Financial Analysis for Resource Managers

Start Date: March 27, 2013
Location: Kamiak Ridge, LLC, Pullman, WA

March 27-28, 2013  Olympia, WA

Instructor: William E. Schlosser, Ph.D.

Kamiak Ridge, LLC, Pullman, WA

Wednesday, March 27, 2013
8:30 Introductions and overview of class
9:00 The Time Value and Cost of Money: The basic concepts of interest, inflation, and discounting. Inflation and Discount Rate Determination: What they mean, and how to calculate them. These rates guide most economic decision making decisions. Learn how to do it right. Nominal vs. Effective Interest Rates: How to express present and future values.

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.

12:00 Lunch
1:00 Financial Decision-Making Tools: The 10 Formula to keep near and dear. Learn to run financial calculations on business decisions using a decision tree and these formulas. Future Value of a Single Sum: What is the value of a $100 investment today and in 10 years? Present Value of a Single Sum: What is the promise of $100 in 10 years worth today?

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.

5:00 Adjourn for the day

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.

Thursday, March 28, 2013
8:00 Questions & Discussion from Day 1
8:30 Real Life Forest Management Financial Decision Criteria.

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.

12:00 Lunch
1:00 Equal Annual Equivalent: The key to comparing projects over different time spans and the answer to the question: which investment is best?

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?

4:30 Course Adjourns
About the Speaker

William E. Schlosser, Ph.D.

Dr. Schlosser is a recognized and respected educator with 8 years of experience working with Universities (University of Idaho, Michigan State University, Washington State University). He has delivered over 325 seminars and short courses on a variety of forestry topics in the US and Russia. Attendees to his classes have been estimated at well over 14,000 individuals. He has also taught undergraduate and graduate classes in natural resources and specifically, in economics.

Dr. William E. Schlosser has been a professional forester since 1989 and has worked in the forestry industry of the Pacific and Interior Northwest since 1982. He has extensive experience working with non-industrial private forestland owners, industrial forestland owners, tribal forestlands, and government agencies in the administration of forestry projects. Although his advanced degrees are in natural resource economics and finance, he also possesses advanced skills in geographic information systems (GIS), global positioning systems (GPS), land use planning, and forest management.

Recently, Dr. Schlosser designed and implemented a computer program, hosted on a Kamiak Ridge server, to analyze forestlands from the timber management perspective to generate appraisal value for forested properties. The program, Forest Resource Analysis System Software (FRASS), is a secure interface for clients to combine their forest inventory data, a vast economic portfolio, physical site characteristics, road networks, threatened, endangered, and sensitive species, and riparian zone protection with zoning. The results are financially optimal timber rotation determinations for timber stands into perpetuity. The FRASS system is applied on client properties to determine the Income Capitalization Approach to generating a parcel appraisal value, with Timber Production as the Highest and Best Use.