Dynama+

The Dynamaplus program uses the current herd structure and numbers as a starting point to plot the likely future cash flow, profit and debt servicing capacity of a dynamic cattle enterprise. The program can model changes in herd structure, financial and economic performance in ten year blocks.

The Dynamaplus program starts with actual stock numbers on hand to develop its budgets. This is very unlike the “steady state” imagined in Breedcowplus program.

The program calculates expected herd numbers for each annual period based on the expected brandings, deaths and sales within the period and calculates herd cash flow. The outputs are based on the expectation of future prices and animal performance provided by the manager of the enterprise.

Dynamaplus is therefore used to consider the capacity of a beef cattle herd to manage debt, undertake development or recover from a sudden production or economic shock. It is commonly used to either prepare a budget for current operations or consider the implementation of change over time.

The Dynamaplus program is comprised of six core worksheets - Growth Path, AECalc, Prices, Huscosts, Assets and Dynama. Each worksheet can be accessed by clicking on the tabs at the top of the web page.

Dynamaplus can be readily set up with values by importing data from a Breedcowplus file.

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The concepts underpinning the Dynamaplus program

The core of Dynamaplus 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 Dynamaplus

The Dynamaplus 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 Dynamaplus, 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 Dynamaplus 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 Dynamaplus need to observe the limits on stocking rate (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.