However, it is not as high as it was in the late 1980s, when it averaged well over 8 percent. Since this ratio looks at returns on member investment only, it is determined by calculating net income after interest and taxes. As is evident in figure 9, this ratio tends to fluctuate widely. When net income is high, cooperatives generally revolve equity back to members. This pushes the value up, as happened in the late 1980s.
Low returns pull down the ratio.
Between 1993 and 1994, the return on allocated equity remained steady. Returns that are too low might restrict the cooperatives cash flow. Although there is a tremendous amount of variance among cooperatives, most are showing financial strength to carry them into the 21st Century. Cooperatives need to keep track of their performance in relation to the industry. Thus, when there is a change in performance, managers and board members will be able to take corrective action to enhance the performance of the business and ensure its long-term viability.