1. Farm Business Analysis
Locating and correcting economic problem areas
“Control” function of management
General steps:
Establish standards for comparison
Measure farm business performance
Identify problem areas
Take corrective action
AGEC 407

2. Farm Business Analysis
Standards for comparison
Budgets
Meeting your expectations?
Other farms
Effected by the same price and weather conditions
Historic data
Improving over time?
AGEC 407

3. Farm Business Analysis
Areas of investigation
Profitability
Financial
Farm size
Efficiency
Enterprises
AGEC 407

4. Farm Business Analysis
Diagnosing the problem
Profitability problems
Is the farm large enough?
Over-capitalized?
Volume of inputs?
Economic efficiency
Input/output analysis
Selling prices
Input prices
AGEC 407

5. Farm Business Analysis
Profitability measures
Net Farm Income
Return to Farm Assets
Return to Farm Equity
Return to labor and management
Operating Profit Margin Ratio
AGEC 407

6. Farm Business Analysis
Financial measures
Debt/Asset Ratio
Change in Equity
Current Ratio
Inventory accumulation/depletion
Repayment of operating loans
Re-finance some current debt?
AGEC 407

7. Farm Business Analysis
Farm size measures
Quantity of sales
Gross Revenue
Value of farm production
Subtract feed and livestock purchases
Acres
Head
AGEC 407

8. Farm Business Analysis
Efficiency
= production / resources used
= value of production / cost of resources
= (output * selling price) /
(amount of resources * resource price)
AGEC 407

9. Farm Business Analysis
Efficiency measures – Economic
Asset Turnover Ratio
Efficiency of capital investment
Gross revenue / total farm assets
Years to produce revenue equal to investment
Higher for dairy, hog, poultry
Lower for crop farms
AGEC 407

10. Farm Business Analysis
Efficiency measures – Economic
Expense Ratios (divide by Gross Revenue)
Operating expense ratio
Depreciation expense ratio
Interest expense ratio
Net Farm Income from operations ratio
AGEC 407

11. Farm Business Analysis
Efficiency measures – Economic
Production Ratios
Feed costs per unit of output
Crop Value per acre
Gross Revenue per worker (FTE)
Machinery costs per acre
Can be too high or too low
AGEC 407

12. Farm Business Analysis
Efficiency measures – Physical
Yield per acre (crops)
Average daily gain
Calving percent
Pigs weaned per sow per year
Milk production per cow per year
Must include inventory adjustments
AGEC 407

13. Farm Business Analysis
Efficiency measures – Marketing
Selling prices
Other outlets?
Different strategies?
Input Prices
Land, Machinery
Operating inputs
AGEC 407