As you close out 2011 records, you should prepare year-end financial statements to evaluate the financial health of your operation. Various ratios can be calculated from these statements that can reveal areas you can work on in 2012 to be a more financially viable business. Key ratios that can be reviewed include current ratio, working capital, debt-to-asset, return on assets, net farm income ratio, and operating expense ratio. These ratios are important to measure against benchmark averages and over time to gauge change in one’s business.
Understanding the financial health of your farm or business is key to its success. Additional information on formulating financial statements and completing analysis can be found on Ag Decision Maker at www.extension.iastate.edu/agdm/wdfinancial.html, or at the Center for Farm Financial Management at www.cffm.umn.edu/publications/FarmMgtTopics.aspx.