| Ratio |
Computation method |
Significance |
| Liquidity |
Farm business debt service coverage |
(Net cash income + interest) / (Interest +
principal payments) |
Measures the farm business's ability to repay both interest and
principal |
| Debt servicing |
(Interest + principal payments) /
Gross cash
farm income |
Measures the share of the farm business's gross income needed to service debt |
| Times interest |
(Net farm income
before interest and taxes) / Interest payments |
Measures the farm business's ability to service debt out of net income earned |
Efficiency |
| Gross ratio |
Cash operating expenses /
Gross cash
farm income |
Measures the proportion of gross cash farm income absorbed by cash operating
expenses |
| Interest to gross cash income |
Interest
/ Gross cash farm income |
Measures the share of gross cash farm income committed to interest payments |
| Asset turnover |
Gross cash farm income /
Farm business
assets |
Measures the gross farm income
generated per dollar of farm business assets |
| Net cash farm
income to debt
(debt burden ratio) |
Net cash farm income /
Farm business
debt |
Measures the burden placed on net cash farm income to retire outstanding debt |
| Solvency |
| Debt to assets |
Farm business debt
/ Farm business
assets |
Measures debt pledged against farm business assets, indicating overall financial
risk |
| Debt to equity |
Debt
/ Equity |
Measures the relative proportion of funds invested by creditors (debt) and owners
(equity) |
Profitability |
| Rates of return on assets |
| Current income |
Returns to farm assets
from current income
/ Farm business assets |
Measures how efficiently the farm business uses its assets; the per dollar return on farm
assets (from current income only) |
| Real capital gains |
Real capital gains
on farm business
assets
/ Farm business assets |
The per dollar return on farm assets from real capital gains |
Rates of return on equity |
| Current income |
(Returns to farm assets
from current income
- interest) / Farm business equity |
Measures the returns to equity capital employed in farm business from current income less
interest |
| Real capital gains |
Real capital gains
on farm business
assets
/ Farm business equity |
The per dollar return on farm equity from real capital gains |
| Operating profit margin |
Returns to farm assets /
Gross cash farm
income |
Measures profits earned per dollar of gross cash income |
Asset, debt, and equity values are an average for December
31 of the current and previous years.
