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Financial Statement Analysis of Biofuel Energy Corp. (2010)

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Submitted By mnovak
Words 1147
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BioFuel Energy Corp., headquartered in Denver, Colorado, produces ethanol and its co-products, primarily distillers grain, at its two production facilities located in Wood River, Nebraska and Fairmont, Minnesota. (BioFuel Energy Corp. 10-K, pg. 2). The operations and cash flows of BioFuel are exposed to wide and unpredictable fluctuations due to changes in commodities prices, particularly, the price of its main commodity, corn, in relation to the price of its main commodity product, ethanol. Ethanol is a clean burning, high-octane fuel that is produced from the fermentation of carbohydrates such as grains, starches, and sugars and used as a gasoline additive to increase the octane rating and comply with air emissions regulations by reducing emissions of carbon monoxide and nitrogen oxide. Also, the Renewable Fuel Standard (RFS) mandates that renewable biofuels comprise a certain minimum amount of the U.S. fuel supply. Fuel blended with up to 10% ethanol is approved for use by major motor vehicle manufacturers and is often recommended as a result of ethanol’s clean burning characteristics (BioFuel Energy Corp. 10-K, pg. 5).

BioFuel has various unique accounting methods such as revenue recognition and inventory valuation, due to changes in commodity prices and BioFuel’s exclusive buyer-seller relationship with Cargill.

One of BioFuel’s unique accounting methods is revenue recognition. Revenue is recognized by BioFuel when the risk of loss and title transfers upon the delivery of the ethanol and distillers grain to Cargill, BioFuel’s sole purchaser of its ethanol and distillers grain products. BioFuel’s revenue is recorded based on the amounts payable from Cargill to BioFuel at the time of sale. The amount payable from Cargill for ethanol is equal to the average delivered price per gallon received by the marketing pool from Cargill’s customers, less the

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