Have you checked on your dairy’s 6-pack lately? No, not beverages, but six numbers, critical to managing a successful dairy businesses of any size. These key numbers include:
• Debt to asset ratio: How much debt is the dairy business carrying compared to its assets? This figure should be well below 40 percent.
• Debt per cow: Keep this less than $3,500 during an expansion, and less than $2,500 per cow when not expanding.
• Debt repayment schedule: This is measured by scheduled annual debt payment as a percent of gross farm receipts. It should be less than 15 percent of gross farm receipts or less than $500 per cow per year.
• Working Capital: This is the difference between current assets and current liabilities. A good level of working capital would be equal to 15 to 25 percent of gross receipts.
• Cost of production: How much does it cost you to produce a hundred pounds of milk? If you don’t know, use the “Simple and Useful Cost of Production Worksheet” here.
• Net farm income per cow: Is this figure positive? Going up? Going down? How do you stack up against your fellow dairy producers? This number considers both income and expenses.
While many more numbers and ratios are calculated and considered in a complete financial analysis, this “six pack” of numbers are critical for monitoring and controlling a dairy farm business. Actual debt levels that an individual dairy can handle and still be profitable may not be as high as the competitive levels stated above. Additional information on the numbers, goals and how to calculate them for dairy farm businesses is available in The Ohio State University extension’s “15 Measures of Dairy Farm Competitiveness” publication.
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