Term
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Definition
Measures the ability of the farm to repay its debts coming due within the next 12 months.
If CA>CL=liquid
If CL>CA, illiquid |
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Term
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Definition
Measures the farm's ability to repay ALL debts at any point in time. (Reflects the RISK of the farm's financial structure)
If TA>TL, solvent, positive net worth.
If TL>TA, insolvent, negative net worth |
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Term
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Definition
Measures the farm's profitability based on the capital that's invested.
Indirectly it measures the farmer's farm management capabilities. |
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Term
| Financial Efficiency Ratio |
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Definition
Measures the financial efficiency (cost of capital use) of the farm.
-Cost of capital use |
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Term
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Definition
Measures the farm's ability to service (repay) annual debt repayments on capital debt investments.
Based on the farm's volume production. |
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Term
| Importance of Farm Financial Ratios Analyses |
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Definition
1. Determines the farm's financial progress. Identifies the farm's financial strengths and weaknesses.
2. Required as part of the loan approval process.
3. Provides an early warning to potential problems before they actually become problems.
4. Financial Ratio trends chart the true direction of the farm & identify changes in financial postion or performance.
5. Measures the overall RISK of investing any more debt capital into the farm for expansion. |
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Term
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Definition
| farm's ability to repay debts as they come within the next YEAR |
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Term
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Definition
the farm's ability to repay ALL outstanding debts
reflects the RISK of the farm's financial structure |
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Term
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Definition
widely used to measure the liquidity available to pay short term obligations (CL)
Current Assets/Current liabilities
CA/CL |
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Term
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Definition
Liquidity measure that tells the debt structure between current and total liabilities. Shows what portion of the total debt must be repaid within the year.
Current Liabilities/Total Liabilities
CL/TL
*want to see a current debt ration of .25 or less...otherwise it will be a struggle to pay back |
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Term
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Definition
-Reflects overall financial risk of the farm to the lender.
-Shows the amount of debt pledged against the farm's equity.
-Higher the ratio, the larger the share the creditors have in the farm's total assets.
Total liabilities/net worth
TL/NW
.5 or less= low risk
.5-.7= moderate risk
.7+= high risk |
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Term
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Definition
-Shows ability of the farm to repay all farm debts (if forced to sell off all assets).
Total assets/total liabilities
TA/TL
Normal Net Capital Ratio= 2.5-3 |
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Term
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Definition
-Shows what proportion of the farm's total capital is being financed by debt capital (an obligation for repayment).
-Used to measure both financial risk and borrowing capacity.
total liabilities/total assets
TL/TA |
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Term
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Definition
-Shows what proportion of farm assets are paid for and owned free and clear of any financial liability.
-Increases in this ratio signify a strong financial structure.
Net worth/Total Assets
NW/TA |
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Term
| How to find Value of Farm Production |
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Definition
| Gross farm income-inventory change (ending inventory-beginning inventory)-purchased feed/animals=Value of farm production |
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Term
| How to find Gross Farm Income |
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Definition
value of sold animals+value of retained animals+crop sales+gov farm program earnings+cull animal sales=Value of farm production
*does not include custom farm work, machine sales, or outside income |
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Term
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Definition
| Beginning inventory-Ending Inventory |
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Term
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Definition
| Ending Inventory-Beginning Inventory |
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Term
| Actual amount of cash operating expenses (amount to charge off after expense adjustments) |
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Definition
| CASH FARM EXPENSES- Unused (B-E)-Unpaid (E-B)= actual amount of cash operating expenses |
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Definition
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