Two additional ratios reported are working capital to value of farm production (VFP) and term debt and capital lease ratio. The working capital to VFP ratio is another liquidity measure. A limitation of the current ratio is the impact that certain accounting transactions have on the ratio. For example, selling grain and paying current liabilities can substantially change the current ratio. However, working capital would not change. Fewer fluctuations tend to occur with working capital. Relating working capital to the size of the operation provides a relationship of liquidity to farm size that can be compared across different farming operations.
As indicated in Table 16, the median ratio for all producers was 0.36 in 2005. Smaller farms, farms that own a high percent of land operated, older operators, beef farms, and hog farms tend to have higher working capital to VFP ratios. Larger farms, dairy farms and middle aged operators tend to have lower liquidity.
The term debt and capital lease ratio provides a measure of the ability of the farm to generate earnings sufficient to cover term debt and capital lease payments. Only a portion of the FBFM data used to generate Tables 1-15 can be used to generate the repayment capacity measure. In addition to the criteria outlined on page 1, the farm also has to have certified family living records. This reduces the sample size from 2,599 to 1,140 in 2005.
17 shows the term debt and capital lease ratio
across selected producer characteristics. The median ratio for all producers
was 1.33 in 2005. In 2004, the median value was 2.18. Debt repayment capacity
tends to be higher for beef farms, dairy farms, and farms that own a higher percentage of land operated. There is no discernable pattern by farm size according to VFP. However, these trends change from year to year based on commodity prices and production levels.