For calculating the financial performance ratios, farm assets should be valued at their current fair market value, minus any potential selling costs and income tax payments.
Scheduled principal and interest payments on term debt include interest and principal that will have to be paid during the next year on intermediate and long term farm loans. Do not include operating or other short-term loans. For loans amortized on an equal annual payment schedule simply use the total payment due in the next year. For other loans add the principal portion due in the next year to the amount of interest that will have to be paid. Also include any long-term lease payments for machinery and equipment (but not land) that will come due.
Gross farm revenue refers to total farm sales and miscellaneous farm income. Cash income should be adjusted to reflect changes in inventories of crops, livestock, and accounts receivable. Gross farm revenue does not include nonfarm income, loan funds received, nor income from sales of machinery, equipment, and real estate.
Net farm income from operations is the difference between gross revenue and total farm expenses, including interest and depreciation. Farm capital gains and losses is the difference between the selling price of any depreciable asset sold during the year and its adjusted basis (depreciated value).
Interest expense is equal to the cash interest paid plus or minus the change in the amount of interest owed at the end of the year. Depreciation expense should be the same value as used on the farm income statement, whether calculated for income tax purposes or by other accounting methods.
Nonfarm income, family living expenses, and income tax payments can be estimated from personal records. Common farm wage rates in the community can be used to value unpaid labor and management.