![]() “Land cost is something you have the ability to manage. For example, land costs may have a big impact on your operating expense ratio, especially in the context of today’s low grain prices. Auel recommends looking at both variable and fixed costs. If you do find yourself with a higher operating expense ratio, it should signal action to improve your operation’s cost efficiency. “Once you know where your costs are, you not only can control them better, but make better marketing decisions.” “It’s important for producers to pay attention to it because you can’t maximize efficiency if you don’t know how you’re controlling expenses,” says Auel. Why is your operating expense ratio important? When approaching a lender for financing, this ratio is one way to show your operation’s financial stability and can influence how much it will cost you to borrow money to sustain your operation. ![]() “If you are between 70% and 75%, you’re probably doing okay, but if you start getting above 75%, you’re trending toward being a high-cost producer.” “Below 70%, you’re doing a really good job of controlling expenses,” says Vice President AgDirect Credit Jerry Auel. The normal operating expense ratio range is typically between 60% to 80%, and the lower it is, the better. Expressed as a percentage, the operating expense ratio is your total operating expense (excluding interest), minus depreciation, divided by gross income. It takes into account both the production and income side, as well as the expense side, to paint a clear picture of your operation’s efficiency. ![]() The operating expense ratio is a measure of your operation’s financial efficiency and shows how much you spend to generate income. In times when margins are tight, the operating expense ratio is one that can paint an accurate picture of not only how your business is performing, but what adjustments can be made to operating and input costs. There are a lot of ways to measure the financial health of your business.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |