You know what your farm produced, what inputs cost, and what prices you received. But do those numbers show an operation that’s financially steady, losing ground, or prepared for the next difficult year?
Farm financial benchmarks can help. Ratios calculated from your balance sheet and income statement show how your operation is performing over time and where the numbers deserve a closer look.
This guide covers four useful measures:
- Working capital to operating expense: Can the farm cover near-term operating costs?
- Debt-to-asset ratio: How much of the farm is financed with debt?
- Operating expense ratio: How much revenue goes toward operating costs?
- Rate of return on assets: What return is the farm earning from its assets?
Together, these ratios provide a view of liquidity, solvency, financial efficiency, and profitability. The Farm Financial Scorecard also evaluates repayment capacity, or the ability to make scheduled principal and interest payments. Working capital to operating expense is included as an accepted alternative liquidity measure. View the Farm Financial Scorecard.
What Farm Financial Benchmarks Can Tell You
A ratio becomes more useful when you compare it with:
- An industry range: Where does the ratio fall within established farm-finance guidelines?
- Your farm’s history: Is the ratio improving, weakening, or staying consistent?
- Similar operations: How does your farm compare with farms of a similar type, size, and region?
Use all three comparisons when possible. A relevant peer group matters because a corn and soybean operation shouldn’t be expected to match a dairy, livestock, or specialty-crop farm. Farm size, location, owned versus rented land, machinery investment, and business stage can all affect the numbers. Learn more about farm financial benchmarking.
A Quick Look at Four Farm Financial Benchmarks
The ranges below come from the Farm Financial Scorecard, which uses measures recommended by the Farm Financial Standards Council. The scorecard provides vulnerable and strong thresholds, with the figures between them serving as a middle range.
| Ratio | What It Measures | Strong Range | Middle Range | Vulnerable Range |
|---|
| Working capital to operating expense | Ability to cover near-term operating costs | More than 40% | 20% to 40% | Less than 20% |
|---|
| Debt-to-asset ratio | Debt compared with farm assets | Less than 30% | 30% to 60% | More than 60% |
|---|
| Operating expense ratio | Share of revenue used for operating costs | Less than 60% | 60% to 80% | More than 80% |
|---|
| Rate of return on assets | Return generated by farm assets | More than 8% | 4% to 8% | Less than 4% |
|---|
These ranges are guideposts. A ratio in the middle or vulnerable range doesn’t automatically mean the farm is failing. A strong ratio also doesn’t guarantee that every part of the operation is performing well.
Use the range to decide what deserves a closer look.
1. Working Capital to Operating Expense
Working capital is the amount left after subtracting current farm liabilities from current farm assets:
Current farm assets − current farm liabilities = working capital
Current assets may include cash, receivables, grain inventory, and prepaid expenses. Current liabilities may include accounts payable, operating loans, accrued expenses, taxes due, and scheduled term-debt payments due within the next year.
Working capital to operating expense adjusts that dollar amount for the size of the operation:
Working capital ÷ annual farm operating expenses = working-capital-to-operating-expense ratio
For this calculation, operating expenses include normal business costs but exclude interest, taxes, depreciation, and amortization. The ratio estimates how much of the farm’s normal operating expenses could be covered by working capital if revenue temporarily stopped. Review the working-capital-to-operating-expense calculation.
How to Read the Ratio
- More than 40%: Strong liquidity
- 20% to 40%: Middle range
- Less than 20%: Potentially vulnerable liquidity
Suppose a farm has $300,000 in working capital and $750,000 in annual operating expenses:
$300,000 ÷ $750,000 = 40%
A 40% ratio means the farm has enough working capital to cover approximately 40% of the operating expenses included in the calculation. That working capital isn’t necessarily cash. It may include grain inventory, receivables, and prepaid expenses.
For a corn and soybean operation, holding more unpriced grain after harvest may increase inventory on the balance sheet. It can also delay cash that could be used to reduce an operating-line balance.
Questions to Ask
- Has working capital increased or decreased over the last three years?
- How much is tied up in grain inventory?
- Would storing grain longer put more pressure on the operating line?
A declining ratio may result from weak margins, major purchases, debt repayment, family withdrawals, or expansion. Understanding why the ratio changed is more useful than reacting to the percentage alone.
2. Debt-to-Asset Ratio
The debt-to-asset ratio compares total farm debt with total farm assets:
Total farm liabilities ÷ total farm assets = debt-to-asset ratio
If a farm has $1.5 million in total debt and $5 million in total assets:
$1.5 million ÷ $5 million = 30%
Farm liabilities equal 30% of the farm assets included in the calculation.
How to Read the Ratio
- Less than 30%: Strong solvency
- 30% to 60%: Middle range
- More than 60%: Potentially vulnerable solvency
A lower ratio generally means the farm carries less debt relative to its assets. Business stage matters, however. A beginning farmer or an operation purchasing land may carry more debt than an established farm, and the amount of owned versus rented land can significantly affect the calculation.
Farm financial measures should also be reviewed across several years because results can vary based on farm type, size, location, land ownership, and unusual annual conditions. Review financial performance measures for Iowa farms.
Questions to Ask
- Is the ratio rising because of expansion or because losses are reducing equity?
- Are projected earnings sufficient to make scheduled debt payments?
- How does the ratio compare with farms at a similar business stage?
3. Operating Expense Ratio
The operating expense ratio shows how much gross farm revenue is being used for operating costs:
Farm operating expenses, excluding depreciation and interest ÷ gross farm revenue = operating expense ratio
Use the gross farm revenue figure calculated under the same accounting method as the rest of your financial analysis.
Suppose a farm generates $1 million in gross farm revenue and has $720,000 in operating expenses:
$720,000 ÷ $1 million = 72%
Approximately 72 cents of every dollar of gross farm revenue went toward the operating expenses included in the calculation.
How to Read the Ratio
- Less than 60%: Strong financial efficiency
- 60% to 80%: Middle range
- More than 80%: Potentially vulnerable efficiency
A higher ratio may reflect rising fertilizer, seed, rent, crop protection, fuel, repair, labor, or custom-work costs. It can also rise when commodity prices reduce gross revenue, even if expenses remain steady.
The operating expense ratio is calculated using total operating expenses, excluding depreciation and interest, divided by gross farm revenue. Review the operating expense ratio definition.
Questions to Ask
- Did expenses rise, revenue fall, or both?
- Which expense categories changed the most?
- Could reducing a cost create a larger problem elsewhere?
Use the ratio to identify where to investigate. Cutting fertilizer, repairs, labor, or crop protection may lower expenses while creating problems with yield, reliability, or workload.
4. Rate of Return on Assets
Rate of return on farm assets, commonly called ROA, measures the return generated by the farm’s land, machinery, buildings, livestock, and other assets.
A commonly used farm-finance formula is:
(Net farm income from operations + farm interest expense − value of unpaid operator labor and management) ÷ average farm assets = rate of return on assets
Average farm assets generally means the average of beginning and ending asset values for the year. Interest is added back because ROA measures the return earned on both owner and creditor investment. An estimated value for unpaid operator labor and management is subtracted so those contributions aren’t treated as a return on assets.
How to Read the Ratio
- More than 8%: Strong profitability
- 4% to 8%: Middle range
- Less than 4%: Potentially vulnerable profitability
Asset values can significantly affect the result. A grain farm with substantial land and machinery investment may have a lower ROA than an operation that rents more acres or hires more fieldwork, even if their incomes are similar.
Use the same asset-valuation and labor-adjustment methods each year. Comparing one farm’s ROA calculated with current market values with another farm’s ROA calculated using book or adjusted-cost values can create a misleading comparison.
Questions to Ask
- Is ROA improving or weakening over time?
- Are underused land, machinery, or other assets reducing the return?
- How does the return compare with the cost of borrowed capital?
How Participating Minnesota Farms Compared in 2025
The 2025 Minnesota Farm Finances Annual Report included 2,424 Minnesota farms participating in farm business management programs. Because the farms weren’t a random sample, the results shouldn’t be treated as representative of every Minnesota or Midwestern operation.
The 2025 averages included:
- Debt-to-asset ratio: 34%
- Operating expense ratio: 78%
- Rate of return on farm assets: 4.3% in the report’s detailed analysis
- Working capital to gross revenue: 33%
The first three measures fell within the Farm Financial Scorecard’s middle ranges. Working capital to gross revenue is different from working capital to operating expense, so the two liquidity ratios shouldn’t be compared directly.
Profitability improved from 2024, although results varied by farm type. Crop farms continued to face lower commodity prices, while strong yields supported income. Use these figures as context rather than targets for your operation.
How to Benchmark Your Farm More Effectively
Use the Same Calculation Each Year
A trend becomes difficult to interpret if the formula, accounting method, asset value, or expense categories change.
Keep the following consistent:
- Balance-sheet dates
- Asset-valuation methods
- Treatment of unpaid operator and family labor
- Expense classifications
- Ratio formulas
- Adjustments for inventory, receivables, payables, and other noncash changes
Look at Several Years
One strong production year can improve ratios quickly. A drought, major repair, depressed market, or other difficult year can move them in the opposite direction.
Reviewing three to five years can help you separate a temporary event from a longer-term pattern.
Choose a Meaningful Comparison Group
A useful comparison group should be reasonably similar in:
- Farm type
- Region
- Size
- Owned versus rented land
- Production system
- Stage of business growth
FINBIN provides whole-farm, crop, livestock, and financial benchmark reports. Its reports can be filtered to create more relevant comparison groups.
Read the Ratios Together
A farm can have low debt and weak profitability. Another can be profitable but short on working capital. A growing operation may have a moderate debt-to-asset ratio but enough income to make its scheduled payments.
No single ratio can tell you whether an operation is financially healthy.
If a measure falls into a vulnerable range, consider:
- Whether the ratio is improving or weakening
- Why it changed
- What related financial measures show
- Upcoming cash and debt obligations
- How similar farms are performing
- Which management options are realistic
No single ratio can tell you whether the farm is financially healthy. Read the measures together and look at the direction of each trend, why it changed, upcoming obligations, and how similar farms are performing.
The ratio shows where to look. Your records and knowledge of the operation help explain what’s happening.
Compare Your Farm’s Numbers in roots
We built roots to help keep farm budgets, field data, and financial planning information organized in one portal.
CropOps includes cost-of-production analysis, multi-year budgeting, university benchmarking data, cost-per-acre breakdowns, and lender-ready reporting. You can use those tools to compare your operation with outside benchmarks and review how your own numbers change from one season to the next.
A benchmark won’t make a financial decision for you. It gives your numbers context so you can identify strengths, investigate areas under pressure, and prepare for conversations with your lender or adviser.
Sign up and get started with roots
This article is provided for general educational purposes and isn’t individualized financial, accounting, tax, legal, or lending advice. Ratio definitions and results can vary based on accounting methods, asset valuation, adjustments, and the financial information used. Consider reviewing your operation’s ratios with a qualified farm financial adviser, accountant, or lender.
Q&A About Farm Financial Benchmarks
What are farm financial benchmarks?
Farm financial benchmarks are standardized measures used to evaluate a farm’s ability to cover upcoming bills, manage debt, generate a return, make scheduled payments, and use revenue efficiently.
Ratios make it easier to compare the farm’s current financial position with established ranges, prior years, and similar operations.
What is a good working-capital-to-operating-expense ratio?
The Farm Financial Scorecard classifies more than 40% as strong, 20% to 40% as a middle range, and less than 20% as potentially vulnerable.
Compare the ratio with prior years and similar farms. Grain inventory, current debt, business growth, and the timing of income and expenses can all affect liquidity.
What is a good farm debt-to-asset ratio?
The Farm Financial Scorecard classifies a debt-to-asset ratio below 30% as strong, 30% to 60% as a middle range, and above 60% as potentially vulnerable.
Business stage matters. A farm purchasing land or expanding may carry more debt than an established operation with substantial accumulated equity.
Can roots help me compare my farm with benchmarks?
Yes. We built roots with university benchmarking data, multi-year budgeting, cost-of-production analysis, cost-per-acre breakdowns, and lender-ready reporting.
These tools can help you review your farm’s information alongside outside benchmarks and compare changes in your operation over time. The quality of the comparison depends on the accuracy and consistency of the information entered.