“When considering capital structure and debt service, CFO-minded farmers must determine if they have the ability to repay loans and other debts based on their profit margins, market volatility and interest rates. In some cases, farmers might have to finance the growth of their business with more of their own money rather than relying on a lender.”
A good resource for thinking like a CFO is the DuPont Financial Analysis Model, a software program that calculates a business' profitability based on operating profit margin, asset turnover ratio, return on assets and return on equity. Farmers need only a simple set of business numbers to do the calculations, Boehlje said.
For additional information on the CFO approach to farming, visit the Purdue Strategic Business Planning for Commercial Producers Web site at http://www.agecon.purdue.edu/extension/sbpcp/finmgmt.asp and click on the "Thinking Like a CFO" link. The DuPont model is available at the "Improving Performance" link.