Skip to main content

Farm and Ranch Financial Trends Worksheet

The farm and ranch financial trends worksheet provides insight into farm financial performance and changes in financial position. Most producers have developed balance sheets periodically for loan documentation and all producers should have copies of tax reports filed. The lender or accountant may be able to provide historical data if a report is missing. While better measures can be developed, the trends indicated here
may be enlightening.2

 

From the Balance Sheet

Ideally, asset and debt figures should come from statements developed at the same time each year, such as January 1. Assets should be valued consistently using either cost or market valuation techniques. Cost-basis valuations will provide more meaningful comparisons for a specific farm over time. Deferred taxes (taxes that would be incurred if assets are sold) should be included in liabilities.

 

Is the value of owned assets increasing over time? In a profitable business, the value of assets calculated on a cost-basis are expected to increase over time if profits are reinvested in the business and not withdrawn for non-farm use. If market values (the amount for which assets could be sold, less taxes) are used for assets, fluctuations in the total value may reflect changes in market price in addition to profits or losses.

 

Are total debts increasing over time? If so, is this a planned event, for instance, because debt is being used to expand the business? If not, rising debt may signal increasing financial problems, particularly if it is operating debt or lines of credit that are increasing. Addressing problems early on is key to preventing business failure. A one-time increase in debt in five years may not be a problem, but multiple years of increases should be a cause for concern.

 

What is happening to total equity, that is, the owner’s claim to assets? In a business where profits are reinvested over time, total equity should increase.

 

The debt to asset ratio indicates the proportion of total assets owed to creditors. The higher the ratio, the greater financial risk the business faces. Beginning operations that are financed through borrowing often have higher debt to asset ratios than established operations.

 

If the credit line is not being paid off during the year or credit card debt is accumulating, steps to correct financial problems are in order. Credit cards are an expensive form of debt and should be used primarily for convenience in payment, not to finance farm or personal assets or family living expenses.

 

From Tax Reports

Is gross income increasing? If not, why not? Are optimal production practices being used? Have the weather or market prices been the culprit every year or are changes in
management practices in order?

 

High depreciation expenses typically indicate the purchase of new buildings, machinery, equipment, vehicles, and breeding livestock. This expense can be lowered by replacing these items less frequently. Very low or no depreciation expense may signal that little or no reinvestment in the farm is taking place and that large outlays may be necessary in the future, either in repairs or purchases. If repairs are a large portion of the total expense, consider the purchase of new (or at least different) machinery and equipment or custom hiring work done.

 

To survive, the farm business must show a profit most years unless substantial off-farm equity or income is available to subsidize the operation. Consistent losses suggest that the manager’s skills and talents might be better suited to some other enterprise.

 

The interest expense ratio (interest expense/gross income) indicates the proportion of total income committed to interest payments. Farm operations are considered at risk once the ratio is 15 percent or higher.

 

From Family Financial Records

Can the farm or ranch reasonably be expected to cover family living expenses, and is the total reasonable? Kansas Farm Management Association data in 2020 indicated that family living expenses averaged $71,901.

 

Farm Financial Trends Worksheet

 

1 Based on an earlier version by Damona Doye.

 

2 Tax information may be used as a first step in financial analysis. However, better measures of financial position and performance require better data. For more information on financial statements and analysis, see OSU Fact Sheets AGEC-751, AGEC-752, AGEC-753 and AGEC-791.

Was this information helpful?
YESNO
Fact Sheet
Oklahoma Farm and Ranch Custom Rates, 2021‑2022

The fall 2021-2022 custom rates data collection and considerations from Oklahoma farmers, ranchers and custom operators.

Budgets & RecordkeepingBusiness Planning & ManagementFarm & Ranch FinancesFinancial Statements
Fact Sheet
Evaluating Financial Performance and Position

Learn about evaluating financial performance and position by using criteria such as liquidity, solvency, profitability, and financial efficiency.

Business Planning & ManagementFarm & Ranch FinancesFinancial Statements
Fact Sheet
Overview of Opportunities for Beginning Farmers and Ranchers

By Tori Marshall and Amy Hagerman. Learn about opportunities available for beginning farmers and ranchers for financial support, education and minimizing risk on an operation.

Beginning FarmingFarm & Ranch Finances
Fact Sheet
Liabilities Schedule

An explanation of what a liabilities schedule consists of, the different subjects within the schedule and why each subject is important.

Budgets & RecordkeepingBusiness Planning & ManagementFarm & Ranch FinancesFinancial Statements
VIEW ALL
Back To Top
MENUCLOSE