Valuing Farm Financial Information

indicators of financial accuracy. The practices of keeping personal and farm records separate,
reconciling bank statements with farm records, and generating balance sheets at the beginning
and end of each accounting period were also viewed as activities that increased accuracy.
Participants that used accrual accounting, kept farm records separate from personal records,
reconciled bank statements with farm records, and generated balance sheets at the beginning and
end of each accounting period tended to submit higher bids. The responses for using a cash-
based system or an accrual system and using cost basis or a market value to value assets are
mixed as many participants seemed to use some type of combination of accounting systems and
asset valuation methods. Table 6 suggests that participants electing not to bid lagged behind in
some areas of accuracy but not in others.

Results in table 6 support the expectations that farmers with some financial training and
farmers using more accurate measures of farm performance will more highly value their records.
A larger percentage of farmers with higher bids had financial training than farmers with lower
bids. Farm performance was assessed through farmer use of the profitability measures of net
cash income, return on assets (ROA), return on equity (ROE), checkbook balance, gross (total)
cash income, and accrual net farm income. Fifty percent of participants with bids greater than
$75,000 used ROE as a principal financial performance measure—a preferred method due to its
accuracy in measuring performance. Twenty-nine percent of the participants in the highest bid
range were also using the other preferred performance measure of ROA. The majority of
participants in the lowest bid category and the no-bidders preferred net cash income as their key
measure of farm performance.

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