GLOSSARY

Net Cash Farm Income

A measure of farm profitability in terms of cash flow and net cash farm income, reflects the ability of a farm business to meet its cost of production through cash income. It is equal to:

Cash Receipts — Adjusted Cash Operating Expenses

Accrual Adjusted Operating Expenses

Farm operating expenses adjusted to reflect 12 months of operation and to remove the effect of tax planning. Adjustments account for changes in supply inventories, accounts payable and prepaid expenses. Operating expenses do not include family living costs or capital expenditures.

Net Household Income

An accrual measure of overall household earnings, reflecting all revenues and costs, including both farm and non-farm sources. It is equal to:

Net Cash Farm Income

+ Change in Accounts Receivable

+ Change in Production Inventories

+ Net Nonfarm & Noncash Income

- Depreciation

- Family Living Expenses & Taxes

Return on Assets

Measures profit earned relative to total farm assets, including assets financed with debt and those financed with farm equity. Return on assets is equal to:

Net Earnings + Interest Expense

Average Assets

Return on Equity

Measures profit earned relative to a farmer’s equity investment in the farm operation. Return on equity is equal to:

Net Earnings

Average Net Worth

Debt Capacity

The maximum amount of capital debt that can be repaid from a farm’s cash flow, the calculation of debt capacity is described in the summary.

Reserve Debt Capacity

The amount of additional capital debt (beyond that already incurred) that a farm can service from cash flow. Reserve debt capacity represents a farm’s buffer against financial adversity. It is equal to:

Debt Capacity – Capital Debt

Overhead Costs

Costs that do not vary with a change in production output, such as depreciation, interest, repairs, taxes and insurance, etc.