start of the year or by a specific age. Prices on sale cattle are generally applied at a specific age.

The meanings of age group descriptions can be established early by starting the budgeting exercise in the AECalc worksheet. The peak calving time, expected live weights, sale weights and sale months for each class of cattle are declared in the AECalc worksheet.

The tables in the Prices worksheet use headings which refer to a specific age at which cattle are sold, e.g. weaners, one year, two years etc. In practice, people sell their cattle throughout the year at ages such as 15 months, 18 months, 20 months etc. One label may have to cover everything from say 12 months to nearly two years. Sale ages are defined in months in the AECalc worksheet.

In the Dynama worksheet there is provision for trading “New Calves (mixed)”. This includes purchasing calves on their mothers and selling calves in the same year they were born. Sale and Purchase prices for “New Calves” in the Prices worksheet refer to these transactions, and Table 7 of the Dynama worksheet has provision for entering sales and purchases of “New Calves”. Beneath Table 7 there is also an entry for “Closing new calves female”. This is used, if for instance a group of steer calves has been sold, to ensure correct numbers of weaner heifers versus steers going into the following year.

Dynama+ Assumptions

2020-08-26T07:37:44Z

FinlayV: /* How adult equivalents, prices and variable costs are calculated in Dynama+ */

==The concepts underpinning the Dynama+ program==
The core of Dynama+ is a ten year livestock schedule that shows the annual flow of cattle through the herd. The flow of cattle and the performance described for the herd drives all of the outputs of the model.

===Measures of profit and cash flow in Dynama+===
The [[Dynama+]] program calculates a range of financial measures that include both cash and non-cash components in their construction. The key measures calculated are net worth, cash flow for debt service, net income and return on total capital (in dollars and percent). The relationships between these measures and what they mean is discussed in detail in the appendix of this user manual.
In summary:
* Net worth is calculated as the total asset value less total debt as at a particular date. Net worth is also known as “equity” and may be expressed as a percentage.
* Cash flow for debt service is calculated by deducting all cash outgoings ('''except loan service''') from all cash inflows. Note that this differs from the definition of cash flow in the discussion of accounting measures in the appendix, which is net of debt service. In Dynama+, the cash flow for debt service is put first towards the service of term loans, with any surplus going into the working accounts and any shortfall funded from working accounts.
* Cash in and cash out include all cash components of the net income calculation, plus items of a private or capital nature that are not part of the net income calculation. The latter include family living expenses and taxation, capital expenditures, receipts and other capital transactions including gifts given or received and transfers to or from other accounting entities.
* Depreciation and livestock inventory change, which are part of the net income calculation, are not included in the cash flow calculation since they are not cash.
* Net income is defined in Dynama+ as being equal to gross income, including the increase or decrease in livestock inventory value, less all variable and fixed costs including interest and depreciation. Net income includes some non-cash items (inventory change and depreciation) and excludes some cash items (tax, family expenses, capital transactions and loan reductions). '''Net income is thus not the same thing as net cash flow.'''
* Depreciation is the annual provision made in profit budgets to spread the cost of capital items such as vehicles, machinery and fences over the period of use of these items. Such capital costs, rather than being charged against net income as they occur, are smoothed over time and charged annually as depreciation. These capital costs will show up in a cash flow budget (and in Dynama) as lump sum outlays. If funded by borrowing, there will also be a cash inflow as the loan is received, and a series of outflows as the loan is repaid. Leased capital does not show up in the depreciation calculation (or in the balance sheet) but appears as a lease payment in the calculation of net cash flow or net income.

Budgets constructed in Dynama+ need to observe the limits on stocking rate ([[Adult equivalent|adult equivalents]]), working account balances and total debt that apply in the real world of the beef enterprise being modelled.

===Profit versus cash flow===

A profit and loss statement is one of the three main ways used to look at overall business outlook and performance - the cash flow budget (or statement of sources and uses of cash) and the statement of assets and liabilities being the other two.

Cash flow statements and budgets are regularly drawn up to monitor or predict short term cash flow but looking at short term cash flow on its own can paint a very misleading picture of the direction of a beef business. A cash-flow statement /budget show the cash expected to come into and go out of a business over a given period. It can indicate the amount of working capital that may be needed from outside sources and whether it is possible to fund the production cycles of the business within the current borrowing limits negotiated with the lender.

A cash-flow budget can bear little relationship to the actual profitability of the business as it may include things like capital income and expenditure, new loans, off farm income and personal expenses. A cash-flow budget also does not reflect the non-cash items such as unpaid operator’s allowance, depreciation or increases/decreases in the value of inventories. Estimating these things in a profit budget allows a more accurate estimate of how efficiently resources are being used.

Profit and loss statements or budgets are constructed to estimate the profit of a business over a given period so therefore focus on the efficiency of resource use within the business.
It can be argued that profit can only really be measured once the investment is finalised and all of the inflows and outflows accounted for. As most beef businesses have an effective investment life that may span decades, the estimates of profit derived will apportion values to capital at the start and end of the time period of the analysis. In this way any improvement in the underlying value of capital or a change in the livestock and plant inventory due to a change in strategy can be included in the estimate of profit made.

Figures 26 and 27 indicate the differences in the standard measures of farm performance when profit and cash flow are being considered. Figure 26 identifies the various components of how we estimate profit (efficiency). The direct links between the change in equity over the period and profit can be identified.

[[file: Figure 26.png|frame|center|Figure 26: Profit diagram <ref> Source: The Farming Game: Agricultural Management and Marketing by Bill Malcolm, Jack Makeham and Vic Wright., Cambridge University Press, 2005.</ref>]]

The important thing about Figure 26 is the direct link between profit and growth in wealth.

Figure 27 indicates the calculation of liquidity and the net cash flow before and after debt servicing. When Figures 26 and 27 are taken together they represent the balance sheet of the business, the profit and the net cash flow.

[[file: Figure 27.png|frame|center|Figure 27: Cash diagram]]

Figure 28 provides a typical layout of a livestock trading schedule compiled to calculate the trading profit of loss on a beef enterprise. Note that livestock sales does not always (rarely) equals livestock trading profit.

[[file: Figure 28.PNG|frame|center|Figure 28: Livestock trading schedule]]

Figure 29 shows the profit analysis for the example beef enterprise. The trading profit or loss calculated in the schedule is transferred to the profit and loss statement.

[[file: Figure 29.PNG|frame|center|Figure 29: Farm management profit and loss statement for a beef enterprise]]

A livestock gross margin is the gross income from an enterprise less the variable costs incurred in achieving it. It excludes fixed or overhead costs.

The total cash costs need to be allocated to five main subheadings when profit is being calculated and profit budgets are to be prepared:

* Variable costs: costs which change according to the size of an activity. The essential characteristic of a variable cost is that it changes proportionately to changes in enterprise size (or to change in components of the enterprise). Variable costs are the total of selling costs and husbandry costs in Breedcow and Dynama.
* Fixed (or overhead) costs – These are defined as costs which are not affected by the scale of the activities in the farm business. They must be met in the operation of the farm. Examples include: wages and employee on-costs, repairs, insurance, shire rates and land taxes, depreciation of plant and improvements, consultants fees, operators allowance for labour and management. Some fixed costs (like depreciation or operator’s allowance) are not cash costs and will be estimated for inclusion in the calculation of operating profit. It is also usual to count the smaller amounts of interest paid on a typical overdraft or short term working capital as an operating expense (fixed cost) and deduct them in the calculation of operating profit. In a profit analysis, the larger amounts of interest or leases are defined as the returns to lenders of fixed capital and not as a cost. They are deducted in the calculation of net profit as non-operating expenses.
* Non-operating expenses (including the returns to lenders of fixed capital) - These are items unrelated to the farm business operational activity. They generally cover the amounts allocated to such things as interest, rent and leases. They include amounts paid by the business for the use of capital provided by various lenders of capital external to the business and are deducted from operating profit to calculate net profit.
* Personal costs - Family and other personal costs not incurred in operating the business and would largely continue if the business was wound up.
* Capital costs - purchases of significant capital equipment. The cost to the business of capital equipment is apportioned as depreciation in a profit analysis. Depreciation is a form of overhead or fixed cost that allows for the use / fall in value of assets that have a life of more than one production period. It is an allowance deducted from gross revenue each year so that all of the costs of producing an output in that year are set against all of the revenues produced in that year.

===Profit terms===

'''Operating Profit''': is the return to total capital invested after the variable and overhead (fixed) costs involved in earning the revenue have been deducted. Operating profit represents the reward to all of the capital managed by the business.

Operating profit = (total receipts – variable costs = total gross margin) – overheads

When operating profit is expressed as a percentage return to total capital it indicates the efficiency of the use of all of the capital managed by the farm business.

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses). As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.

Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = '''change in equity'''. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[file: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

How useful a measure is the percentage return on total capital or the percentage return on equity? When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses included in later exercises will apply a partial discounted cash flow budgeting method that looks at the difference between two strategies over time. This is done in the [[Investan]] program.

===Notes===
<references />

===How adult equivalents, prices and variable costs are calculated in Dynama+===

The calculation of adult equivalents and husbandry (variable) costs is based on the number of livestock carried for the whole year plus (sale) stock carried for only part of the year. '''''The number carried is calculated as the opening number plus purchases minus sales minus spays'''''. For spays, the calculation is the opening number plus new spays minus sales.

Husbandry costs are applied to each age and sex group of “kept” cattle (on hand for the whole year) and to each age and sex group of sale cattle.

Sale prices of cattle are entered in the [[Dynama+ Prices|Prices]] worksheet and are transferred net of selling and freight costs to the [[Dynama+ Dynama|Dynama]] worksheet. Prices for purchased cattle should be entered as landed prices (including any inwards freight or other buying costs) unless inwards livestock freight and other associated purchase costs cannot be separated out of the general running costs of the business.

Variable costs and [[Adult equivalent|adult equivalents]] can be allocated to both the “number carried” and sale stock but deaths cannot be allocated to stock identified for sale. This is because animals identified as being sold in any period are no longer in the “number carried” and cannot have deaths put against them.

'''If deaths in sale stock are likely to be an issue''', the expected losses in that class of livestock will need to be increased in the period prior to sale. Since sale cattle are generally sold in northern Australia before the dry season, when mortality rates increase, assuming zero losses over the wet, i.e. on sale cattle, is unlikely to be a serious error.

Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.

Special attention should be paid to the variable cost entries for weaners, since the husbandry costs for weaners cover the weaning operation itself as well as the period following weaning. Weaning costs such as vaccinations and hay need to be applied to both kept and sold weaners, while subsequent supplementation, the application of a growth promotant etc. may apply only to the “kept” (unsold) weaners.

Adult equivalents are applied to the weaner group from age five months until twelve months of age. All other non-sale groups have adult equivalents applied for twelve months. Sale groups of livestock have an adult equivalent rating applied for the period from the month of average age of calving (“birthday month”) to the month of sale. These ratings are applied in the AECalc worksheet and can be varied across the ten years of the Dynama+ program.

====What are adult equivalents?====

Adult Equivalents are calculated using the same process in all Breedcow and Dynama programs with Dynama+ allowing users to consider the impact of change on both cash flow and grazing pressure over time.

For all Breedcow and Dynama software, the default value used for an adult equivalent is for a non-pregnant, non-lactating beast of average weight 455 kg (1,000 lbs) carried for 12 months.
Animals of average weight over the 12 months of more than or less than 455 kg are rated in proportion to their average bodyweight over the period. Thus a beast growing from 450 kg to 600 kg (average 525 kg) would be rated at 1.15 adult equivalents for twelve months.

Animals carried for periods other than twelve months, e.g. sale cattle carried three months into the budget year are rated on time carried as a fraction of twelve months. A beast carried 3 months and growing from 400 to 440 kg (average 420 = 0.92 adult equivalents if carried for 12 months) would be rated at 0.23 adult equivalents (a quarter of 0.92).

An additional allowance of 0.35 adult equivalents is made for breeders rearing a calf. This allowance covers the extra nutritional requirements of pregnancy, lactation and incidental forage consumption by the calf until age five months. The rating is placed on the calves themselves, effectively from conception to age five months. Their mothers are rated entirely on weight.

Five months is an arbitrary age beyond which the former “calves” are rated purely on weight. This age may bear no relationship to the age at which they are actually weaned.

The AECalc worksheet is used to calculate adult equivalent ratings, based on weights and months carried, for each group. Values for the AECalc worksheet in Dynama+ can be imported from an AECalc sheet in Breedcow+. The values for the first year in the Dynama+ AECalc sheet are automatically transferred to the remaining nine years but can be overwritten where weights or appetite change over time. This is important where a supplement feeding program is under consideration or being altered.

=====Adult equivalents and feeding supplements=====
There are some adult equivalent calculation issues that arise with cattle receiving feed supplements that may need to be considered if systems that provide supplements are to be compared to systems that do not.

The adult equivalent rating is used to represent comparative pasture consumption. Since phosphorus and non-protein nitrogen (e.g. urea) supplements work in part by increasing feed consumption, the potentially increased consumption of the supplemented herd may only be partly captured through the increased weight of supplemented cattle. One solution is to use a lower weight as the adult equivalent standard for supplemented cattle, thereby calculating higher adult equivalent ratings for them.

There may also be issues with energy supplements such as molasses if the adult equivalents are being supported in part by pasture and in part by the supplement. A possible solution is to increase the stocking rate limit by an amount equivalent to the feed value of the energy supplement.

These issues are especially important when assessing the economics of supplementation. Care needs to be taken when comparing supplemented herds with herds that are not supplemented to avoid overgrazing. Appetite and pasture consumption may vary by more than 30% for a breeding herd depending on the level and type of supplementation.

One solution is to initially calculate the AE rating for the herd that does not receive supplements and then reduce the AE rating for the herd that does receive supplements by (an initial) 30%. Once the expected benefits of the supplementation program have been implemented in the “with supplements” model the differences between the profit, cash flow and herd numbers in the two models can be compared.

Where a supplementation program is being implemented over time and some delay is expected in the impact on such things as conception and mortality rates, the two Dynama+ models (with and without supplementation) can be compared with [[Investan]] to identify the net benefit of the strategy over time.

If the supplementation strategy is profitable at a 30% reduction if AE’s, the strategy can be tested again at a 40% reduction to test the assumptions further. This is little available evidence to identify the actual impact of a supplementation regime on consumption in the paddock so some sensitivity testing is warranted.

===How mating, calving and death rates are calculated in Dynama+===

====Weaning rate calculations in Dynama+====

The [[Dynama+]] program can be set for one of two options as to how the number calves to be weaned is calculated.

The first option calculates new calves by multiplying the nominated weaning rate for a group of females by opening breeders plus purchases minus sales minus spays. In this option, the weaning rate is specified as calves weaned from cows mated and kept. '''''This method is consistent with that used in the [[Breedcow+]] program, and thus must be used if the [[Dynama+]] program is to use data transferred from the Breedcow+ program.'''''

The second option calculates new calves from the breeders on hand at the start of the budget year and assumes that all purchases, sales or spaying are done after calving. This option may be preferred if budgeting is done on a financial year rather than a production year.

These definitions, although mathematically convenient, are at odds with the “true” expression of weaning rate, which is the number of calves weaned divided by total cows mated. To satisfy the requirement for a “true” expression of weaning rate, the ratio of total calves weaned to total females mated is calculated and displayed as an output in the Dynama worksheet. '''Users need to identify the number of females sold after mating in each year for the figure to be accurate.'''

===Age groups in the Dynama+ program===

In the Dynama+ program, groups are defined either by their age at the start of the year or by a specific age. Prices on sale cattle are generally applied at a specific age.

The meanings of age group descriptions can be established early by starting the budgeting exercise in the AECalc worksheet. The peak calving time, expected live weights, sale weights and sale months for each class of cattle are declared in the AECalc worksheet.

The tables in the Prices worksheet use headings which refer to a specific age at which cattle are sold, e.g. weaners, one year, two years etc. In practice, people sell their cattle throughout the year at ages such as 15 months, 18 months, 20 months etc. One label may have to cover everything from say 12 months to nearly two years. Sale ages are defined in months in the AECalc worksheet.

In the Dynama worksheet there is provision for trading “New Calves (mixed)”. This includes purchasing calves on their mothers and selling calves in the same year they were born. Sale and Purchase prices for “New Calves” in the Prices worksheet refer to these transactions, and Table 7 of the Dynama worksheet has provision for entering sales and purchases of “New Calves”. Beneath Table 7 there is also an entry for “Closing new calves female”. This is used, if for instance a group of steer calves has been sold, to ensure correct numbers of weaner heifers versus steers going into the following year.

Dynama+ Assumptions

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FinlayV: /* Age groups in the Dynama+ program */

Adult equivalent

2020-08-26T07:35:28Z

FinlayV: /* Age groups in the Dynama+ program */

==Adult equivalents in Breedcow+==

Another key concept underpinning [[Breedcow+|Breedcow+]] analyses is that of adult equivalents. The calculation of the total adult equivalents for each modelled herd structure indicates the relative grazing pressure exerted by the herd structure and, if herds have similar total adult equivalents, a meaningful comparison of relative profitability can be made.

The main calculation of adult equivalents is based on the total number of cattle carried for the whole year in all classes. The number carried is calculated as the opening number plus purchases less sales less spays. Cattle recorded as sold or spayed are no longer in the “number carried” and have an adult equivalent rating attributed to them separately.

==Adult equivalents in Dynama+==

Adult Equivalents are calculated using the same process in all Breedcow and Dynama programs with Dynama+ allowing users to consider the impact of change on both cash flow '''and''' grazing pressure over time.

===What are adult equivalents?===

Most planning in grazing livestock enterprises requires that track be kept of how much feed is used or at least of the “stocking rate”. Thus the comparison of herd structures, turnoff strategies or gross margins is undertaken whilst observing self-imposed limits on how much stock the property can carry.

An immediate problem encountered in herd modelling is that all cattle are not the same size and do not eat the same amount of feed, e.g. weaners eat less than bullocks. Likewise a herd of 2,000 cattle comprising breeders turning off weaners will most likely not eat the same amount as a herd of 2,000 comprising fewer cows but turning off older steers.

'''To ensure that herds are compared on the basis of consuming the same amount of feed when making predictions of relative profitability, feed requirements are estimated for each class of cattle relative to an adult equivalent.'''

'''For the [[Breedcow+]] program an adult equivalent is taken as a non-pregnant, non-lactating beast of average weight 455 kilograms (1,000 lbs) carried for 12 months.'''

Animals of average weight over the twelve months of more or less than 455 kilograms are rated in proportion to their average bodyweight over the period. Thus a beast growing from 450 kilograms to 600 kilograms (average 525 kilograms) would be rated at 1.15 adult equivalents for twelve months. (525 divided by 455 equals 1.15)

Animals carried for periods less than twelve months, e.g. sale cattle carried three months into the budget year, are rated on the period of time carried as a fraction of twelve months. A beast carried for three months and growing from 400 to 440 kilograms would be rated at 0.23 adult equivalents (average weight 420 divided by 455 multiplied by three and divided by twelve equals 0.23).

In the calculation of total adult equivalents in the herd model an additional allowance of 0.35 adult equivalents is made for each breeder that rears a calf. This allowance covers the extra nutritional requirements of pregnancy, lactation, and incidental forage consumption by the calf until age 5 months. This rating is placed on the calves themselves, effectively from conception to age five months, while their mothers are rated entirely on weight.

'''Five months is an arbitrary age beyond which the former “calves” are rated purely on weight. This age may bear no relationship to the age at which they are actually weaned.'''

The AECalc worksheet is used to calculate adult equivalent ratings, based on weights and months carried, for each group. Values for the AECalc worksheet in [[Dynama+]] can be imported from an [[Breedcow+ AECalc|AECalc]] sheet in [[Breedcow+]]. The values for the first year in the Dynama+ [[Dynama+ AECalc|AECalc]] sheet are automatically transferred to the remaining nine years but can be overwritten where weights or appetite change over time. This is important where a supplement feeding program is under consideration or being altered.

===Adult equivalents and feeding supplements===
There are some adult equivalent calculation issues that arise with cattle receiving feed supplements that may need to be considered if systems that provide supplements are to be compared to systems that do not.

The adult equivalent rating is used to represent comparative pasture consumption. Since phosphorus and non-protein nitrogen (e.g. urea) supplements work in part by increasing feed consumption, the potentially increased consumption of the supplemented herd may only be partly captured through the increased weight of supplemented cattle. One solution is to use a lower weight as the adult equivalent standard for supplemented cattle, thereby calculating higher adult equivalent ratings for them.

There may also be issues with energy supplements such as molasses if the adult equivalents are being supported in part by pasture and in part by the supplement. A possible solution is to increase the stocking rate limit by an amount equivalent to the feed value of the energy supplement.

These issues are especially important when assessing the economics of supplementation. Care needs to be taken when comparing supplemented herds with herds that are not supplemented to avoid overgrazing. Appetite and pasture consumption may vary by more than 30% for a breeding herd depending on the level and type of supplementation.

One solution is to initially calculate the AE rating for the herd that does not receive supplements and then reduce the AE rating for the herd that does receive supplements by (an initial) 30%. Once the expected benefits of the supplementation program have been implemented in the “with supplements” model the differences between the profit, cash flow and herd numbers in the two models can be compared.

Where a supplementation program is being implemented over time and some delay is expected in the impact on such things as conception and mortality rates, the two [[Dynama+]] models (with and without supplementation) can be compared with [[Investan]] to identify the net benefit of the strategy over time.

If the supplementation strategy is profitable at a 30% reduction if AE’s, the strategy can be tested again at a 40% reduction to test the assumptions further. This is little available evidence to identify the actual impact of a supplementation regime on consumption in the paddock so some sensitivity testing is warranted.

Dynama+ Assumptions

2020-08-26T07:34:30Z

FinlayV: /* The concepts underpinning the Dynama+ program */

Dynama+ Assumptions

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FinlayV: /* Profit terms */

Dynama+ Assumptions

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FinlayV: /* Profit terms */

Dynama+ Assumptions

2020-08-26T07:24:41Z

FinlayV: /* Measures of profit and cash flow in Dynama+ */

Dynama+ Assumptions

2020-08-26T07:23:51Z

FinlayV: /* Profit terms */

Dynama+ Assumptions

2020-08-26T07:22:05Z

FinlayV: /* Measures of profit and cash flow in Dynama+ */

Dynama+ Assumptions

2020-08-26T07:21:16Z

FinlayV: /* Measures of profit and cash flow in Dynama+ */

Deaths in Dynama+

2020-08-26T07:18:25Z

FinlayV: Created page with "Deaths for all groups, male and female, are calculated as the mortality rate times the opening number plus purchases minus spays minus sales. Spays are transferred from the br..."

Deaths for all groups, male and female, are calculated as the mortality rate times the opening number plus purchases minus spays minus sales. Spays are transferred from the breeder groups to spay groups, where mortalities are calculated as spay mortality rate times the opening number plus new spays minus sales.

'''''Steers or other classes of livestock that are purchased and sold within the one twelve month period will not have any losses automatically deducted as they will not be included in the calculation of the “number carried”.'''''

Calculating the number of calves in Dynama+

2020-08-26T07:17:38Z

FinlayV: Created page with "Calves produced for the year are shown as “new calves” at the end of the year. If calving is towards the end of the budget year, “new calves” may include an allowance..."

Calves produced for the year are shown as “new calves” at the end of the year. If calving is towards the end of the budget year, “new calves” may include an allowance for a tail of calves unbranded or still to be born. These new calves are split into weaner heifers and weaner steers as they graduate to the start of the next budget year. '''Some of these “weaners” may be very young indeed, i.e. birth still expected.'''

If the [[Dynama+]] herd is based on dates that place calving early to mid-year, rather than at the end of the year, it may be set to calculate calves from opening breeder numbers.

Calculations beneath Table 7 in the Dynama worksheet for cows mated and kept to calve, and total cows mated for “new calves” produced, are used to calculate “weaning rate on cows kept” and “weaning rate on all cows mated”.

If breeder numbers are thrown out by choice of budget year or sales after mating, the “cows mated” numbers can be overridden to ensure correct weaning % outcomes. '''These rates are for display only, so the adjustment is strictly optional.'''

Calculating Dynama+ herd bull requirements

2020-08-26T07:15:58Z

FinlayV:

The [[Dynama+]] program calculates bull requirements by multiplying the figure entered for the bull cow ratio (or bull percentage) by total cows mated, including those sold after mating.

If the calculation of new calves is set for mating and calving in the same budget year, the bull requirements calculated will relate to that calving. If budgeting on a financial year, with a midsummer calving, the mating for that financial year will actually relate to the next year’s calving, so the formulas will be of no use.

Manual entries may be made for bull purchases and retention of BYO (Breed Your Own) bulls. These entries will override the formulas that would otherwise have calculated retentions of home-bred bulls, sales and purchases.

Calculating Dynama+ herd bull requirements

2020-08-26T07:15:30Z

FinlayV: Created page with "The Dynama+ program calculates bull requirements by multiplying the figure entered for the bull cow ratio (or bull percentage) by total cows mated, including those sold after..."

The Dynama+ program calculates bull requirements by multiplying the figure entered for the bull cow ratio (or bull percentage) by total cows mated, including those sold after mating.

If the calculation of new calves is set for mating and calving in the same budget year, the bull requirements calculated will relate to that calving. If budgeting on a financial year, with a midsummer calving, the mating for that financial year will actually relate to the next year’s calving, so the formulas will be of no use.

Manual entries may be made for bull purchases and retention of BYO (Breed Your Own) bulls. These entries will override the formulas that would otherwise have calculated retentions of home-bred bulls, sales and purchases.

Spaying in Dynama+

2020-08-26T07:14:18Z

FinlayV:

The term “spaying” can have a variety of meanings in the [[Dynama+]] program. It broadly refers to keeping a group of cows out of the mating group, thus “spaying” will include females that are set aside after surgical spaying before mating, or it can just mean keeping female livestock in a separate paddock away from bulls. Conversely, late spaying (or “webbing”) which will allow the cow to calve, or spaying after calving, should not be entered in the current year as spaying (though these cows will certainly be “spays” in the following year and can be shown as being spayed then if not already sold).

Spaying in Dynama+

2020-08-26T07:13:59Z

FinlayV: Created page with "The term “spaying” can have a variety of meanings in the Dynama+ program. It broadly refers to keeping a group of cows out of the mating group, thus “spaying” will in..."

The term “spaying” can have a variety of meanings in the Dynama+ program. It broadly refers to keeping a group of cows out of the mating group, thus “spaying” will include females that are set aside after surgical spaying before mating, or it can just mean keeping female livestock in a separate paddock away from bulls. Conversely, late spaying (or “webbing”) which will allow the cow to calve, or spaying after calving, should not be entered in the current year as spaying (though these cows will certainly be “spays” in the following year and can be shown as being spayed then if not already sold).

Weaning rate

2020-08-26T07:13:08Z

FinlayV: Created page with "'''''Weaning rate calculations in Dynama+''''' The Dynama+ program can be set for one of two options as to how the number calves to be weaned is calculated. The first o..."

'''''Weaning rate calculations in Dynama+'''''

The [[Dynama+]] program can be set for one of two options as to how the number calves to be weaned is calculated.

The first option calculates new calves by multiplying the nominated weaning rate for a group of females by opening breeders plus purchases minus sales minus spays. In this option, the weaning rate is specified as calves weaned from cows mated and kept. '''''This method is consistent with that used in the [[Breedcow+]] program, and thus must be used if the [[Dynama+]] program is to use data transferred from the Breedcow+ program.'''''

The second option calculates new calves from the breeders on hand at the start of the budget year and assumes that all purchases, sales or spaying are done after calving. This option may be preferred if budgeting is done on a financial year rather than a production year.

These definitions, although mathematically convenient, are at odds with the “true” expression of weaning rate, which is the number of calves weaned divided by total cows mated. To satisfy the requirement for a “true” expression of weaning rate, the ratio of total calves weaned to total females mated is calculated and displayed as an output in the Dynama worksheet. '''Users need to identify the number of females sold after mating in each year for the figure to be accurate.'''

Adult equivalent

2020-08-26T07:10:08Z

FinlayV: /* Adult equivalents in Dynama+ */

Adult equivalent

2020-08-26T07:09:27Z

FinlayV: /* What are adult equivalents? */

==Adult equivalents in Breedcow+==

Another key concept underpinning [[Breedcow+|Breedcow+]] analyses is that of adult equivalents. The calculation of the total adult equivalents for each modelled herd structure indicates the relative grazing pressure exerted by the herd structure and, if herds have similar total adult equivalents, a meaningful comparison of relative profitability can be made.

The main calculation of adult equivalents is based on the total number of cattle carried for the whole year in all classes. The number carried is calculated as the opening number plus purchases less sales less spays. Cattle recorded as sold or spayed are no longer in the “number carried” and have an adult equivalent rating attributed to them separately.

==Adult equivalents in Dynama+==

Adult Equivalents are calculated using the same process in all Breedcow and Dynama programs with Dynama+ allowing users to consider the impact of change on both cash flow '''and''' grazing pressure over time.

===What are adult equivalents?===

Most planning in grazing livestock enterprises requires that track be kept of how much feed is used or at least of the “stocking rate”. Thus the comparison of herd structures, turnoff strategies or gross margins is undertaken whilst observing self-imposed limits on how much stock the property can carry.

An immediate problem encountered in herd modelling is that all cattle are not the same size and do not eat the same amount of feed, e.g. weaners eat less than bullocks. Likewise a herd of 2,000 cattle comprising breeders turning off weaners will most likely not eat the same amount as a herd of 2,000 comprising fewer cows but turning off older steers.

'''To ensure that herds are compared on the basis of consuming the same amount of feed when making predictions of relative profitability, feed requirements are estimated for each class of cattle relative to an adult equivalent.'''

'''For the [[Breedcow+]] program an adult equivalent is taken as a non-pregnant, non-lactating beast of average weight 455 kilograms (1,000 lbs) carried for 12 months.'''

Animals of average weight over the twelve months of more or less than 455 kilograms are rated in proportion to their average bodyweight over the period. Thus a beast growing from 450 kilograms to 600 kilograms (average 525 kilograms) would be rated at 1.15 adult equivalents for twelve months. (525 divided by 455 equals 1.15)

Animals carried for periods less than twelve months, e.g. sale cattle carried three months into the budget year, are rated on the period of time carried as a fraction of twelve months. A beast carried for three months and growing from 400 to 440 kilograms would be rated at 0.23 adult equivalents (average weight 420 divided by 455 multiplied by three and divided by twelve equals 0.23).

In the calculation of total adult equivalents in the herd model an additional allowance of 0.35 adult equivalents is made for each breeder that rears a calf. This allowance covers the extra nutritional requirements of pregnancy, lactation, and incidental forage consumption by the calf until age 5 months. This rating is placed on the calves themselves, effectively from conception to age five months, while their mothers are rated entirely on weight.

'''Five months is an arbitrary age beyond which the former “calves” are rated purely on weight. This age may bear no relationship to the age at which they are actually weaned.'''

The AECalc worksheet is used to calculate adult equivalent ratings, based on weights and months carried, for each group. Values for the AECalc worksheet in [[Dynama+]] can be imported from an [[Breedcow+ AECalc|AECalc]] sheet in [[Breedcow+]]. The values for the first year in the Dynama+ [[Dynama+ AECalc|AECalc]] sheet are automatically transferred to the remaining nine years but can be overwritten where weights or appetite change over time. This is important where a supplement feeding program is under consideration or being altered.

====Adult equivalents and feeding supplements====
There are some adult equivalent calculation issues that arise with cattle receiving feed supplements that may need to be considered if systems that provide supplements are to be compared to systems that do not.

The adult equivalent rating is used to represent comparative pasture consumption. Since phosphorus and non-protein nitrogen (e.g. urea) supplements work in part by increasing feed consumption, the potentially increased consumption of the supplemented herd may only be partly captured through the increased weight of supplemented cattle. One solution is to use a lower weight as the adult equivalent standard for supplemented cattle, thereby calculating higher adult equivalent ratings for them.

There may also be issues with energy supplements such as molasses if the adult equivalents are being supported in part by pasture and in part by the supplement. A possible solution is to increase the stocking rate limit by an amount equivalent to the feed value of the energy supplement.

These issues are especially important when assessing the economics of supplementation. Care needs to be taken when comparing supplemented herds with herds that are not supplemented to avoid overgrazing. Appetite and pasture consumption may vary by more than 30% for a breeding herd depending on the level and type of supplementation.

One solution is to initially calculate the AE rating for the herd that does not receive supplements and then reduce the AE rating for the herd that does receive supplements by (an initial) 30%. Once the expected benefits of the supplementation program have been implemented in the “with supplements” model the differences between the profit, cash flow and herd numbers in the two models can be compared.

Where a supplementation program is being implemented over time and some delay is expected in the impact on such things as conception and mortality rates, the two [[Dynama+]] models (with and without supplementation) can be compared with [[Investan]] to identify the net benefit of the strategy over time.

If the supplementation strategy is profitable at a 30% reduction if AE’s, the strategy can be tested again at a 40% reduction to test the assumptions further. This is little available evidence to identify the actual impact of a supplementation regime on consumption in the paddock so some sensitivity testing is warranted.

===Age groups in the Dynama+ program===

In the Dynama+ program, groups are defined either by their age at the start of the year or by a specific age. Prices on sale cattle are generally applied at a specific age.

The meanings of age group descriptions can be established early by starting the budgeting exercise in the AECalc worksheet. The peak calving time, expected live weights, sale weights and sale months for each class of cattle are declared in the AECalc worksheet.

The tables in the Prices worksheet use headings which refer to a specific age at which cattle are sold, e.g. weaners, one year, two years etc. In practice, people sell their cattle throughout the year at ages such as 15 months, 18 months, 20 months etc. One label may have to cover everything from say 12 months to nearly two years. Sale ages are defined in months in the AECalc worksheet.

In the Dynama worksheet there is provision for trading “New Calves (mixed)”. This includes purchasing calves on their mothers and selling calves in the same year they were born. Sale and Purchase prices for “New Calves” in the Prices worksheet refer to these transactions, and Table 7 of the Dynama worksheet has provision for entering sales and purchases of “New Calves”. Beneath Table 7 there is also an entry for “Closing new calves female”. This is used, if for instance a group of steer calves has been sold, to ensure correct numbers of weaner heifers versus steers going into the following year.

Adult equivalent

2020-08-26T07:03:57Z

FinlayV: /* What are adult equivalents? */

Net Profit

2020-08-26T06:58:54Z

FinlayV:

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses).

As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.
Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = change in equity. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

[[File: Figure 27.png|frame|center|Figure 27 Cash diagram]]

''When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.''

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[File: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

'''How useful a measure is the percentage return on total capital or the percentage return on equity?'''

When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses done in the [[Investan]] program applies a partial discounted cash flow budgeting method, that looks at the difference between two strategies over time.

Net Profit

2020-08-26T06:54:10Z

FinlayV:

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses).

As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.
Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = change in equity. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

[[File: Figure 27.png|frame|center|Figure 27 Cash diagram]]

When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[File: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

How useful a measure is the percentage return on total capital or the percentage return on equity? When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses included in later exercises will apply a partial discounted cash flow budgeting method that looks at the difference between two strategies over time. This is done in the [[Investan]] program.

Net Profit

2020-08-26T06:53:45Z

FinlayV:

'''Net Profit''' = Operating profit less the returns to outside capital (and other non-operating expenses).

As the returns to lenders of fixed capital (interest, rent and leases) are deducted from operating profit in the calculation of net profit, it therefore represents the return to the owner’s capital.
Net profit minus income tax minus personal consumption (above operators allowance if it has already been deducted from operating profit) = change in equity. Net Profit is available to the owner of the business to pay taxes or to provide living expenses (consumption) or can be used to reduce debt. (See figure 27)

[[File: Figure 27.png|frame|left|Figure 27 Cash diagram]]

When net profit is expressed as a percentage return to the owners capital it indicates the efficiency of the use of the owners capital invested in the farm business.

Figure 30 shows a typical calculation for the percentage return on total capital, one of the main efficiency criteria for a beef business. It is calculated by dividing the operating profit by the total capital managed. The percentage return on equity is calculated by dividing the net profit by the owners’ equity and represents how well the owner’s capital preformed.

[[File: Figure 30.PNG|frame|center|Figure 30 Capital invested and return on capital]]

How useful a measure is the percentage return on total capital or the percentage return on equity? When a change is being considered it is probably better to look at the return to the extra capital being invested not the total capital invested. This is unless the change being considered is to shift all of the capital out of the current beef business.

The profit statement shown in Figure 30 is once again a snapshot that can be useful information but does not give us much guidance as to the best strategy to follow in the future. We will apply investment and cash flow budgets to do that task. The absolute and relative value of historical Operating and Net Profit may tell us something about the capacity of the business to fund change but tells us nothing about which change in management strategy may make the most improvement in the profit generated by the business.

The analyses included in later exercises will apply a partial discounted cash flow budgeting method that looks at the difference between two strategies over time. This is done in the [[Investan]] program.

Net Profit

2020-08-26T06:09:58Z

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Net Profit

2020-08-26T06:09:17Z

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Net Profit

2020-08-26T06:06:06Z

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Net Profit

2020-08-26T06:05:47Z

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