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Focus on Ag: Pay attention to working capital in farm finances – AberdeenNews.com

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We often hear phrases such as “protect your working capital,” or “watch your liquidity,” or “cash is king,” when referring to short-term financial analysis of a farm business. All of these terms generally refer to the “working capital” of a farm business. A significant decline in working capital in a farm operation can lead to a rapid deterioration of the overall financial outlook for the entire farm business and its owners.

The simple definition of “working capital” is “total current assets” minus “total current liabilities.” While that definition sounds quite simple, getting true and accurate working capital data can be much more complex in many situations. The “current assets” usually include available cash from bank accounts, accounts receivable, grain and livestock inventories, prepaid crop and livestock expenses, hedging account balances, and any other short-term assets. Accounts receivable could include crop insurance or government farm program payments, deferred payments on grain or livestock that has already been sold and delivered, and money owed to a farm for custom or contract work.

The “current…



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Source: https://www.aberdeennews.com/farm_forum/focus-on-ag-pay-attention-to-working-capital-in-farm/article_a4c38334-3bdb-11ea-b180-4f63bebc427a.html

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