FarmFinancialRatios andBenchmarks Calculations&Implications

(>=greaterthan;<=lessthan)

LiquidityAnalysis
CurrentRatio WorkingCapital WorkingCapitalRule**

Calculation
TotalCurrentFarmAssets TotalCurrentFarmLiabilities TotalCurrentFarmAssetsTotalCurrentFarmLiabilities WorkingCapital TotalExpenses

Strong

Stable

Weak

>1.50 1.00 1.50 < 1.00 Comparewithbusinessexpenses; amountvariesbysizeofoperation >50% 20 50% < 20%

SolvencyAnalysis
Debt/AssetRatio Equity/AssetRatio Debt/EquityRatio

Calculation
TotalFarmLiabilities TotalFarmAssets TotalFarmEquity TotalFarmAssets TotalFarmLiabilities TotalFarmEquity

Strong
<30% >70% <42%

Stable
30 70% 30 70% 42 230%

Weak
> 70% < 30% > 230%

ProfitabilityAnalysis
RateofReturnonFarm Assets(ROA)
(mostlyowned)

Calculation
(NFIFO*+FarmInterestExpenseOperatorManagementFee) AverageTotalFarmAssets (NFIFO*+FarmInterestExpenseOperatorManagementFee) AverageTotalFarmAssets (NFIFO*OperatorManagementFee)TotalFarmEquity (NFIFO*+FarmInterestExpense OperatorManagementFee) GrossRevenue

Strong
>5%

Stable
15%

Weak
<1%

RateofReturnonFarm Assets(ROA)
(mostlyrentedorleased)

>12%

312%

<3%

RateofReturnonFarm Equity(ROE) OperatingProfitMargin

Lookattrendsandcomparetoother farmandnonfarminvestments >25% 1025% <10%

FinancialEfficiency
AssetTurnoverRatio OperatingExpense/ RevenueRatio
(mostlyowned)

Calculation
GrossRevenueAverageTotalFarmAssets OperatingExpenses(lessinterest&depreciation)GrossRevenue

Strong

Stable

Weak

Dependsheavilyontypeofoperation andwhetheritisowned/leased <65% 6580% >80%

OperatingExpense/ RevenueRatio
(mostlyrentedorleased)

OperatingExpenses(lessinterest&depreciation)GrossRevenue DepreciationExpenseGrossRevenue InterestExpense GrossRevenue NFIFO*GrossRevenue

<75%

7585%

>85%

DepreciationExpense Ratio InterestExpenseRatio NetFarmIncomeFrom OperationsRatio

comparetocapitalreplacementand termdebtrepaymentmargin <12% 12 20% > 20% Lookattrends;varieswithcyclical natureofagriculturalprices&income

RepaymentAnalysis

Calculation

Strong
>150%

Stable
110150%

Weak
<110%

*NFIFO = Net Farm Income From Operations, excluding gains or losses from disposal of farm capital assets. ** Not an official standard or benchmark, but widely used in the financial industry. Developed by Dr. David Kohl, Agricultural Economist, Virginia Tech University. Modified by Greg Blonde, Waupaca County UW-Extension Agricultrue Agent. March, 2009.

[(NFIFO*+GrossNonFarmRevenue+DepreciationExpense+ TermDebtandLease InterestonTermDebtsandCapitalLeases)IncomeTaxExpense CoverageRatio FamilyLivingWithdrawals)]ScheduledAnnualPrincipaland InterestPaymentsonTermDebtandCapitalLeases ScheduledAnnualPrincipalandInterestPaymentsonTermDebt DebtPayment/Income andCapitalLeases(NFIFO*+GrossNonFarmRevenue+ Ratio** DepreciationExpense+InterestonTermDebts&CapitalLeases)

<25%

2550%

>50%