FINANCIAL RATIOS CLASSIFIED BY FARM CHARACTERISTICS

Tables 3 through 13 show the values of specific financial ratios and performance measures for 2004 and 2005. Table 14 summarizes information for hog farms and grain farms for 2001 through 2005. This section includes 12 tables that are separated into five levels based on different structural or financial categories. The 12 tables are as follows:

Table 3. Financial Measures for Farms by Farm Type*
Table 4. Financial Measures for Farms by Debt to Asset Ratio
Table 5. Financial Measures for Grain Farms by Farm Size Tillable Acres
Table 6. Financial Measures for Farms by Farm Size Total Assets
Table 7. Financial Measures for Farms by Farm Size Net Worth
Table 8. Financial Measures for Farms by Farm Size Value of Farm Production
Table 9. Financial Measures for Hog Farms by Farm Size Value of Farm Production
Table 10. Financial Measures for Farms by Tenure Level
Table 11. Financial Measures for Farms by Net Farm Income Level
Table 12. Financial Measures for Farms by Rate of Return on Farm Assets
Table 13. Financial Measures for Farms by Age of Operator
Table 14. Financial Measures for Hog Farms and Grain Farms, 2001-2005

The five groups of financial criteria within each table are:

1. Common-size balance sheet
2. Common-size income statement
3. Farm size and tenure ratios
4. Financial ratios
5. Absolute size in financial terms

A common size balance sheet and income statement report each item as a percentage of total assets or value of farm production, respectively. Common size statements are calculated for each farm and then averaged for a particular group. (Due to rounding, some of the figures may not add to 100 percent.) Average farm size (in tillable acres) and tenure for farms in each category are listed to provide further insight.

The financial ratio section summarizes many ratios widely used in farm financial analysis. The ratios are grouped into four major categories: profitability, liquidity, solvency and coverage, and financial efficiency. Each ratio has three values: the upper quartile, median and lower quartile.

Each ratio is calculated for each farm and then sorted in order from strongest to weakest. (Opinions differ on what is a strong or a weak value for certain ratios. Procedures consistent with RMA, along with guidelines commonly followed by the lending industry, are used to determine a strong or weak value for each ratio.) The upper quartile is the ratio value exceeded by one fourth of the farms in the category. The lower quartile is the ratio value exceeded by three fourths of the farms. The median is the ratio value exceeded by one half of the farms in the category. Using quartile data also allows one to analyze the distribution of the ratio within each category.

The quartile values in the ratio section of the tables are shown on the tables in the following order:

•Upper Quartile
•Median
•Lower Quartile

Some adjustments in the data are needed to account for the effects of extreme outliers. For example, when the current ratio equals 1,000 or greater a "999.00" designation is assigned to that specific value. In other specific cases another value may be assigned to atypical values. These cases are addressed individually in the computation discussion of the specific ratio.

The mean values for specific items on the balance sheet and income statement are reported at the bottom of each table. These figures could be used to convert the common size statements into actual financial statements for the average farm in each category.


* Measures for 2004 and 2005 for "All Farms" without grouping are included in this table only.