Profit and Loss Reports
Ranch Vision's Profit and Loss reports show projected economic profitability under the current management plan. The Current Year report provides a detailed breakdown for the year following the inventory date, while the Annual report shows projected economic profit or loss over five years.
Current Year Profit and Loss
The Current Year Profit and Loss report provides a breakdown of the ranch business's projected economic profit or loss for the year following the inventory date.
The report includes Total Gross Product, Total Direct Costs, Total Gross Margin, Interest, Other Cash Overheads, Depreciation, Other Noncash Overheads, and the resulting Profit/Loss.
Key terms:
- Total Gross Product: projected gross product generated by the ranch business.
- Total Direct Costs: projected costs directly associated with producing the ranch's products.
- Total Gross Margin: Total Gross Product minus Total Direct Costs.
- Interest: projected interest expense.
- Other Cash Overheads: projected cash overhead expenses other than direct costs.
- Depreciation: projected depreciation expense recognized for the period.
- Other Noncash Overheads: projected overhead expenses that do not involve a cash payment during the period.
- Profit/Loss: projected economic result after the report's expenses are deducted.
Ranch Vision reports profit as economic profit, which considers both explicit costs and implicit costs, including opportunity costs:
Economic Profit = Total Revenue - Total Explicit Costs - Total Implicit Costs
Opportunity cost is the foregone benefit of not using a resource in its best alternative way. Examples include the rental income that could be earned from ranch-owned grazing, the market value of ranch-produced feed used by the operation, unpaid labor and management, and the return that invested capital could have earned elsewhere.
Including opportunity costs provides a more complete economic view of whether ranch resources are being used profitably. A zero economic profit means all explicit and implicit costs are covered. For that reason, low, zero, or even negative economic profit in Ranch Vision should not be interpreted in the same way as conventional accounting profit.
For a normal-profit measure that excludes opportunity costs, refer to Net Ranch Income in the Profitability report.
How to use it: Use Current Year Profit and Loss to understand what is driving projected economic profit or loss in the coming year and evaluate whether the current plan is using ranch resources profitably. Do not confuse Profit and Loss with Cash Flow: Profit and Loss measures economic performance, while Cash Flow tracks the actual timing and movement of cash.
Annual Profit and Loss
The Annual Profit and Loss report shows the ranch business's projected economic profit or loss for each of the next five years following the inventory date.
Like the Current Year Profit and Loss report, these projections include explicit and implicit costs, including opportunity costs.
How to use it: Use this report to evaluate the longer-term profitability of the current plan, see whether projected economic profit is improving or declining over time, and compare the profit trajectory of alternative scenarios.