- Brynn Richard
- Comments Off on How Farmers Can Evaluate Their Financial Performance?
- agricultural resources, farm's Financial Performance, farm's measuring aspects
Today, more and more people are making a career in the agriculture industry and taking it seriously. They do not just rely on conventional notions but they are also making use of modern agricultural resources. This helps in enhancing the standard of the plans they devise for farming and subsequently provides them better yield.
However, there are still way too many farmers who are still unaware of the benefit of technology for their work. Actually, with the integration of technology and agriculture, not just farmers can get gain of improved yield but also they can get quite financial profit as well.
Listed below are the major aspects that are relevant for measuring farm profitability and liquidity:
- Working capital – This is the amount of money that is available and is utilized to finance day to day operations. It is measured by subtracting current liabilities from the farm’s existing assets. The current assets include cash, accounts receivable, and assets expected to be turned into cash within 1 year.
Whereas, current liabilities comprise the sum to be paid out within 1 year. In general, working capital must be greater than 20% of gross revenue.
- Current Ratio – The current ratio measures the ability of your farm business to meet its current obligations. You can even take the help of agricultural consulting firms to handle such tasks.
To find the current ratio, divide the farm’s current assets by its current liabilities. The higher the ratio, the better the farm’s liquidity.
- Cash surge coverage ratio – The cash flow coverage ratio reflects the ability of your farm’s operating cash flow to meet its obligations. It’s found by dividing the farm’s operating cash flow by the farm’s current liabilities.
If this ratio is less than 1, then the farm is considered “not liquid.” The higher the ratio, the greater the farm’s liquidity. You may also click here for info on ways that can help farmers reduce the risk involved in agriculture investment.