BUSINESS SUCCESS: WHAT FACTORS REALLY MATTER?

of these three financial performance criterions is included in a FARM Assistance projection.
Therefore, the data is available to include each in an overall index of success. Profit is measured
by the ten-year average Return on Assets. The annual percent change in real net worth, averaged
for the ten-year projection period is used to measure equity growth. The average probability of
cash flow deficits measures the liquidity risk of the farm or ranch. An annual cash shortfall is
typically refinanced and added to the following year’s operating note. Therefore, we also refer
to this measure as the probability of refinancing carry over debts. The index of success is
defined by:

Success = ROA + %∆RNW + 0.5*Prob(cash<0)

Table 1 contains the average, minimum, and maximum success values for different
groups of FARM Assistance subscribers. The average success index value for all 375 farms is

Table 1. Success Index* by Farm Groups

* Success Index = AvgROA + Avg%ChangeRNW - 0.25(Probability of Ref.)

1 Crop sales account for more than 75% of all farm receipts

2 Livestock sales account for more than 75% of all farm receipts

3 Farm can not be classified as primarily crop or livestock

4.3 with the most successful farm achieving a 59.5 value and negative 84.5 representing the least
successful operation. The operations are divided into three success categories. The top third of
the operations, rank by success index, has an average index value of 23.8, and an average
success index of 7.8 and negative 18.8 represent the middle and bottom thirds respectively. In
terms of percentile rankings, the 33^rd percentile is a 2.3 index value and the 66^th percentile is a
12.5 success index. The operations are also categorized by production type. The majority of the

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