Likely, if you are a producer, all the inputs for the measures below are numbers that you have in an excel sheet in your office right now. Sometimes it is daunting to look at the specific numbers to see where you stand. But failing to plan, is planning to fail.
The first step in being financially sound is to know where you stand. This can be a complex subject, looking at specific ratios and other key indicators can help paint the picture, and create a point from where plans should be made. These key indicators fall into 5 categories: liquidity, solvency, profitability, financial efficiency, and debt coverage. These words are thrown around a lot but let’s look at them as simply as possible. In the chart below there are definitions and calculations for each key indicator.
When these indicators are compared to industry benchmarks they can provide the insight into the current performance of the operation, as well aid in goal setting for future performance.
The most common key indicators used include:
For more information, or recommendations for further research into this subject email Preston Lyman at firstname.lastname@example.org.
Kaliel, David. September 22, 2017. “Farm Financial Ratios”. Link Here.
Want more news on this topic? Iowa Farm Bureau members may subscribe for a free email news service, featuring the farm and rural topics that interest them most!