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A Different Way to Evaluate Profitability

Dwight Raab, Bradley Zwilling and, Brandy Krapf (March, 2015)

Summary

Typically to measure farm profitability one would subtract expenses from income to arrive at a dollar value of profitability. But comparing farms of different sizes and types is difficult using this absolute dollar measure. So that we can compare different size and type farms, let's take gross farm returns and divide them by all (non-feed) economic costs to arrive at a measure of profitability that has 1.00 as the breakeven point. Let's call this 'Production/$1 of Cost'...if revenue equals expense then there is no profit...but there is also no loss.