Net Cash Income
Net cash income is the cash earnings realized
within a calendar year from the sales of farm production and the
conversion of assets, both inventories (in years in which reduced)
and capital consumption, into cash.
What is the difference between net cash income and net farm
income?
-
Net cash income, unlike net farm income, does not include the
value of home consumption, changes in inventories, capital replacement,
and implicit rent and expenses related to the farm operator's
dwelling—none of which reflect cash transactions during
the current year.
- Net cash income is generally less variable than net farm income.
Since only cash receipts and expenses are included, farmers can
manage the timing of crop and livestock sales and of the purchase
of inputs to stabilize the variability in their net cash income.
Farmers can hold crops from large harvests to sell in the forthcoming
year when output may be lower and prices higher. As a consequence,
cash farm income can remain high in years when output is only
average or poorer. However, net cash income cannot be maintained
for long without being replenished through production.
What does net cash income measure?
- Net cash income is a solvency measure representing the funds
that are available to farm operators to meet family living expenses
and make debt payments which, in the case of a family owned business,
are not independent decisions.
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