FORWARD
This research reflects the Florida contribution to the S-180 regional project entitled,
"Financial Stress in Agriculture: Policy Options and Financial Consequences for Farmers."
The authors would like to thank Tim Hewitt and John Holt for their assistance in specifying
the base farm data.
ABSTRACT
A farm financial simulation model is used to analyze the financial consequences of
various policy options and strategies that North Florida farmers might follow in responding to
the financial stresses of the mid-1980s. A variety of combinations of economic forecasts,
beginning leverage positions, and financial stress-relief policies are analyzed for a repre-
sentative farm. The results of the analysis are intended to provide an information base for
understanding the dimensions of financial stress problems in North Florida agriculture, the
effectiveness of alternative strategies for responding to stress, and the longer term
performance prospects in the area.
Keywords: financial stress, leverage, farm financial simulation
FINANCIAL STRESS IN AGRICULTURE: POLICY OPTIONS AND
FINANCIAL CONSEQUENCES FOR FARMERS IN NORTH FLORIDA.
INTRODUCTION
During the 1980s the U.S. farm sector has experienced one of the deepest and most
widespread recessions since the 1930s. Farm income has been low in both nominal and real
terms, interest rates have been high, and land values have declined. Consequently, financial
average has continued to increase. While the effects of these conditions vary considerably
among farmers, the incidences of credit problems, loan delinquencies, foreclosures, and
bankruptcies in agriculture have reached significant levels. Moreover, a rippling effect has
occurred to adversely affect the well-being of many farm lenders, agri-businesses, and rural
communities whose financial performance is strongly influenced by economic conditions in
agriculture. Due to these financial stress problems, by farmers, farm groups, lenders and
others to have brought increasing pressure for a public assistance at a time when the high
cost of public programs of the past has had dissatisfaction and close scrutiny from nonfarm
groups. Moreover, farmers and their lenders are placing heavy emphasis on managing liquidity
and restructuring financial situations to improve their prospects for farm survival and
economic viability in the future.
The number of farmers experiencing different degrees of financial stress is difficult to
estimate. Comprehensive data are not available about all of the key financial indicators, nor
is it easy to associate stress conditions with the various structural characteristics of farms:
size of farm, tenure position, farm type, level of leverage, age of operator, and so on. Most
of the assessments have been based on debt-asset ratios of different size classes of farms, as
well as on estimates of cash flow available to service debt. The U.S. Department of
Agriculture, for example, estimated at current interest rates and levels of net returns in
farming, that farms with debt-asset ratios of over 40 percent are likely experiencing cash
shortfalls, and thus are having serious financial problems (ERS). Farmers with debt-asset
ratios above 70 percent are almost certain to have serious cash shortfalls, and are under
extreme financial difficulty.
Based on survey data and an analysis of the financial characteristics of U.S. farms on
January 1, 1986, an estimated 4 percent of all farms were technically insolvent; that is, they
had debt-asset ratios over 100 percent (ERS). An additional 5 percent had debt-asset ratios
between 70 percent and 100 percent, and faced dim prospects for surviving two more years
like the recent past. A further 13 percent had debt-asset ratios between 40 percent and 70
percent. These farms were believed to have serious cash flow shortfalls but likely could
survive perhaps another four years under conditions similar to the recent past without
becoming technically insolvent. Similar comprehensive survey data is not available for the
North Florida region. However, a limited study of Jackson County in 1984 indicated that over
25 percent of the farms had leverage ratios in excess of 40 percent (Anaman).
The breadth and depth of the current financial problems in agriculture have created a
significant dilemma for farmers, lenders, policy makers, and others in how to respond. Many
of the risk management practices available to farmers are not very effective in resolving
serious and almost chronic cash flow problems. Many protective responses in production and
marketing, for example, are short term options designed to maintain or stabilize production
levels or prices within the production year. They are important for these purposes, but may
not help much in dealing with financial crisis situations.
The purpose of this study is to evaluate the financial consequences of various policy
options and strategies that farmers might follow in responding to the financial stresses of the
mid-1980s. The analysis is a longer term one, focusing on, a three to five year horizon that
likely is needed for a reasonable transition from the current adversities toward improved
economic conditions in the future. The major evaluative criteria include the impacts of
alternative policy response mechanisms on the profitability, liquidity, solvency, and risk
positions of these farm businesses. The results of the analysis are intended to provide an
information base for understanding the dimensions of financial stress problems in North
Florida agriculture, the effectiveness of alternative strategies for responding to stress, and the
longer term performance prospects for farms in the area. In turn, this information base should
prove useful in analyzing the effects of alternative farm policies and credit programs.
FARM FINANCIAL SIMULATION PROCEDURES
The financial analysis in this study is conducted with the aid of a computerized
simulation model that projects the financial performance of a farm business over a four year
period. The model, called the Farm Financial Simulation Model (FFSM), was designed
specifically for use in a regional project study of which this analysis is a component
(Schnitkey, Barry, and Ellinger). Its purpose is to simulate the financial structure and
performance of a farm business over a transition period of four years with an emphasis placed
on the farm's financial components. Included among these components are the purchases and
sales of farm assets, financing terms, debt management, cash flows, tax obligations,
consumption levels, and growth rates. The financial emphasis makes the model applicable to a
broad range of farm types and other structural characteristics. In addition considerable detail
is allowed in the specification of production and marketing activities for crops and livestock.
These specifications of the FFSM allow a comprehensive assessment of a farm's
profitability, liquidity and solvency position based on simulated results reported in terms of a
set of coordinated financial statements. Included are a balance sheet, an income statement,
and statements for changes in net worth and fund availability. Also included in the model
output is a summary report containing financial ratios in each of the four years for the farm's
profitability, liquidity, and solvency. The financial measures are reported on a current market
value basis for the various classes of assets and can either include or exclude the effects of
contingent tax obligations. A detailed description of the model is available in Schnitkey, et.
al.
Basic Farm Description
The base farm modeled in this study is a mixed crop and livestock farm typical of the
Coastal Plains region of North Florida. Structural, production and financial values were
developed by a committee of farm management extension specialists.
The base farm is a 250 acre, owner-operated crop-livestock farm. Normal acreage includes
60 acres of peanuts, 100 acres of soybeans, and 60 acres of corn. In addition, a 40 cow herd
of beef cows is maintained.
The farmer participates in the government peanut and feed grain programs. The farm is
restricted to 30 acres of quota peanuts and grows 30 acres of additional. The feed grain
program reduces corn acreage by 17.5%. Deficiency payments are estimated to total $2847 in
1986 and 1987, $2488 in 1988, and $2115 in 1989. These calculations are based on a 60 acre
corn base, 65 bushel program yield, a $3.03 target price, and estimated market prices of $2.24,
$2.24, $2.33, and $2.42 in 1986 through 1989 respectively.
Other non-market sources of income include $1500 per year from custom work and
$10,000 per year of non-farm income. Family living expenses are assumed to be $10,000 in year
one and grow at the rate of 4% per year after that.
Average yields for this farm are 3500 lbs. per acre for quota peanuts, 2800 lbs. per acre
for additional, 65 bu. per acre for corn, and 25 bu. per acre for soybeans. Year one total
direct crop expenses per acre total $346 for quota peanuts, $219 for additional, $137 for corn,
and $129 for soybeans. Unallocated cash operating expenses total $10,840.
Machinery investment amounts to $160 per acre or $40,000 on a market value basis. A
$30 per acre replacement cost is assumed for new machinery and buildings purchases. A 25%
down payment is required on new machinery and building purchases. The balance is financed
on a five year constant principal note. Seven year straight line depreciation is assumed for all
machinery.
Brood cows are valued at $342 per head. Six year straight line depreciation is used. A
78% calf crop (includes pasture costs), a 10% cow replacement rate and a 2.5% cow death loss
are assumed. The calves are sold at weaning at an average value of $243.75. Non-feed costs
per breeding animal in year one are $34 and feed costs are $157.20.
Land is valued at $750 per acre. Buildings have a market value of $40,000. The initial
cash on hand is $2500. No storage facilities are available, so no crop inventories are
maintained.
Description of Scenarios
A variety of combinations of economic forecasts, beginning leverage positions, and
financial stress-relief policies were analyzed. Three economic outlooks were considered
including a most likely or base case, an optimistic outlook, and a pessimistic forecast.
Similarly, three beginning leverage positions were investigated: strong (20% debt to asset
ratio), stressed (40% debt to asset ratio), and extreme stress (70% debt to asset ratio). Table
1 reports the beginning balance sheet values for the three different leverage positions.
Seven policy options designed to reduce the financial pressure on the stressed and
extremely stressed cases were evaluated. The seven financial policy options are a 35% debt
reduction, a 35% equity infusion, a 2% interest rate write down, a two year deferral on all
loan interest and principal payments, sale of assets (land), sale of assets (land) with lease
back, and sale of livestock.
Economic Forecasts
The baseline economic scenarios were provided by the Food and Agricultural Policy
Research Institute (FAPRI) (Womack and Young). Some adjustments were made to reflect local
market conditions. Table 2 provides a summary of the economic variables input into the model.
Table 1: Beginning balance sheets at specified leverage positions.
Beginning balance sheets Low Medium High
ASSETS
Current Assets
Cash 2500 2500 2500
Marketable securities 0 0 0
Inventories
grain 0 0 0
livestock 0 0 0
Prepaid expenses 0 0 0
Investment in growing crop 0 0 0
Total Current Assets 2500 2500 2500
Intermediate Assets
Breeding stock 13680 13680 13680
Machinery 40000 40000 40000
Retirement accounts 0 0 0
Other 0 0 0
Total Intermediate Assets 53680 53680 53680
Fixed Assets
Building 40000 40000 40000
Land 187500 187500 187500
Other 0 0 0
Total Fixed Assets 227500 227500 227500
Total Assets 283680 283680 283680
LIABILITIES
Current loans 0 19375 38950
Inventory financing 0 0 0
Accounts payable 0 0 0
Accrued intermediate 0 533 1071
Accrued taxes 0 0 0
Current of interest and long 4474 8452 14690
Contingencies 0 0 0
Total Current Liabilities 4474 28360 54712
Intermediate loans 8571 25714 47143
Contingencies -1246 -1246 -1246
Total Intermediate Liabilities 7325 24468 45897
Long term loans 42635 58333 95667
Contingencies 2310 2310 2310
Total Long Term Liabilities 44945 60643 97977
Total Liabilities 56744 113472 198585
Net worth with contingencies 226936 170208 85095
Net worth without contingencies 228000 171272 86159
Table 2. Base economic variables.
---------------------Year----------------------
1986 1987 1988 1989
Commodity Prices
Peanuts (lb.) $ .23 $ .24 $ .25 $ .27
Corn (bu.) $2.30 $2.30 $2.39 $2.49
Soybeans (bu.) $5.10 $5.10 $5.36 $5.62
Interest Rate 11% 11% 11% 11%
Growth Rates in Percent
Production expenses 0.0 1.0 2.0 4.0
Overhead expenses 0.0 1.0 2.0 4.0
Machinery -10.0 -9.0 -11.0 -9.0
Buildings 0.0 0.0 0.0 0.0
Land 0.0 0.0 0.0 0.0
Family living 0.0 4.0 5.0 5.0
Purchased machinery 0.0 5.0 3.0 5.0
The optimistic and pessimistic economic scenarios were modeled by changing gross
revenues and land values. For the optimistic scenario, gross revenues and land values were
increased 20% over base levels. The pessimistic scenario was implemented by reducing gross
revenues and land values by 10% from the base. The increase in gross revenues was modeled
as a change in other farm income. The increase in land values was implemented during the
first year and thus does not affect the beginning balance sheet.
No single scenario is advanced to explain either the optimistic or pessimistic outlooks.
The changes were implemented in a manner consistent with a number of possible rationales
including: differing resource quality, differing management ability, or a change in the economic
outlook. This approach allows the results to be interpreted in a number of possible contexts.
Policy Options Input Adjustments
Debt Reduction and Equity Infusion
The intent of the debt reduction option was to decrease the farm's initial indebtedness
by 35% across all debt types. This strategy was implemented for the 40% leverage case by
reducing beginning short term liabilities by $22003, intermediate liabilities by $8571, and long
term liabilities by $9333.
The equity infusion option refers to the direct infusion of capital to reduce existing
indebtedness. This strategy is implemented by directly reducing short, intermediate, and long
term debt by 35%. This option differs from the debt reduction only in the tax treatment of
the proceeds. In the case of debt forgiveness the reductions are treated as taxable income,
whereas the direct equity infusions would not be taxable. For this particular example the
differences would be minimal for two reasons. First, there is no state income tax. Second,
with 40% or 70% leverage positions the net farm income is negative thus federal income taxes
would be zero.
Reduction in Interest Rates
Interest rates on all outstanding debt were reduced by 35% from 11% to 7.15%. This
option represents a possible government interest rate buydown.
Deferral of Debt Obligations
All scheduled payments of principal and interest were deferred for two years. There was
no accrual of interest in the interim. All payments commence in the third year at the original
payment plan. All interest payments on capital purchases made in years 1 and 2 were also
deferred until year 3.
The original and revised debt payment schedules are given in Table 3.
Table 3. Debt repayment schedules for the base and debt deferral options.
40% Leverage Case
Original debt schedule
Adjusted debt schedule
70% Leverage Case
Original debt schedule
Adjusted debt schedule
----------------Year------
1986 1987 1988
$25197 $26993 $28852
1157 2314 25468
$40877 $43844 $47011
1157 2314 40493
---------------
1989
$30740
26676
$50354
43245
Asset Sales No Lease Back
This restructuring option involves the sale of 35% of the farm's initial assets. This was
implemented by selling 125 acres of land at $750 per acre or $93750 and $8000 of machinery.
The proceeds from the asset sales were used to reduce outstanding debt.
Asset Sales Lease Back
This option involved selling 35% of the initial assets and then leasing back the assets
that were sold. This plan was implemented by selling 125 acres of land at $750 per acre or
$93750. No machinery sales are assumed. The land is leased back at $10 per acre cash rent.
Livestock Asset Sales No Lease Back
This restructuring option involved the sale of all livestock. This option was implemented
by selling the 40 brood cows for $342 per head or $13680. No other asset sales are assumed.
9
RESULTS AND DISCUSSION
The results of the fifteen scenarios evaluated are summarized, compared, and some
general implications are drawn1. Results presented include net income, net cash farm income,
non-farm income, return on assets, return on equity and the debt to asset ratio. Values are
presented for years 1 and 4 to provide some insight into the change in financial position over
time. Detailed financial outputs for each of the scenarios are provided in the appendix.
Alternative Economic Forecasts
The financial outlook for this farm under the baseline economic forecast is not very
encouraging. Net income including the $10000 of non-farm income, is only $830 in 1986 and
falls to $ -1506 in 1989 (Table 4). The rate of return on assets is 6% but with 11% interest
and 40% leverage, the return on equity is zero. The operator is clearly in a holding pattern,
living off of depreciation and non-farm income. Meanwhile the farm's leverage position slowly
erodes.
Not surprisingly, the pessimistic economic forecast is disastrous. The rate of return on
assets is only 3% and the rate of return on equity ranges from negative five to negative
twelve percent (Table 4). Net income ranges from -$7732 to -$14313. The farmer is forced to
live off of borrowed money; as a result the debt to asset ratio rapidly deteriorates in four
years from .46 to .63.
The optimistic case presents a relatively bright picture. The rate of return on assets is
in the neighborhood of the opportunity cost of capital at 10%, and the farm's net income
ranges from roughly $17000 to $22000 ( Table 4). The farm's equity position improves over
time as the debt to asset ratio falls from .30 to .20.
1Sixty-three scenarios were simulated (3 beginning leverage ratios 3 economic outlooks
* 7 policy options). Fifteen were chosen for inclusion in the report, the results of the others
are available from the authors.
Table 4: Financial summary measure for the base farma/
under three economic forecasts
----------------------Economic Forecast----------------------
Base Pessimistic k/ Optimistic ./
1986 1989 1986 1989 1986 1989
Net income ($)
Net income after gain ($)
Net cash farm income ($)
Non-farm income ($)
830
7580
1850
10000
Return on assets (%) .06
Return on equity no gain (5) 0.0
Return on equity with gain (%) .04
Debt-asset ratio .41
-1506
9327
3485
10000
.06
-.01
.06
.45
-7732
-19732
-6712
10000
.03
-.05
-.12
.46
-14313
-3480
-9323
10000
.03
-.12
-.03
.63
17021
61271
18041
10000
.11
.10
.36
.30
Aj/ 40 % debt to asset ratio, no policy option.
j/ Gross revenue and land values were reduced 10 percent.
g/ Gross revenue and land values were increased 20 percent.
22232
33065
27222
10000
.10
.09
.13
.20
Alternative Beginning Leverage Positions
The baseline analysis assumes a beginning leverage ratio of approximately 40%. As was
indicated earlier, under the most likely economic outlook this results in a "holding on"
situation where the rate of return on equity is zero and the debt to asset ratio slowly
deteriorates. As would be expected, a beginning leverage ratio of 70% spells doom under the
current economic outlook (Table 5). The rate of return on equity ranges from negative eleven
to negative thirty-three percent and net income ranges from negative $9000 to negative
$15000. The farmer is forced to live off of borrowed money and rapidly approaches bankruptcy
as the debt to asset ratio reaches 90%. This situation resembles the 40% leverage case under
the pessimistic forecast in terms of net income and returns on equity. The main difference is
that with 70% leverage to begin with, the farmer has less time before technically reaching
insolvency.
On the other hand, a beginning leverage position of 20% greatly improves the financial
outlook. Net income is approximately $7400 and the return on equity, while meager, is at least
positive (Table 5). As a result, the farmer is able to slightly improve his debt to asset ratio
and clearly can weather the current period of stress.
Policy Options that Modify Debt Parameters
The interest rate reduction, debt reduction, and debt deferral policy options were
designed to modify debt parameters in a manner that would improve the farm's chances of
weathering the next four years. The reduction in interest rates from 11% to 7.15% significantly
improves the farm's financial condition (Table 6). Net income rises, the return on equity
increases, and the debt to asset ratio falls slightly. As a result, the farmer is better able to
weather the next four years and looks to be in reasonable shape if the lower interest rates
prevail in the future.
Table 5: Financial summary measures for three beginning
leverage positions
----------------Beginning Leverage Position-------------------
High a/ Base B/ Low A/
1986 1989 1986 1989 1986 1989
Net income ($)
Net income after gain ($)
Net cash farm income ($)
Non-farm income ($)
Return on assets (%)
Return on equity no gain (5)
Return on equity with gain (W)
Debt-asset ratio
-9063
-2313
-8042
10000
.06
-.11
-.03
.74
-15436
-4603
-10446
10000
.06
-.33
-.10
.90
830
7580
1850
10000
.06
0.0
.04
.41
-1506
9327
3485
10000
.06
-.01
.06
.45
7329
14079
8349
10000
.06
.03
.06
.19
&/ Beginning debt to asset ratio
I/ Beginning debt to asset ratio
A/ Beginning debt to asset ratio
of 70 percent.
of 40 percent.
of 20 percent.
7523
18356
12514
10000
.06
.03
.08
.17
- -"I--`----
Table 6: Financial summary measures for the interest rate
reduction, debt reduction and debt deferral policy options.
-----------------------Policy Option-------------------------
Interest rate Debt Debt
reduction A/ Reduction b/ Deferral S/
1986 1989 1986 1989 1986 1989
Net income ($) 6502 6429 5478 5019 16598 2845
Net income after gain ($) 13252 17262 12228 15852 23348 13678
Net cash farm income ($) 7523 11416 6498 10019 17618 7835
Non-farm income ($) 10000 10000 10000 10000 10000 10000
Return on assets (%) .06 .06 .06 .06 .06 .06
Return on equity no gain (%) .04 .03 .03 .02 .10 .01
Return on equity with gain (%) .08 -.09 .06 .07 .14 .07
Debt-asset ratio .39 .35 .25 .23 .35 .31
Interest rates reduced from
Debt levels were reduced by
11 percent to 7.15 percent on all debt.
35 percent.
g/ Two year deferral on all principal and interest payments (See Table 3).
The 35% debt reduction strategy--either through debt forgiveness. or equity infusion--
significantly improves the financial position of the firm (Table 6). The debt to asset ratio falls
to .25 as a result of the debt reduction and the financial performance of the firm is very
similar to the low beginning equity case. The return on equity is still rather low, but the firm
is clearly in good enough shape to weather the current period of stress.
The debt deferral option appears to be a viable strategy if the economic outlook
improves in the next two to four years. During the two year deferral period, net income,
returns to equity, and the leverage ratio all dramatically improve (Table 6). However, once
debt payments commence the financial picture rapidly deteriorates again. The key to success is
an improved economic outlook at the end of the deferral period, otherwise the policy merely
prolongs the "holding on" capability.
Policy Options Based on Asset Sales
Three policy options used asset sales to reduce debt levels. As indicated in Table 7, the
two options based on the sale of land dramatically improved the farm's financial outlook. Net
income rose to over $10000, the rate of return on equity increased significantly, and the debt
to asset ratio fell to roughly 10%. These options clearly move the farm from the "holding on"
category to a reasonably secure category.
The livestock sale restructuring option results in a more modest improvement in the
financial outlook relative to the base case. Net income and returns to equity improve
modestly, and the debt to asset ratio drops in response to the asset liquidation (Table 7).
Overall, the farm is in a better position to weather a period of stress, but the farmer is still
living off of depreciation and non-farm income.
Table 7: Financial summary measures
for the three asset sales policy options.
----------------------Policy Option--------------------------
Asset sale with Asset sale Livestock sale
lease back a/ no lease back b/ no lease back j/
1986 1989 1986 1989 1986 1989
Net income ($)
Net income after gain ($)
Net cash farm income ($)
Non-farm income ($)
Return on assets (%)
Return on equity no gain (%)
Return on equity with gain (%)
Debt-asset ratio
9815
16565
10835
10000
.05
.06
.09
.14
10166
20998
15155
10000
.07
.05
.11
.11
16742
28607
18263
10000
.07
.10
.17
.11
17362
28289
22352
10000
.08
.08
.13
.09
4541
11291
5791
10000
.06
.03
.07
.36
A/ Sell 125 acres of land for $93750 and
./ Sell 125 acres of land for $93750 and
Q/ Sell 40 head of beef cows for $13680.
$8000 of machinery,
lease it back for $10 per acre.
4805
15638
9805
10000
.07
.03
.09
.35
- I -- I-- I I I I --II" I--~--
Policy Options that Modify Debt Parameters 70% Leverage Case
As indicated previously, the high beginning leverage case farm rapidly approaches
bankruptcy under the most likely economic scenario. The question is whether any of the policy
options can rescue a farm with this degree of financial stress. A reduction in interest rates
from 11% to 7.15% provides some improvement over the base case. Although net income
remains negative, the farmer is nearly able to make ends meet by living off of depreciation
and nonfarm income (Table 8). As a result, the return on equity is only slightly negative and
the deterioration in the debt to asset ratio is nearly controlled. Clearly the interest rate
reduction option doesn't "rescue" the highly leveraged farm, but it does allow him to hold on
for another four years.
The two year debt deferral option provides a brief respite. During the two deferral years
net income soars to over $16000 and the return on equity reaches nearly 20% (Table 8).
However, once debt payments commence again, the firm sustains net losses of over $8000 and
loses equity at a rate of 8% per year. In effect, the debt deferral option has bought the farm
another four years. Under the debt deferral option the debt to asset ratio is still in the
neighborhood of 70% in 1989 rather than having climbed to 90% as in the high leverage base
case. However, ultimate success depend on an improvement in the economic outlook by 1990
otherwise the financial position of the firm will rapidly deteriorate.
The 35% debt reduction option either through debt forgiveness or equity infusion reduces
the debt to asset ratio to .45. This option in effect converts the highly leveraged firm into
the base firm.
Policy Options Based on Asset Sales 70% Leverage Case
The asset sale without lease back option effectively "rescues" the highly leveraged firm.
Net income rises to approximately $9000, and the return on equity is a solid 8% or higher
(Table 9). The sale of assets with the associated debt liquidation reduces the debt to asset
17
Table 8: Financial summary measures for the base, interest rate reduction,
and debt deferral options under high leverage conditions. a/
Base Interest rate Debt
reductions h./ deferral c/
1986 1989 1986 1989 1986 1989
Net income ($) -9063 -15436 -172 -1475 16598 -8119
Net income after gain ($) -2313 -4603 6922 9358 23348 2714
Net cash farm income ($) -8042 -10446 1192 3616 17618 -3129
Non-farm income ($) 10000 10000 10000 10000 10000 10000
Return on assets (%) .06 .06 .06 .06 .06 .06
Return on equity no gain (%) -.11 -.33 0.0 -.02 .19 -.08
Return on equity with gain (%) -.03 -.10 .08 .12 .27 .03
Debt-asset ratio .74 .90 .71 .74 .65 .67
a/ Beginning debt to asset ratios were 70 percent.
./ Interest rates were reduced from 11 percent to 7.15 percent on all debt.
_/ All principal and interest payments were deferred for two years (See
Table 3).
ratio to .49 by the end of the first year. The debt to asset ratio continues to improve over
time in response to the favorable rate of return on equity.
The asset sale with lease back option merely buys time for the highly leveraged firm.
The sale of land quickly reduces the debt to asset ratio to .56 and significantly reduces the
rate of deterioration in the ratio over time (Table 9). However, by 1989 net income is negative
and the rate of increase in the debt to asset ratio is accelerating. The ultimate success of
this option depends on the economic outlook beginning in 1990.
The restructuring option involving the sale of livestock has little impact on the highly
leveraged firm. Net income remains between negative $5000 and negative $9000 (Table 9). The
farmer is still forced to live off of borrowed money and as a consequence the debt to asset
ratio increases to .82 (Table 9).
Table 9: Financial summary measures for the three asset sales
policy options under high leverage conditions. a/
-----------------------Policy Option--------------------------
Asset sale Asset sale Livestock sale
lease back b/ no lease back Q/ no lease back I/
1986 1989 1986 1989 1986 1989
Net income ($)
Net income after gain ($)
Net cash farm income ($)
Non-farm income ($)
358
7108
1378
10000
Return on assets (M) .05
Return on equity no gain (%) 0.0
Return on equity with gain (%) .08
Debt-asset ratio .56
-2257
8576
2733
10000
.08
-.03
.11
.63
9694
21558
9180
10000
.08
.11
.25
.49
8716
19643
13706
10000
.11
.08
.18
.40o
-5339
1411
-4089
10000
.06
-.06
.02
.71
Beginning debt to asset ratios of 70 percent.
Sell 125 acres of land for $93750 and $8000 of
Sell 125 acres of land for $93750 and lease it
Sell 40 head of beef cows for $13680.
machinery.
back for $10 per acre.
-9110
1723
-4110
10000
.07
-.15
.03
.82
CONCLUSIONS
The base farm analysis clearly supports observed conditions in the study area.
Agricultural land values have declined roughly 10% in the past year. Average land without a
peanut allotment or feed grain base is either sitting idle or being offered for rent at $10 or
less per acre. Soybean acreage in Florida was down 30% in 1985 and declined by another 26%
in 1986. The government peanut and feed grain programs provide the only reasonable income
prospects under current economic conditions.
Given the conditions, it is not too surprising to find that the typical or base farm is
essentially "holding on" under the current economic outlook. Farms with lower leverage ratios
(20% or so) either as a beginning condition or as the result of asset sales or debt reduction
appear to be in reasonably good shape under the most likely economic forecast. Likewise
farmers with above average land and management can likely survive in relatively good shape
even with leverage ratios of 40%.
For average farms with a beginning leverage ratio of roughly 40%, the debt deferral,
interest rate write down, and livestock sale policy options merely buy time". The ultimate
success of these policies depends upon an improvement in the economic outlook by 1990.
The below average farmer in terms of land and marketing skills or the average farmer
under pessimistic conditions is in real trouble. Likewise an average farmer with a beginning
debt to asset ratio of 70% is in real trouble under the most likely economic forecast.
The only policy option that effectively rescues the highly leveraged farmer is the asset
sale without lease back option. The asset sale with lease back, interest rate reduction and in
particular the debt deferral options "buy some time" but more than time will be needed to
save these farms. The economic outlook will have to significantly improve if these farms are
ultimately to survive. With a beginning debt to asset ratio of 70%, the livestock sale option is
"too little, too late".
REFERENCES
Anaman, Kwabena A. EconomicAnalsiof Fam-Firm Management Risk in North Florida.
Ph.d. Dissertation. University of Florida. 1985.
Economic Research Service, U.S.D.A. Financial Characteristics of U.S. Farms January 1,
1986. AIB Report 500. July 1986.
Schnitkey, Gary D., Peter J. Barry and Paul N. Ellinger. Farm Financial Simulation Model:
Documentation and User Guidelines. Department of Agricultural Economics Working
Paper. University of Illinois. 1986.
Womack, A.W. and R.E. Young III. An Analysis of the U.S. House of Representatives 1985
Farm Bill. FAPRI Staff Report #10-85. December 1985.
APPENDIX
Detailed Financial Summaries of the Various Scenarios
BASE ECONOMIC FORECAST, 40% LEVERAGE CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 830 -788 -581 -1506
Net income after gain 7580 8617 8564 9327
Net income from operations 6598 5704 6640 6498
Cash income from operations 11903 13489 15524 16505
Maximum current loan 63503 73965 85892 99605
Changes in net worth with cont. -3768 -2605 -3833 -3219
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
0.0882
2.1939
3.7514
0.4000
0.0585
0.1237
0.0049
0.0445
0.0061
2.5292
3.8935
0.4148
1.05
3.21
14.97
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0585
Return on debt 0.1248
Return on equity without gain 0.0048
Return on equity with gain 0.0443
Current ratio 0.0882 0.0061
Intermediate ratio 2.0876 2.3527
Fixed ratio 3.9000 4.1746
Debt to asset ratio 0.3962 0.4063
NA denotes a ratio that is infinite
0.0552
0.1244
-0.0047
0.0518
0.0047
2.8481
4.1480
0.4308
0.95
3.08
13.69
0.0552
0.1270
-0.0047
0.0510
0.0047
2.7078
4.4835
0.4195
0.0578
0.1236
-0.0035
0.0523
0.0083
3.3624
4.3985
0.4492
0.97
2.99
14.48
0.0578
0.1269
-0.0035
0.0513
0.0083
3.2616
4.8693
0.4330
0.0568
0.1228
-0.0094
0.0583
0.0112
3.7912
4.7030
0.4669
0.92
2.92
13.99
0.0568
0.1274
-0.0091
0.0566
0.0112
3.8643
5.2731
0.4473
OPTIMISTIC ECONOMIC FORECAST, 40% LEVERAGE CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 17021 17713 20467 22232
Net income after gain 61271 27118 29613 33065
Net income from operations 21703 21196 22702 23157
Cash income from operations 11903 13489 15524 1I501
Maximum current loan 55633 48786 40870 32059
Changes in net worth with cont. 46371 14441 16079 20107
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets 0.1118 0.0969 0.1005 0.0986
Return on debt 0.1152 0.1139 0.1155 0.1092
Return on equity without gain 0.1000 0.0818 0.0886 0.0900
Return on equity with gain 0.3600 0.1252 0.1282 0.1338
Current ratio 0.0882 0.0108 0.0165 0.6596 1.6962
Intermediate ratio 2.1939 2.5613 2.9067 3.4025 3.7641
Fixed ratio 3.7514 -4.2537 4.3951 4.5610 4.8305
Debt to asset ratio 0.4000 0.3272 0.2899 0.2649 0.2380
Interest coverage ratio 2.16 2.31 2.67 3.03
Cash flow coverage ratio 3.30 3.40 3.57 3.74
Debt to income ratio 1.85 3.88 3.18 2.69
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.1118 0.0969 0.1005 0.0986
Return on debt 0.1162 0.1208 0.1265 0.1243
Return on equity without gain 0.0994 0.0796 0.0855 0.0862
Return on equity with gain 0.3577 0.1219 0.1238 0.1282
Current ratio 0.0882 0.0108 0.0166 0.6631 1.7067
Intermediate ratio 2.0876 2.3527 2.7078 3.2616 3.8643
Fixed ratio 3.9000 4.8552 5.2066 5.6463 6.1057
Debt to asset ratio 0.3962 0.3087 0.2645 0.2326 0.2028
NA denotes a ratio that is infinite
PESSIMISTIC ECONOMIC FORECAST, 40% LEVERAGE CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income
Net income after gain
Net income from operations
Cash income from operations
Maximum current loan
Changes in net worth with cont.
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0882
2.1939
3.7514
0.4000
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
-7732
-19732
-1390
11903
67739
-29317
0.0304
0.1282
-0.0454
-0.1159
0.0050
2.4575
3.7257
0.4697
0.53
3.17
-5.75
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0304
Return on debt 0.1294
Return on equity without gain -0.0451
Return on equity with gain -0.1152
Current ratio 0.0882 0.0050
Intermediate ratio 2.0876 2.3527
Fixed ratio 3.9000 3.8343
Debt to asset ratio 0.3962 0.4672
NA denotes a ratio that is infinite
-10573
-1168
-2477
13489
88108
-12802
0.0283
0.1291
-0.0750
-0.0083
0.0107
2.8481
3.9076
0.5248
0.42
2.93
-106.81
0.0283
0.1298
-0.0747
-0.0083
0.0107
2.7078
4.1219
0.5178
-11787
-2642
-1790
15524
111228
-14366
0.0305
0.1258
-0.0920
-0.0206
0.0142
3.3476
4.2121
0.5827
0.41
2.76
-53.55
0.0305
0.1275
-0.0907
-0.0203
0.0142
3.2616
4.4808
0.5728
-14313
-3
-2194
16505
137828
-16474
0.0: ,-,.
0.12, .'
-0.1).. '
-0.0306
0.0168
3.7912
4.4711
0.6483
0. 1
2.60
-45.63
0.0286
0.1261
-0.1230
-0.0299
0.01 a5.
3.8643
4.8568
0.6330
BASE ECONOMIC FORECAST, 20% LEVERAGE CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 7329 6451 7491 7523
Net income after gain 14079 15856 16637 18356
Net income from operations 6598 5704 6640 6498
Cash income from operations 11903 13489 15524 1650:
Maximum current loan 42470 41862 41937 42918
Changes in net worth with cont. 2730 4635 4239 5810
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets 0.0585 0.0545 0.0568 0.105,
Return on debt 0.1454 0.1409 0.1392 0.1377
Return on equity without gain 0.0323 0.0281 0.0320 0.0315
Return on equity with gain 0.0620 0.0690 0.0710 0.0770
Current ratio 0.5588 0.5780 0.6524 0.7196 0.8135
Intermediate ratio 7.3280 7.5927 6.9619 7.0668 6.8392
Fixed ratio 5.0618 5.1690 5.4584 5.7187 6.0606
Debt to asset ratio 0.2000 0.2029 0.1998 0.1957 0.1865
Interest coverage ratio 1.79 1.70 1.82 1.84
Cash flow coverage ratio 5.43 5.18 5.05 4.96
Debt to income ratio 4.03 3.69 3.52 3.16
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0585 0.0545 0.0568 0.0556
Return on debt 0.1482 0.1469 0.1473 0.1498
Return on equity without gain 0.0321 0.0278 0.0315 0.0309
Return on equity with gain 0.0617 0.0683 0.0700 0.0755
Current ratio 0.5588 0.5815 0.6558 0.7236 0.8184
Intermediate ratio 6.2627 6.1971 6.1794 6.6356 7.0807
Fixed ratio 5.3360 5.6765 6.0545 6.5410 7.0418
Debt to asset ratio 0.1963 0.1945 0.1887 0.1798 0.1672
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 70% LEVERAGE CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Ye-.- 4
Net income -9063 -11884 -13016 -154.-h
Net income after gain -2313 -2479 -3870 -4603
Net income from operations 6598 5704 6640 6498
Cash income from operations 11903 13489 15524 l15tb
Maximum current loan 84753 112258 142822 177327
Changes in net worth with cont. -13661 -13701 -16267 -17149
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
0.0457
1.1696
2.3220
0.7000
0.0585
0.1150
-0.1065
-0.0272
0.0117
1.3794
2.4536
0.7495
0.65
1.98
-85.87
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0585
Return on debt 0.1156
Return on equity without gain -0.1052
Return on equity with gain -0.0268
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0457
1.1387
2.3780
0.6963
0.0117
1.3252
2.5623
0.7410
0.0551
0.1149
-0.1664
-0.0347
0.0151
1.6381
2.6405
0.8004
0.57
1.90
-86.18
0.0551
0.1162
-0.1609
-0.0336
0.0151
1.5907
2.7726
0.7892
0.0575
0.1140
-0.2254
-0.0670
0.0172
2.0314
2.8395
0.8582
0.56
1.84
-59.82
0.0575
0.1156
-0.2135
-0.0635
0.0172
1.9941
3.0285
0.8421
0.1133
-0.
-0.11
0.019 9
2. % .
3.3013
0.9.1"
0 ..
0.1154
-0.3343
-0.0997
0. 0 !.iA
2.4768
3.3016
0.8963b
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 40% LEVERAGE, 35% DEBT REDUCTION CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 5478 4413 5245 :'19
Net income after gain 12228 13818 14390 15:'
Net income from operations 6598 5704 6640 64/-
Cash income from operations 11903 13489 15524 IL -
Maximum current loan 42470 45807 50025 55369
Changes in net worth with cont. 880 2597 1993 3306
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.3933
3.3768
4.4338
0.2593
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.3933
3.1313
4.6429
0.2556
0.0585 0.0552 0.0578
0.1345 0.1369 0.1366
0.0261 0.0209 0.0246
0.0582 0.0655 0.0674
0.0263
3.7945
4.5629
0.2581
1.49
4.34
6.02
0.0585
0.1365
0.0259
0.0579
0.0265
3.4106
4.9538
0.2496
0.0183
4.0424
4.8386
0.2579
1.39
4.18
5.31
0.0552
0.1415
0.0207
0.0648
0.0184
3.7656
5.3013
0.2466
0.0145
4.5567
5.0982
0.2572
1.46
4.08
5.16
0.0578
0.1429
0.0242
0.0664
0.0146
4.3734
5.7417
0.2409
NA denotes a ratio that is infinite
0. 69
0. 33
0.0735
0. '
4.0 "
5.4: ;
0. '.-, 14
1.44
4.01
4.71
0.1461
0 ,
0.
4..
6.1987
0.2 :
I
BASE ECONOMIC FORECAST, 40% LEVERAGE, 35% INTEREST RATE REDUCTION CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 6502 5574 6529 6429
Net income after gain 13252 14979 15674 17262
Net income from operations 6598 5704 6640 6498
Cash income from operations 11903 13489 15524 16505
Maximum current loan 62455 66843 71960 78061
Changes in net worth with cont. 1904 3757 3277 4716
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets 0.0585 0.0552 0.0578 0.0'^
Return on debt 0.0793 0.0804 0.0805 0.,(08
Return on equity without gain 0.0382 0.0323 0.0371 0.0358
Return on equity with gain 0.0778 0.0869 0.0890 0.0963
Current ratio 0.0887 0.0073 0.0063 0.0058 0.0056
Intermediate ratio 2.1939 2.5292 2.8481 3.3624 3.7912
Fixed ratio 3.7514 3.8935 4.1480 4.3985 4.7030
Debt to asset ratio 0.3993 0.3942 0.3883 0.3821 0.3730
Interest coverage ratio 1.64 1.55 1.65 1.64
Cash flow coverage ratio 4.11 3.99 3.93 3.89
Debt to income ratio 8.55 7.48 7.13 6.42
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0585 0.0552 0.0578 0.0568
Return on debt 0.0801 0.0822 0.0829 0.0844
Return on equity without gain 0.0379 0.0319 0.0364 0.0349
Return on equity with gain 0.0773 0.0857 0.0874 0.0938
Current ratio 0.0887 0.0073 0.0063 0.0058 0.005r
Intermediate ratio 2.0876 2.3527 2.7078 3.2616 3.8643
Fixed ratio 3.9000 4.1746 4.4835 4.8693 5.2731
Debt to asset ratio 0.3956 0.3857 0.3771 0.3658 0.3533
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 40% LEVERAGE, 2 YEAR DEBT DEFFERAL CASE-
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 16598 15704 3096 2845
Net income after gain 23348 25109 12241 13678
Net income from operations 6598 5704 6640 6498
Cash income from operations 11903 13489 15524 16505
Maximum current loan 60554 46250 33445 43213
Changes in net worth with cont. 11999 13888 -156 1132
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets 0.0585 0.0552 0.0553 0.0557
Return on debt 0.0000 0.0000 0.1156 0.1217
Return on equity without gain 0.0972 0.0859 0.0157 0.0145
Return on equity with gain 0.1367 0.1374 0.0623 0.0696
Current ratio 0.1290 0.0539 1.1120 0.4804 0.0176
Intermediate ratio 1.8669 1.8064 1.9735 2.2060 2.4252
Fixed ratio 3.5103 3.4121 3.6111 3.8050 4.0403
Debt to asset ratio 0.3981 0.3575 0.3465 0.3369 0.3269
Interest coverage ratio NA NA 1.23 1.21
Cash flow coverage ratio 69.96 35.91 3.39 3.36
Debt to income ratio 4.84 4.05 8.52 7.30
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0585 0.0552 0.0553 0.0tO3'
Return on debt 0.0000 0.0000 0.1193 0.1278
Return on equity without gain 0.0966 0.0848 0.0155 0.0141
Return on equity with gain 0.1359 0.1356 0.0612 0.0680
Current ratio 0.1290 0.0544 1.1159 0.4822 0.0176
Intermediate ratio 1.7893 1.7146 1.9051 2.1622 2.4549
Fixed ratio 3.6400 3.6261 3.8627 4.1523 4.4539
Debt to asset ratio 0.3944 0.3490 0.3358 0.3210 0.3071
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 40% LEVERAGE, ASSET SALE--NO LEASE BACK CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income
Net income after gain
Net income from operations
Cash income from operations
Maximum current loan
Changes in net worth with cont.
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0882
2.1939
3.7514
0.4000
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on.equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0882
2.0876
3.9000
0.3962
16742
28607
12435
16140
13609
19536
0.0717
0.0260
0.0984
0.1681
3.7553
3.3110
78.8484
0.1137
6.25
8.04
3.97
0.0717
0.0262
0.0978
0.1670
3.7788
3.0036
NA
0.1131
18511
26432
11749
17934
3021
15647
0.1016
0.1184
0.0976
0.1393
6.6440
3.4911
48.4893
0.1039
6.72
8.26
0.92
0.1016
0.1190
0.0975
0.1392
6.6748
3.3409
82.9124
0.1016
18295
26769
11516
19601
0
15387
0.0939
0.1204
0.0891
0.1303
7.6642
4.0118
31.6060
0.0997
6.68
7.63
0.89
0.0939
0.1231
0.0888
0.1300
7.6952
3.9024
45.0115
0.0957
17362
28289
10603
20613
0
15267
0.0840
0.1180
0.0786
0.1281
10.4578
4.4708
20.9352
0.0962
6.36
7.07
0.86
0.0840
0.1229
0.0783
0.1276
10.5367
4.4936
32.4022
0.0865
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 40% LEVERAGE, ASSET SALE WITH LEASE BACK CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 9815 9009 10106 10166
Net income after gain 16565 18414 19251 20998
Net income from operations 5348 4442 5352 5158
Cash income from operations 10653 12227 14237 15166
Maximum current loan 33927 30246 26977 24399
Changes in net worth with cont. 7530 7513 7840 7912
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets 0.0541 0.0699 0.0715 0.0683
Return on debt 0.0434 0.1666 0.1584 0.1536
Return on equity without gain 0.0577 0.0507 0.0546 0.0526
Return on equity with gain 0.0973 0.1036 0.1039 0.1087
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0882
2.1939
3.7514
0.4000
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0882
2.0876
3.9000
0.3962
2.7612
2.4575
129.0246
0.1403
2.77
7.26
6.85
0.0541
0.0438
0.0573
0.0967
2.7731
2.3527
NA
0.1399
NA denotes a ratio that is infinite
3.0360
2.7919
48.4893
0.1373
2.66
7.24
1.58
0.0699
0.1672
0.0507
0.1035
3.0472
2.7078
82.9124
0.1345
3.2755
3.3136
31.6060
0.1303
2.93
7.03
1.53
0.0715
0.1617
0.0544
0.1036
3.2865
3.2616
45.0115
0.1254
4.2967
3.8015
20.9352
0.1243
3.04
6.88
1.38
0.0683
0.1596
0.0524
0.1081
4.3244
3.8643
32.4022
0.1124
BASE ECONOMIC FORECAST, 40% LEVERAGE, LIVESTOCK SALE--NO LEASE BACK CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 4541 3724 4677 4805
Net income after gain 11291 13129 13822 15638
Net income from operations 8352 7791 8922 9180
Cash income from operations 15255 16944 19184 20565
Maximum current loan 45681 51931 58993 66943
Changes in net worth with cont. 1508 1513 2244 3392
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets 0.0647 0.0658 0.0691 0.0694
Return on debt 0.1083 0.1267 0.1259 0.1269
Return on equity without gain 0.0267 0.0217 0.0270 0.0274
Return on equity with gain 0.0663 0.0765 0.0798 0.0891
Current ratio 0.0882 0.0000 0.0000 0.0000 0.0000
Intermediate ratio 2.1939 1.8886 2.2735 2.7260 3.1763
Fixed ratio 3.7514 3.9982 4.1480 4.4601 4.7767
Debt to asset ratio 0.4000 0.3652 0.3676 0.3649 0.3604
Interest coverage ratio 1.33 1.26 1.33 1.33
Cash flow coverage ratio 3.68 3.07 3.04 3.02
Debt to income ratio 10.05 7.52 7.28 6.45
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0647 0.0658 0.0691 0.0694
Return on debt 0.1093 0.1278 0.1286 0.1304
Return on equity without gain 0.0265 0.0216 0.0267 0.0270
Return on equity with gain 0.0659 0.0761 0.0789 0.0878
Current ratio 0.0882 0.0000 0.0000 0.0000 0.0000
Intermediate ratio 2.0876 1.7587 2.0354 2.4500 2.9172
Fixed ratio 3.9000 4.1746 4.4835 4.8693 5.2731
Debt to asset ratio 0.3962 0.3621 0.3600 0.3551 0.3478
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 70% LEVERAGE, 35% INTEREST RATE REDUCTION CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 172 -1244 -812 -1475
Net income after gain 6922 8161 8333 9358
Net income from operations 6598 5704 6640 6498
Cash income from operations 11903 13489 15524 16505
Maximum current loan 83105 100520 119168 139342
Changes in net worth with cont. -4427 -3060 -4064 -3188
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
0.0460
1.1696
2.3220
0.6987
0.0585
0.0738
0.0020
0.0810
0.0076
1.3794
2.4536
0.7154
1.01
2.53
28.64
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0585
Return on debt 0.0742
Return on equity without gain 0.0020
Return on equity with gain 0.0800
Current ratio 0.0460 0.0076
Intermediate ratio 1.1387 1.3252
Fixed ratio 2.3780 2.5623
Debt to asset ratio 0.6950 0.7069
NA denotes a ratio that is infinite
0.0552
0.0741
-0.0154
0.1007
0.0092
1.6381
2.6405
0.7296
0.93
2.47
24.96
0.0552
0.0749
-0.0149
0.0978
0.0092
1.5907
2.7726
0.7184
0..0577
0.0738
-0.0104
0.1069
0.0104
2.0314
2.8395
0.7461
0.95
2.44
25.25
0.0577
0.0750
-0.0100
0.1026
0.0104
1.9941
3.0285
0.7299
0.0567
0.0737
-0.0200
0.1266
0.0115
2.4466
3.0686
0.7600
0.92
2.43
23.21
0.0567
0.0753
-0.0188
0.1190
0.0115
2.4768
3.3016
0.7404
BASE ECONOMIC FORECAST, 70% LEVERAGE, 2 YEAR DEBT DEFERRAL CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income 16598 15704 -6476 -8119
Net income after gain 23348 25109 2669 2714
Net income from operations 6598 5704 6640 6498
Cash income from operations 11903 13489 15524 16505
Maximum current loan 80129 65825 54066 80598
Changes in net worth with cont. 11999 13888 -9728 -9832
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
0.0642
0.9986
2.1706
0.6963
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0642
0.9760
2.2195
0.6925
0.0585
0.0000
0.1926
0.2710
0.0096
0.9852
2.1414
0.6548
NA
69.96
8.46
0.0585
0.0000
0.1903
0.2677
0.0097
0.9572
2.2238
0.6464
0.0552
0.0000
0.1600
0.2558
0.0093
1.1164
2.2857
0.6107
NA
35.91
7.42
0.0552
0.0000
0.1561
0.2496
0.0093
1.0942
2.3840
0.5994
0.0578
0.1171
-0.0578
0.0238
0.0049
1.2852
2.4371
0.6474
0.72
2.13
65.85
0.0578
0.1192
-0.0562
0.0232
0.0049
1.2702
2.5750
0.6312
0.0568
0.1166
-0.0793
0.0265
0.0092
1.4710
2.6105
0.6854
0.67
2.07
69.24
0.0568
0.1196
-0.0759
0.0254
0.0092
1.4819
2.7771
0.6657
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 70% LEVERAGE, ASSET SALE--NO LEASE BACK CASE
SUMMARY SHEET
Beg.
Net income
Net income after gain
Net income from operations
Cash income from operations
Maximum current loan
Changes in net worth with cont.
RATIO ANALYSIS WITH CONTINGENCIES
Return on assets
Return on debt
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0457
1.1696
2.3220
0.7000
Year 1 Year 2 Year 3 Year 4
9694
21558
12435
16140
66356
12540
0.0789
0.0568
0.1139
0.2533
0.0133
1.5402
13.2412
0.4855
Interest coverage ratio 1.77
Cash flow coverage ratio 3.08
Debt to income ratio 9.21
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0789
Return on debt 0.0571
Return on equity without gain 0.1125
Return on equity with gain 0.2502
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0457
1.1387
2.3780
0.6963
0.0133
1.4966
14.7554
0.4851
9229
17150
11749
17934
67665
6314
0.1146
0.1209
0.0945
0.1757
0.0129
1.8224
12.2.468
0.4622
1.74
3.07
5.37
0.1146
0.1210
0.0944
0.1755
0.0129
1.7806
13.6814
0.4595
9283
17757
11516
19601
68825
6375
0.1113
0.1219
0.0893
0.1708
0.0125
2.2461
11.6062
0.4366
1.76
3.08
5.03
0.1113
0.1226
0.0889
0.1700
0.0125
2.2114
13.0314
0.4316
8716
19643
10603
20611
70607
6620
0.1052
0.1238
0.0790
0.1780
0.0127
2.7106
10.3511
0.4130
1.73
3.10
4.35
0.1052
0.1252
0.0783
0.1765
0.0127
2.7189
12.5464
0.4003
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 70% LEVERAGE, ASSET SALE WITH LEASE BACK CASE
SUMMARY SHEET
Beg.
Net income
Net ircoim after gain
Net income from operations
Cash income from operations
Maximum current loan
Changes in net worth with cont.
RATIO ANALYSIS WITH CONTINGENCIES
Return on 3:.-.ts
Returr on debt
Return oni xcuity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
0.0457
1.1696
2.3220
0.7000
Year 1 Year 2 Year 3 Year 4
358
7108
5348
10653
86045
-1927
0.0541
0.0672
0.0042
0.0835
0.0085
1.3578
13.2412
0.5644
1.02
3.35
27.94
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0541
Return on debt 0.0675
Return on equity without gain 0.0042
Return on equity with gain 0.0825
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
0.0457
1.1387
2.3780
0.6963
0.0085
1.3252
14.7554
0.5639
-1331
8074
4442
12227
96794
-2828
0.0756
0.1303
-0.0160
0.0971
0.0109
1.6194
12.2468
0.5871
0.92
3.21
13.35
0.0756
0.1304
-0.0160
0.0970
0.0109
1.5907
13.6814
0.5840
-1209
7937
5352
14237
108901
-3475
0.0789
0.1290
-0.0150
0.0988
0.0126
2.0135
11.6062
0.6103
0.93
3.12
14.39
0.0789
0.1297
-0.0149
0.0981
0.0127
1.9941
13.0314
0.6048
-2257
8576
5158
15166
122736
-4511
0.0768
0.1287
-0.0294
0.1116
0.0145
2.4509
10.3511
0.6398
0.87
3.05
14.04
0.0768
0.1299
-0.0289
0.1100
0.0145
2.4768
12.5464
0.6263
NA denotes a ratio that is infinite
BASE ECONOMIC FORECAST, 70% LEVERAGE, LIVESTOCK SALE--NO LEASE BACK CASE
SUMMARY SHEET
Beg. Year 1 Year 2 Year 3 Year 4
Net income
Net income after gain
Net income from operations
Cash income from operations
Maximum current loan
Changes in net worth with cont.
RATIO ANALYSIS WITH CONTINGENCIES
Return on -;s.ts
Return on du.st
Return on equity without gain
Return on equity with gain
Current ratio
Intermediate ratio
Fixed ratio
Debt to asset ratio
Interest coverage ratio
Cash flow coverage ratio
Debt to income ratio
0.0457
1.1696
2.3220
0.7000
-5339
1411
8352
15255
66931
-8372
0.0647
0.1062
-0.0627
0.0166
0.0039
1.0305
2.4948
0.7166
0.77
2.22
140.71
RATIO ANALYSIS WITHOUT CONTINGENCIES
Return on assets 0.0647
Return on debt 0.1067
Return on equity without gain -0.0620
Return on equity with gain 0.0164
Current ratio 0.0457 0.0039
Intermediate ratio 1.1387 0.9906
Fixed ratio 2.3780 2.5623
Debt to asset ratio 0.6963 0.7135
NA denotes a ratio that is infinite
-7354
2051
7791
16944
90210
-9565
0.0657
0.1153
-0.0959
0.0267
0.0096
1.2741
2.6405
0.7556
0.71
1.83
94.61
0.0657
0.1159
-0.0948
0.0264
0.0096
1.1957
2.7726
0.7481
-7741
1404
8922
19184
115568
-10174
0.0689
0.1143
-0.1153
0.0209
0.0129
1.5968
2.8650
0.7948
0.71
1.79
147.81
0.0689
0.1155
-0.1118
0.0203
0.0129
1.4979
3.0285
0.7850
-9110
1723
9180
20565
143228
-10523
0.0691
0.1140
-0.1599
0.0302
0.0155
1.9729
3.0999
0.8351
0.68
1.76
128.14
0.0691
0.1155
-0.1526
0.0289
0.0155
1.8697
3.3016
0.8227
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