New looking at ratio's

[ggilchrist]

I ran across two ratio's this past week that caught my eye. Roy Ferguson was discussing acceptable targets for land production. The neat thing is that it doesn't matter what it is you produce, its the cash that is important. The first is Sales in relationship the the book value of your assets(land and machinery). He was giving is a target to be profitable in that $0.50 per dollar invested. This would indicate a NEWLY purchased quarter of $100,000.00 target its cash sales to be $50,000.00. The other ratio was rental price as a porportion of cash sales from the new leased quarter. 18% or lower was great. 19-22% was caution, 23-25% was warning, 26-29% was stop and 30% or greater was thin ice. Comments gg

[kaniteo]

If these ratios where adhered to, I would suspect that very little land would be traded or leased. They certainly underscore the difficulty farm managers have with land economics. I'm assuming that capital gains would be included in the sales/price calculation? This ratio is the inverse of the P/E ratio used on Wall Street and we all know where that has taken us recently. These ratios would definitely be eye-openers for farm managers. Regards Ted