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General Farm Management & Strategy
For a farm to grow, it is essential that the replacement margin be large enough to repay term debt, replace assets, and purchase new assets, and that the replacement coverage ratio be greater than one. This article defines and illustrates the use of key repayment capacity measures.
Read MoreThe Du Pont financial analysis model is a useful method of illustrating the relationship between the asset turnover ratio, the operating profit margin ratio, return on assets, and return on equity. In this article, a case farm is used to examine the relationships between profitability and financial efficiency ratios, and to examine the impact of a change in revenue, variable costs, or owning rather than leasing 150 acres on financial performance.
Read MorePurdue ag economists Nathan Delay, Nathanael Thompson and James Mintert examine trends in digital ag technology usage by U.S. corn and soybean farms and identify technology usage patterns that have an impact on productivity and efficiency.
Read MoreA farm’s ability to operate on the production frontier depends on its ability to produce crop and livestock enterprises efficiently, while a farm’s ability to produce on the cost frontier pertains to its ability to produce on the production frontier, manage costs, and market crop and livestock commodities. The asset turnover ratio, on the other hand, measures how efficiently farm assets are being used to generate value of farm production (a gross income measure).
Read MoreThe rates of return on assets and equity are extremely useful when comparing farm investments with other investments. However, these two measures are sensitive to how farm assets are valued on the balance sheet. For this reason, the operating profit margin is more conducive for benchmarking profitability among farms.
Read MoreIt is widely accepted that accrual accounting provides a more accurate estimate of annual farm profitability than cash accounting or Schedule F net farm profit. This article compares cash and accrual net farm income for a case farm in west central Indiana given alternative scenarios pertaining to prepaid expenses and crop inventories.
Read MoreRecorded September 11, 2020 | Purdue agricultural economists Michael Langemeier and James Mintert discussed USDA’s September Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports.
Read MoreThere are numerous factors impacting a farm’s debt holding capacity. It is important to remember that financial leverage or debt directly impacts a farm’s growth rate through its effect on expected returns and risk.
Read MoreMaintain your working capital! This phrase is commonly heard in discussions with lenders, advisors, and management specialists in today’s environment of relatively low crop net returns or margins.
Read MoreSince its peak in 2013 at $123.7 billion, average U.S. net farm income has averaged $82.7 billion or approximately 33% less than the peak value. This article discusses changes in the U.S. farm sector balance sheet as well as liquidity and solvency ratios.
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