Cotton, dairy and rice cooperatives were the exception. Cooperatives in all three of these commodity groups had larger increases in their inventory in relation to other current assets, thereby lowering their quick ratio. While generating the lowest current ratio, this commodity group has one of the highest quick ratios. Less than 2 percent of their total current assets include inventory, while the average for all the largest cooperatives is more than 45 percent. If assets are the building blocks for a cooperative's future, the capital structure is the cement that holds it together.
Equity is the basic risk capital put up by members of the cooperative.
There must be some equity within the capital structure to help a co-op bear the risk associated with doing business. Debt is the use of someone else's capital for a fixed cost. Thus, if the fixed cost of the debt is lower than the returns those funds generate, the excess returns will accrue to the members. On the other hand, if the revenues are less than the fixed cost of the debt, member equity takes will have to absorb the loss. This is the concept of leverage.