MANHATTAN, Kan. -- With rising incomes, Kansas grain, oilseed and farm supply cooperatives have boosted their total equity levels – or levels of net worth – to historical highs.
Equity generation and composition are important topics for any cooperative, said Brian Briggeman, director of the Arthur Capper Cooperative Center (ACCC) at Kansas State University. Generating equity capital is critical because it can be used to finance growth through capital investments, absorb business losses, and help secure a loan, as well as be used for other business purposes.
Equity represents the members' ownership interest in the total assets of the cooperative. Cooperative equity comes in two forms, allocated and unallocated, Briggeman explained. Allocated equity is the amount assigned, on a proportional basis, to each member. Unallocated equity is not designated to specific member accounts.
The ACCC dives into this subject in a new fact sheet titled, “Equity Composition of Kansas Grain, Oilseed and Farm Supply Cooperatives,” that is available online at http://www.accc.ksu.edu/.
While equity levels and composition vary from cooperative to cooperative, some general trends have developed throughout the industry, and Kansas is not that different, Briggeman said. The first trend is higher equity levels for co-ops. Since 2003, Kansas co-ops’ total equity, along with total savings or total net income, has risen significantly.
Another trend is the rise in the percentage of total equity designated as unallocated equity or permanent equity capital on Kansas co-op’s balance sheets. One question that often arises is, what is the appropriate amount of unallocated equity within a cooperative? Answering this question is difficult because there is no one correct answer that fits all cooperatives, Briggeman said. However, the new fact sheet provides discussion points for a cooperative’s board of directors and management team to consider on this topic.