GLOSSARY Net Cash Farm Income A measure of farm profitability in terms of cash flow and net cash farm income, reflects the ability of a farm business to meet its cost of production through cash income. It is equal to: Cash Receipts — Adjusted Cash Operating Expenses
Accrual Adjusted Operating Expenses Farm operating expenses adjusted to reflect 12 months of operation and to remove the effect of tax planning. Adjustments account for changes in supply inventories, accounts payable and prepaid expenses. Operating expenses do not include family living costs or capital expenditures.
Net Household Income An accrual measure of overall household earnings, reflecting all revenues and costs, including both farm and non-farm sources. It is equal to: Net Cash Farm Income + Change in Accounts Receivable + Change in Production Inventories + Net Nonfarm & Noncash Income - Depreciation - Family Living Expenses & Taxes
Return on Assets Measures profit earned relative to total farm assets, including assets financed with debt and those financed with farm equity. Return on assets is equal to: Net Earnings + Interest Expense Average Assets
Return on Equity Measures profit earned relative to a farmer’s equity investment in the farm operation. Return on equity is equal to: Net Earnings Average Net Worth
Debt Capacity The maximum amount of capital debt that can be repaid from a farm’s cash flow, the calculation of debt capacity is described in the summary.
Reserve Debt Capacity The amount of additional capital debt (beyond that already incurred) that a farm can service from cash flow. Reserve debt capacity represents a farm’s buffer against financial adversity. It is equal to: Debt Capacity – Capital Debt
Overhead Costs Costs that do not vary with a change in production output, such as depreciation, interest, repairs, taxes and insurance, etc.
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D a i ry Fa rm Su m m a ry
