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Calculating The "Sweet 16" Farm Financial Measures
Financial ratios can be used to help evaluate the financial efficiency of the business. The "Farm Financial Task Force, 2" has recommended the following 16 measures and definitions.
Desirable ranges and guidelines vary significantly by type of farm, ownership pattern, time of year and technology. Trends on individual farms are important in identifying management strengths and weaknesses.
Current ratio = total current farm assets/total
current farm liabilities
Working capital = total current farm assets
- total current farm liabilities
Debt/asset ratio = total farm liabilities/total
Term Debt and Capital Lease Coverage Ratio =
(net farm income from operations + total non-farm
income + depreciation expense + interest on term
debt and capital leases - total income tax expense
- family living withdrawal)/principal and interest
payments on term debt and capital leases range desirable greater
Asset turnover ratio = gross revenue/average
total farm assets
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