Measuring operational profitability is a complex process. AgStar’s Lori Teigin shares some insight into this process. Here are some of the factors involved in calculating profitability:
- Accrual: Teigin explains, “From a lender’s standpoint, accrual analysis, not cash, is the best way to look at how your business is performing.” (She goes into greater detail about the differences between cash and accrual in the article.)
- Owner’s equity: this is found by subtracting total liabilities from total assets. To find the percentage of equity, divide your equity by your total assets. Lenders look more favorably on owners who have over 50% equity.
- Cost of production: factors affecting the cost of production include feed prices, labor costs, net herd replacement, capital costs, and overhead costs.
To read an in-depth analysis, see Teigen’s full article.