CREDIT SCORING, LOAN PRICING, AND FARM BUSINESS PERFORMANCE

52 July 1989

Western Journal of Agricultural Economics

Table 2. Annual Simulation Results with and without Credit-Scored Pricing under Alternative
Growth Rates and Beginning Leverage Positions

	Year 12345 6 7 8 9 10'	Total
I	No price response; D∕A, 30%; growth rates, 3% Net worth change, cum % 7.34 15.85 24.81 35.80 46.65 59.72 72.80 88.36 105.69 123.33 Return on assets, % 7.93 8.20 8.11 9.34 8.40 9.44 8.60 9.50 9.67 8.94 Return on equity, % 7.08 7.62 7.47 8.40 7.69 8.53 7.87 8.61 8.80 8.22 Debt to assets, % 27.7 24.7 23.3 27.6 26.1 29.3 27.7 30.1 32.0 30.1 Land purchases, acres 0 0 0 40 0 40 0 40 40 0	160
II	Credit score 10 6488 8 8 8 8 8 Credit class 211 2 2 2 2 2 2 2 Interest rate, % H-O 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 Price response; D∕A, 30%; growth rates, 3% Net worth change, cum % 7.72 16.53 26.42 38.65 52.64 66.69 83.55 101.06 118.85 139.22 Return on assets, % 7.93 8.14 7.95 9.10 9.30 8.44 9.27 9.54 8.82 9.62 Return on equity, % 7.43 7.86 8.14 9.23 9.60 8.80 9.63 9.10 8.48 8.89 Debt to assets, % 27.5 24.6 23.1 27.2 30.3 28.4 30.6 32.4 30.4 34.5 Land purchases, acres 0 0 0 40 40 0 40 40 0 80	240
III	Credit score 10 6466 6 8 8 8 8 Credit class 2 1 1 1 1 1 2 2 2 2 Interest rate, % 10.0 8.0 8.0 8.0 8.0 8.0 10.0 10.0 10.0 10.0 Price response; D∕A, 30%; growth rates: operating and other costs 3%, farm income and land values, 5%
	Net worth change, cum % 9.40 20.87 34.50 52.17 73.59 99.29 129.85 164.54 201.45 251.84 Return on assets, % 7.93 9.69 9.90 11.45 11.89 12.20 12.42 13.05 11.90 14.05 Return on equity, % 8.98 9.96 10.68 12.32 13.15 13.79 14.24 14.03 13.04 15.43 Debt to assets, % 27.2 24.0 22.2 26.0 28.6 30.3 31.2 34.3 31.5 35.7 Land purchases, acres 0 0 0 40 40 40 40 80 0 120	360
IV	Credit score 10 6 4 4 6 6 8 8 10 10 Credit class 2 1 1 1 1 1 2 2 2 2 Interest rate, % 10.0 8.0 8.0 8.0 8.0 8.0 10.0 10.0 10.0 10.0 Price response; D∕A, 60%; growth rates: operating and other costs, 3%; farm income and land values, 5%
	Net worth change, cum % 6.06 15.63 27.82 45.49 66.66 92.33 125.52 170.41 230.16 297.04 Return on assets, % 7.93 11.54 12.03 12.26 12.62 13.14 13.66 15.22 16.30 14.68 Return on equity, % 5.88 8.64 10.01 12.93 13.56 14.30 15.89 18.10 19.90 18.40 Debt to assets, % 58.9 56.9 54.3 50.1 45.2 39.4 31.9 32.7 38.0 32.1 Land purchases, acres 00000 0 0 40 80 0	120
V	Credit score 24 24 22 18 18 12 6 6 6 8 Credit class 4 4 3 3 3 2 1 1 1 2 Interest rate, % 14.0 14.0 12.0 12.0 12.0 10.0 8.0 8.0 8.0 10.0 Price response; D∕A, 30%; growth rates: operating and other costs, 3%; farm income and land values, ~ 1%
	Net worth change, cum % 4.34 8.07 11.02 13.95 14.90 14.76 12.75 9.34 4.42 —2.19 Return on assets, % 7.93 4.99 3.90 4.28 2.87 2.18 1.68 1.03 0.38 -0.28 Return on equity, % 4.25 3.52 2.69 2.60 0.83 -0.13 -1.77 -3.07 -4.60 -6.54 Debt to assets, % 28.0 25.9 25.1 30.6 29.7 29.5 30.4 32.3 35.2 39.1 Land purchases, acres 0000 40 0 0 0 0 0	40
	Credit score 8 6 6 6 6 10 12 12 14 20 Credit class 21111 22 2 2 3 Interest rate, % 10.0 8.0 8.0 8.0 8.0 10.0 10.0 10.0 10.0 12.0

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