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Sheldon, IA
3000 Park St
Sheldon, IA 51201
Sheldon, IA
3000 Park St
Sheldon, IA 51201
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Try a different Zip Code Contact us for assistanceGuidelines to help provide a more complete financial picture of your farm or ranch.
The following 16 financial ratios are designed to provide critical financial information that can assist your decision-making process.
LIQUIDITY |
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1. Current Ratio | = | Current Farm Assets | ||
Current Farm Liabilities | ||||
Desirable Range |
= |
Greater than 2.0. |
2. Working Capital | = | Current Farm Assets | - | Current Farm Liabilities |
Desirable Range |
= |
Positive, stable. |
SOLVENCY |
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3. Debt/Asset Ratio (Debt Ratio) |
= | Total Farm Liabilities | X | 100 |
Total Farm Assets | ||||
Desirable |
= |
Less than 40% and does not exceed 50%. |
4. Equity/Asset Ratio (Equity Ratio) |
= | Total Farm Equity | X | 100 |
Total Farm Assets | ||||
Desirable |
= |
Greater than 60%. |
5. Debt/Equity Ratio (Leverage Ratio) |
= | Total Farm Liabilities | X | 100 |
Total Farm Equity | ||||
Desirable |
= |
Less than 66%. |
PROFITABILITY |
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6. Rate of Return on Farm Assets (ROA) |
= | (Net Farm Income + Farm Interest Expense – Family Living) | X | 100 |
Total Farm Assets | ||||
Desirable |
= |
Greater than 6%. |
7. Rate of Return on Farm Equity | = | (Net Farm Income – Family Living) | X | 100 |
Total Farm Equity | ||||
Desirable |
= |
Greater than Rate of Return on Farm Assets (ROA). |
8. Operating Profit Margin | = | (Net Farm Income + Farm Interest Expense – Family Living) | X | 100 |
Gross Revenue | ||||
Desirable |
= |
Greater than 30%. |
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9. Net Farm Income | = | No standard formula |
REPAYMENT CAPACITY |
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10. Term Debt and Capital Lease Coverage Ratio | = | (Net Farm Income + Total Non-Farm Income + Depreciation Expense + Interest on Term Debt and Capital Leases – Total Income Tax Expense – Family Living) | ||
Principal and Interest Payments on Term Debt and Capital Leases | ||||
Desirable Range |
= |
Greater than 1.5. |
11. Capital Replacement and Term Debt Repayment Margin | = | Net Farm Income | |
+ | Total Non-Farm Income | ||
+ | Depreciation Expense | ||
– | Total Income Tax Expense | ||
– | Family Living (including Total Annual Payments on Personal Liabilities) | ||
– | Payment on Prior Unpaid Operating Debt | ||
– | Principal Payments on Current Portion of Term Debt and Capital Leases | ||
Desirable |
= |
At least 25% more dollars than scheduled payments on debt and leases. |
FINANCIAL EFFICIENCY |
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12. Asset Turnover Ratio | = | Gross Revenue | ||
Total Farm Assets | ||||
Desirable Range |
= |
Varies by industry. The higher the ratio the more productive you are at utilizing your assets. |
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13. Operating Expense Ratio | = | (Operating Expense – Depreciation – Interest) |
||
Gross Revenue | ||||
Desirable Range |
= |
Less than 65%. |
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14. Depreciation Expense Ratio | = | Depreciation Expense | ||
Gross Revenue | ||||
Desirable Range |
= |
Less than 15%. |
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15. Interest Expense Ratio | = | Interest Expense | ||
Gross Revenue | ||||
Desirable Range |
= |
Less than 10%. |
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16. Net Farm Income from Operations Ratio | = | Net Farm Income | ||
Gross Revenue | ||||
Desirable Range |
= |
Greater than 15%. |
References: Farm Financial Ratios and Guidelines. Farm Financial Standards Council.
Understanding Key Financial Ratios and Benchmarks. Dr. David Kohl and Troy Wilson.