Grains Research and Development

Date: 04.11.2013

Key Financial Ratios

Key Financial Ratios Fact Sheet

Understanding your key financial ratios helps manage your farm business sustainability.

As farm businesses become more sophisticated and owners strive ever harder to improve profitability and create wealth, the move beyond simple measures of physical production to whole business analysis is gaining momentum. The use of financial ratio and benchmark analysis has become increasingly popular with progressive farm business operators in recent years.

Key Points

  • Top farm businesses should be able to quote and understand their key financial ratios and their trends over time. 
  • Calculating financial ratios is quite simple - with a little explanation. 
  • Five key areas to focus on: Liquidity, Solvency, Profitability, Cost Efficiency and Debt Servicing Capacity. 
  • Ratio trends over several years are a more valuable tool than looking at one year in isolation. 
  • Monitoring your business’ financial ratios does not guarantee greater profit, but it will improve the likelihood of success over time and improve the understanding of your business. 
  • Context is very important – compare apples with apples!

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GRDC Project Code AES00006

Region National, North, South, West, Overseas