Farm406

• 11 FARM 406 DRIVING FINANCIAL SUSTAINABILITY • farm finance Written by Anton Bekkerman W hen wheat prices are $8.00 per bushel and feeder cattle are $200 per hundredweight, it seems a little easier to forget the not-so-exciting (or even outright boring) exercise financial management. But when faced with $4.00 per bushel wheat and $140 per hundredweight cattle, you might start remembering—or even be re- minded by your lender—about terms such as "financial leverage," "working capital ratio," and "debt-to-asset ratio." And it is paying close attention to these terms and using them to constantly evaluate your operation's financial sustainability that may determine your operation's ability to withstand a market downturn. One widely used indicator of an operation's short-term financial vulner- ability is the working capital ratio. The working capital portion of the ratio is the difference between the total assets that an operation plans to sell within the next twelve months and the debts that an operation will owe during that period. However, because the amount of assets and debts often depend on the size of an operation, the working capital is typically divided by the operations total expenses (or sometimes gross revenues) to form Making Small But Highly Informed, Strategic, and Continuous Advances in Reducing Vulnerability to Financial Downturns and Overall Market Uncertainty is a Necessary Ingredient for Growth.

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