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Debt-to-equity ratio: Leverage assets for farm financial fitness

from Farm Credit Canada

With Canadian agriculture’s total debt outstanding now over $100 billion, we can ask some important questions about the value those liabilities provide. Taking on more debt to finance the purchase of assets allows a business to expand and grow. Paying off the debt is done with the additional revenues generated by properly deploying these assets. Reducing debt or seeing assets gain value over time are two ways to build equity or net worth. However, financing a large portion of the business growth through debt also exposes a business to financial risk. The last ratio I look at in our March Financial Fitness series, the debt to equity ratio, can answer the question of the long-term value generated by liabilities. more

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