Other measures can be used to monitor the financial status of the business and provide guidelines for future decisions. These examine liquidity, solvency, profitability, financial efficiency, and repayment capacity of the business. Interest Rate Risk Investment decisions are based on assumptions about future borrowing costs or the opportunity cost of invested funds. Borrowed capital can be a reasonable expense, especially if you are prudent in the financial leveraging of your business. After all, few operations are in a position to use only equity capital for new investments.
Borrowing is a vital part of most farming businesses.
Interest rate risk is mostly out of your control. These actions by you reduce a lender's risk exposure. Liquidity and Meeting Cash Flow Requirements Ensuring liquidity and adequate cash flow is the same as ensuring the farm's ability to survive shortfalls in net income relative to various cash obligations. Assets classified as current on the balance sheet are assets that can be converted into cash within one operating cycle of the farm business, usually 12 months. Liquid assets include instruments that yield cash directly or that can be converted quickly to cash.