Analysis of financial ratios of an intensive dairy enterprise: a case study in the mexican high plateau

Abstract

IN A COMPETITIVE ENVIRONMENT INTENSIFIED BY GLOBALIZATION, PROFIT MARGINS TEND TO DECREASE. THEREFORE ANALYZING FINANCIAL INFORMATION BECOMES AN IMPORTANT ISSUE TO MAKE STRATEGIC DECISIONS. THE PURPOSE OF THIS RESEARCH IS, TO CONTRIBUTE TO BUILD NEW REFERENCES TO COMPARE AND EVALUATE THE PERFORMANCE OF DAIRY FIRMS. TO ACHIEVE THAT PURPOSE, AND USING A CASE STUDY METHOD, EIGHT YEARS OF FIANCIAL INFORMATION OF A DAIRY FARM WERE ANALYZED. THE FARM SELECTED IS A COMPANY LOCATED IN CENTRAL MEXICO THAT IS VERTICALLY AND HORIZONTALLY INTEGRATED, AND USES AN INTENSIVE PRODUCTION SYSTEM. THERE ARE 1,000 COWS UNDER MILKING PRODUCTION AND THE FARM PRODUCES 40% OF THE FORAGE THEY CONSUME. FINANCIAL POSITION AND INCOME STATEMENTS WERE USED TO CONSTRUCT 22 FINANCIAL RATIOS, AND THEY WERE ORGANIZED IN FOUR CATEGORIES: LIQUIDITY, LEVERAGE, ASSETS ADMINISTRATION AND PROFITABILITY. THIS DAIRY AGRO-ENTERPRISE HAS SHORT AND LONG TERM SOLVENCY, WHICH ALLOWS FINANCING THE FARM'S OPERATIONS MOSTLY WITH THEIR OWN RESOURCES. THE FARM WAS FORCED TO REDUCE ITS DEBT BECAUSE OF THE 1994 MEXICAN CRISIS AND A CONTRACTION OF THE BANKING SYSTEM. THE FINANCIAL RATIOS OF ASSETS ADMINISTRATION SHOW THAT THE FIRM FINANCES ITS CUSTOMERS, BUT ITS SUPPLIERS DO NOT FINANCE THE FIRM. THE PROFITABILITY INDICATORS SHOW VERY LOW RATIOS WITH A DECREASING TENDENCY THAT COINCIDES WITH THE IMPLEMENTATION OF THE NORTH AMERICAN FREE TRADE AGREEMENT. THERE IS A NEED TO GENERATE HISTORICAL FINANCIAL INFORMATION THAT COULD ALLOW SECTOR AND SIZE COMPARISONS TO MAKE STRONGER CONCLUSIONS.