Financial Analysis for Resource Managers

Opportunity Costs: What your investment could be doing versus what it did.

Risk and Risk Premium: How to put a number on a potential outcome that is not what you had planned for.

Inflation and Inflation Indexing: Taking inflation out of your earnings to see how much better off you really are.

Real Price Appreciation: Introduction to the RPA formula developed for price forecasting in timber. Looks difficult, but it is worth the effort.

Where to find the numbers for your calculations and formulas. How to build your own Natural Resources Economics Database.

Future Value of a Terminating Annual Series: What is the worth of $50 per month over 10 years?

Present Value of a Terminating Annual Series: Which is a better deal? Cash today or monthly payments over 5 years.

Future Value of a Terminating Periodic Series: Which is a better deal? A one time payment three years from now, or monthly payments for 3 years.

Present Value of a Terminating Periodic Series: If your timberlands can produce $50,000 every 12 years for another 60 years, what does this periodic harvest value mean if the timberlands went up for sale today?

Present Value of a Perpetual Annual Series: A hunting club wants to buy hunting rights into perpetuity. What are those rights worth today?

Present Value of a Perpetual Periodic Series: Also called the Soil Expectation Value, determines the bare land value of timberlands to produce timber every rotation, into the future.

Sinking Fund Formula: Calculate how much to save every month for a purchase at some future date. Often used to save money for new equipment.

Capital Recovery Formula: Calculate the monthly payments on borrowed money for a major purchase.

Optional evening session: Introduction to the FRASS Program  Economic and Managerial Solution for Forestland Owners. See it working! Refreshments hosted by Kamiak Ridge.

The Forest Resource Analysis System Software (FRASS) has been developed to create a reliable and efficient lands management system for scheduling economically optimal forest management activities while also valuing discrete timber land properties. FRASS integrates the factors of timber species, size, growth, density, and response to management with data on soils productivity, riparian protection for riverine species, bird species, and zoning regulations with monthly updated market economic data to provide users with predictions of value and management activities consistent with optimal economic decision making tools.

Use the concepts and formula from the previous session to make real life forest management business decisions. Forestry examples will be used in the session.

Using Net Present Value in Forestry: The standard of evaluations to determine how much timberlands are worth. Income and costs are calculated over the life of the project and discounted to today to determine the worth of the project.

This tool is used in the class with a single timber rotation, then with a perpetual series of timber rotations on the same timber stand, using growth and yield data, economic forecasts, and Real Price Appreciation Concepts. Analyses will be made for a single timber stand on a parcel, then on multiple stands on a parcel to generate a parcels value based on timber production as the Highest and Best Use.

Bare Land Value: On the same parcels analyzed in the previous exercises, the participants will apply the Soil Expectation Value principals and learn how to apply them to timber stands and an entire parcel.

Internal Rate of Return: A primary but questionable decision criteria. The answer to that frequent question, “What is the inherent rate of return of this project?”

Realizable Rate of Return: A superior tool for decision making and the other answer to that question: What really is this project’s rate of return?

Benefit / Cost Ratio: The benefit-cost ratio: How to determine the magnitude of benefits to the magnitude of costs and answer the question: Are there more public benefits than public costs?

Net Revenue to Current Cost Ratio: How to get the biggest bang for your buck. Where is the best place to allocate limited funds when making a major investment decision?