BUSINESS SUCCESS: WHAT FACTORS REALLY MATTER?

successful operations have the least amount invested in real estate per acre, suggesting that the
group operates on less expensive land and/or leases a larger portion of its productive acres
relative to the less successful farms and ranches. Non-farm income and expenses appear to have
little impact on the level of success. Both family living expenses and off-farm income are
similar across the three performance groups.

The importance of the various current factors in predicting success can be measured by
calculating the correlation coefficient between the current indicator factor and the projected
index of success. Table 4 ranks the relative importance of current factors by the absolute value
of the correlation coefficient calculated across all farms. For all farms the factors most

Table 4. Financial Factors and Correlation to Success for All Farms and Ranches

*Bold t-statistics are significant at 95%

correlated to success are measures of current efficiency, profitability, and debt level. The ratio
of expense-to-receipts ranks number one for all farms followed by net cash farm income per acre
and the debt-to-asset ratio. Eight of the thirteen factors were significantly correlated to the
success index.

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