Income Analysis – Discounted Cash Flow Video Tutorial Transcript
Hello, and welcome to the AgWare DataLog Income Analysis Section tutorial video. In this video, I will explain the different features of the income analysis section, and explain the Discounted Cash Flow tab.
When you open a sale, scroll down until you see the Income Analysis title bar. If this section is not expanded, you can expand it by clicking the down arrow button on the far right side of the title bar, or you can click anywhere on the title bar. You’ll notice that there are two tabs across the top of the section – Capitalization Rate and Discounted Cash Flow. We’ll start with the Capitalization Rate tab. This is always going to be the default tab in this section. The first option in this section is the income estimate basis. You can choose cash, share, or owner/operator. For this video, I’ll choose cash. Then, you choose whether the income source is an actual amount or estimated amount – I’ll choose actual. Now that you have the preliminary options chosen, you can start entering your income sources. I’ll start by entering cash rent, with a size of 500, a unit type of acres, a stabilized $/unit of $11, and a share percent of 100. The gross income and income $ fields are automatically calculated for you. I’ll enter a second income source of crop rent, with a size of 400, a unit type of acres, a stabilized $/unit of $30, and a share percent of 100.
If you have improvements included in land rent, then you would check the box next to improvements included in land rent. Then, you would enter in the amount per month – the yearly amount will automatically calculate based on your monthly amount. You’ll notice two blank fields to the right of the yearly amount. The first blank field is for the share percentage and the second blank field is an automatically calculated field that gives the total income amount for the improvements included in land rent. The amount for the improvements included in land rent gets added to your other income source totals which then gives you the stabilized gross income.
Now, I’ll go to the expenses portion of this section. DataLog has four default expense titles: real estate tax expense, insurance expense, maintenance expense, and management expense. There are additional fields to the right of the default options, if you have more expenses for your sales. To enter expenses, you can either type in the amounts or you can click the allocate expenses button to calculate expenses. For this video, I’ll use the allocate expenses button. When you click on the button, a dialog box will appear. The first line is real estate tax – this is calculated as $/ acre; the next expense is insurance expense – this is calculated as a percentage of improvements; the next two expenses, maintenance and management, are calculated as percentages of the stabilized gross income. For my real estate tax expense I’ll enter 2, I have no improvements, so therefore I’ll leave the insurance tax blank, then I’ll enter 7% for the maintenance expense and 8% for the management expense. As soon as I click transfer, it will transfer these expenses into the sale, and it will calculate the total expenses, expense ratio, net income, and cap rate.
If your expense values are going to be constant, you can save the amounts. To do this click on the allocate expenses button – you will notice the word defaults in the upper left hand corner of the dialog box. When you click this, it gives you two options – load default values or save current values as defaults. I’m going to click on save current values as defaults – it will look like nothing happens, but it does in fact save your values. If you want to use your default values in other sales, you would click on the allocate expenses button, hit defaults, then select load default values. It will then fill in your values for you, so that all you have to do is click transfer.
Now, let’s take a look at the discounted cash flow tab. This tab is very similar to Microsoft Excel, but the important thing to remember is that it’s not Excel. This tab is used to calculate the yield rate. You’ll see that there are two buttons in this section – the select template button and the options button. We’ll start with the select template button. When you click on this button, you’ll see save as template is the first option. When you’re working in this section, you can save your spreadsheet layout as a template so that you don’t have to redo it for every sale. Once you have everything laid out how you want it, click the select template button, then choose the first option – save as template. A dialog box will then appear asking you to name your template. After you name it, click OK. Now when you click on the select template button, you’ll see your saved template in between the template options and the software templates. The next button in this list is delete templates. When you click on this, it will bring up a dialog box that allows you to select a template to delete. You can delete multiple templates by holding down the shift key or the control key and clicking on the desired templates. The last two options are templates that we have created for you. There is the 10 year production template and the simple template. These software templates already have the discount rate cell set for you.
The next button is the options button. To the right of the buttons, you’ll notice the yield rate field – you can enter any information or calculations in this spreadsheet area, but you have to make sure you set the discount rate field. To set the discount rate field, make sure your discount field rate cell is selected in the spreadsheet area, and then click options, and select set discount rate cell. It will set the current cell as your yield rate. When you set your discount rate cell, you will notice the location will appear in parentheses next to the yield rate field name. If you have an excel spreadsheet already set up with these calculations, you can import your spreadsheet into your sale. To do this, go to the options button and select import spreadsheet – it will then pop up asking you to choose the spreadsheet you would like to import. Under the options button, you can also export your work in the DataLog spreadsheet to an excel file, and you can also open this DataLog spreadsheet in excel, do your work in excel, and then when you close out of the spreadsheet, click the button that says I’m done editing in Excel, reload the spreadsheet. You will notice that any changes that you made will transfer to DataLog.
To recap, there are two main sections in the income analysis section of a sale – the capitalization rate section and the discounted cash flows section. Remember, if you create your own template in the discounted cash flows section, you must set the discount rate cell. You can do this by selecting your rate cell, then clicking options, and selecting set discount rate cell. One thing to note is that DataLog will save your discounted cash flows spreadsheet as an attachment. This will print out with the rest of your sale if you have the show extra pages box checked on the main screen of DataLog.
I hope this tutorial was helpful for you today. If you have any questions or comments, please don’t hesitate to give us a call at 605-787-7871 or send an email to [email protected]. Thank you for taking the time to view this online video, and thank you for choosing the AgWare software.