Ratios and measurements in farm finance

The farm finance scorecard helps you see where you are in terms of financial ratios and measurements

In the last few decades, much progress has been made to standardize financial statements in agriculture. This allows for ratios and measurements commonly used in other industries to become standard in the farmer’s financial world. An individual farmer can measure and understand the strengths and weaknesses within their financial life, and to benchmark their situation with their peer group.

The Center for Farm Financial Management at the University of Minnesota has been a key player in this evolution. They developed the FINPACK software. The following information applies to the financial statements and ratio analysis produced by the FINPACK software. Other good financial software and paper forms products produce information that is similar. 

With good financial statements, excellent measurements can be made in: liquidity, solvency, profitability, repayment capacity and efficiency. A balance sheet is necessary to measure liquidity and solvency. In order to measure profitability, a good accrual adjusted income statement is also needed. The statement of cash flows allows for calculations on repayment capacity.

Ratios and measurements

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David B. Bau, Extension educator; Gary A. Hachfeld, former Extension educator; C. Robert Holcomb, Extension educator; Nathan J Hulinsky, Extension educator; and Megan L. Roberts, Extension educator

Reviewed in 2018

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