AGRICULTURAL FINANCE 5 



FARMERS' FINANCIAL POSITION 



Net worth is the amount of capital owned debt free. It is that part of the 

 capital upon which an operator may expect to earn and to retain an interest re- 

 turn. It also shows in part the financial strength of the operator; the larger the 

 net worth, the greater is the operator's financial strengtji. 



However, to the banker or creditor, the relationship of net worth to total assets 

 is also important. This relationship, percent net worth or net worth expressed 

 as a percent of assets, gives an idea of the amount of capital available to secure 

 the debt. 



Thus net worth can be expressed in two ways to show financial strength: 

 (1) from the operator's point of view, the more dollars of net worth the better 

 his position; (2) from the banker's point of view, the higher the percent net worth 

 the better the operator's position. Both aspects are presented in Table 3. 



Table 3. — Frequency Distribution by Percent Net Worth and Amount of 

 Net Worth in Total Assets, 272 Massachusetts Farms, March 1, 1941. 



Amount of Net Worth (Dollars) Total All Farms 



Percent Owner- Rented 



Net Worth or 1- 3,001- 6,000- 9,001- 12,000- 15,000 operated Farms Num- Per- 



less 3,000 6,000 9,000 12.000 15,000 & over farms ber cent 



Number of Farms 



100 4 13 



75-99 2 17 20 



50-74 10 29 34 



25-49 15 10 5 



1-24 6 



or less 2 



Total farms 



Owner-operated 2 33 60 72 30 23 37 257 



Rented 10 5 15 



All 2 43 65 72 30 23 37 272 



Percent 



Owner-operated.... 1 13 23 28 12 9 14 100 



Rented 67 33 100 



All 1 16 24 26 11 8 14 100 



To appraise the financial position of these farmers a standard to which their 

 position can be compared is necessary. The average total capital used was about 

 $12,000 and the average net worth was about $9,000. As a rule of thumb, a 

 farmer may consider 50 percent net worth as a minimum for financial safety. 

 On this basis 37 percent of the owner-operators did not have sufficient capital for 

 an average farm. There were 65 percent who had less than the average dollars 

 of net worth; but only 16 percent owned less than 50 percent of their total capital. 



Within each group with approximately the same dollars of net worth, there 

 was a range in percent net worth. Likewise there was a range in dollars of net 

 worth for most of the groups with approximately the same percent net worth. 

 This illustrates the necessity for considering both aspects of net worth. If such 

 consideration is given, then a better picture of financial position can be reached. 

 Using $6,001 net worth and 50 percent net worth as minimums for financial 

 safety, there were 39 percent of the farmers who did not meet these minimums. 



Net cash receipts were low on a large proportion of these farms (Table 4). If 

 it can be assumed that $500 is a minimum on which a farm family should have 

 to live, then in 1940 about 45 percent of those who owed money did not make 



