Data Management

Cash Flow Risk Ratio: An Aid To Marketing Decisions

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Executive Summary

Financial risk differs from the business risks previously described in that it results from the way the firm's capital is obtained and financed. A producer may be subject to fluctuations in interest rates on borrowed capital, or face cash flow difficulties if there are insufficient funds to repay creditors. The use of borrowed funds means that a share of the returns from the farm must be allocated to meeting debt payments. Even when a farm is financed 100 percent by the owner, the owner's capital is still exposed to the probability of any lowering of equity or net worth.

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