Financial ratio analysis using ARMS data

Abstract

Purpose

The purpose of this research is to evaluate the financial performance measures calculated and reported by the Economic Resource Service (ERS) from Agricultural Resource Management Survey (ARMS) data. The evaluation includes the calculation method and the underlying assumptions used in obtaining the reported values. Recommendations for improving the information reported are proposed to ERS.

Design/methodology/approach

The financial measures calculated and reported are compared with those recommended by the Farm Financial Standards Council (FFSC). The underlying assumptions are identified by analyzing the software code used in calculating the values reported. The values reported by ERS are duplicated and alternative methods for calculating the financial performance measures are considered. The values obtained from the various calculation methods are compared and contrasted.

Findings

Recommendations for ERS include: calculate and report the financial measures recommended by FFSC, note values that are imputed, periodically update and validate assumptions used in calculating imputed values, review its policy for flagging estimates as statistically unreliable, report medians and other select percentiles, and consider reporting the percent of farm businesses that have values within critical zones.

Originality/value

A total of four methods for calculating financial performance measures are compared and contrasted. These are the aggregate mean, sample mean, sample median, and percentage of farm businesses with values in critical zones.

Citation

Ahrendsen, B.L. and Katchova, A.L. (2012), "Financial ratio analysis using ARMS data", Agricultural Finance Review, Vol. 72 No. 2, pp. 262-272. https://doi.org/10.1108/00021461211250492