IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v10y2018i8p2942-d164544.html
   My bibliography  Save this article

Financial Ratios as Indicators of Economic Sustainability: A Quantitative Analysis for Swiss Dairy Farms

Author

Listed:
  • Alexander Zorn

    (Agroscope, Tänikon, 8356 Ettenhausen, Switzerland)

  • Michele Esteves

    (Agroscope, Tänikon, 8356 Ettenhausen, Switzerland)

  • Ivo Baur

    (École Polytechnique Fédérale, Station 2, 1015 Lausanne, Switzerland)

  • Markus Lips

    (Agroscope, Tänikon, 8356 Ettenhausen, Switzerland)

Abstract

In agriculture, a rising number of sustainability assessments are available that also comprise financial ratios. In a literature review of farm management textbooks, taking account of the differences between European and North American practices and considering prevalent sustainability assessment approaches, we identified frequently used financial ratios. Five ratios relate to the indicator profitability and four to the indicator liquidity. Another eight financial indicators refer to the indicators financial efficiency, stability, solvency and repayment capacity. Based on more than 14,000 accountancies of dairy farms from the Swiss Farm Accountancy Data Network (FADN), we carried out a Spearman correlation analysis for normalised and harmonised financial ratios. The correlation analysis revealed mostly positive correlations. To assess the implementation of a quantitative economic sustainability assessment we compare an aggregated indicator compound of all 17 ratios with two selections of financial ratios–first, a compound European and, second, a compound North American economic sustainability indicator. The correlation between the complete and the reduced sets of indicators suggest that both aggregate economic indicators can be reasonably applied to estimate the economic sustainability for Swiss dairy farms.

Suggested Citation

  • Alexander Zorn & Michele Esteves & Ivo Baur & Markus Lips, 2018. "Financial Ratios as Indicators of Economic Sustainability: A Quantitative Analysis for Swiss Dairy Farms," Sustainability, MDPI, vol. 10(8), pages 1-20, August.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:8:p:2942-:d:164544
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/10/8/2942/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/10/8/2942/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dominique Desbois, 2008. "Introduction to Scoring Methods: Financial Problems of Farm Holdings [Introduction aux méthodes de scoring : problèmes financiers des exploitations agricoles]," Post-Print hal-03130764, HAL.
    2. Evelien M. De Olde & Frank W. Oudshoorn & Eddie A. M. Bokkers & Anke Stubsgaard & Claus A. G. Sørensen & Imke J. M. De Boer, 2016. "Assessing the Sustainability Performance of Organic Farms in Denmark," Sustainability, MDPI, vol. 8(9), pages 1-20, September.
    3. Sean Cleary, 1999. "The Relationship between Firm Investment and Financial Status," Journal of Finance, American Finance Association, vol. 54(2), pages 673-692, April.
    4. Bruce L. Ahrendsen & Ani L. Katchova, 2012. "Financial ratio analysis using ARMS data," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(2), pages 262-272, July.
    5. Christian Schader & Lukas Baumgart & Jan Landert & Adrian Muller & Brian Ssebunya & Johan Blockeel & Rainer Weisshaidinger & Richard Petrasek & Dóra Mészáros & Susanne Padel & Catherine Gerrard & Laur, 2016. "Using the Sustainability Monitoring and Assessment Routine (SMART) for the Systematic Analysis of Trade-Offs and Synergies between Sustainability Dimensions and Themes at Farm Level," Sustainability, MDPI, vol. 8(3), pages 1-20, March.
    6. Andrea Saltelli, 2007. "Composite Indicators between Analysis and Advocacy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 81(1), pages 65-77, March.
    7. Purdy, Barry M. & Langemeier, Michael R. & Featherstone, Allen M., 1997. "Financial Performance, Risk, and Specialization," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 29(1), pages 149-161, July.
    8. James M. Williamson, 2017. "Following beginning farm income and wealth over time," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 77(1), pages 22-36, May.
    9. Latruffe, Laure & Diazabakana, Ambre & Bockstaller, Christian & Desjeux, Yann & Finn, John & Kelly, Edel & Ryan, Mary & Uthes, Sandra, 2016. "Measurement of sustainability in agriculture: a review of indicators," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 118(3), pages 1-8, December.
    10. Anthony Halog & Yosef Manik, 2011. "Advancing Integrated Systems Modelling Framework for Life Cycle Sustainability Assessment," Sustainability, MDPI, vol. 3(2), pages 1-31, February.
    11. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 18(1), pages 109-131.
    12. Marc Robinson, 1998. "Measuring compliance with the Golden Rule," Fiscal Studies, Institute for Fiscal Studies, vol. 19(4), pages 447-462, November.
    13. Ashok Mishra & Christine Wilson & Robert Williams, 2009. "Factors affecting financial performance of new and beginning farmers," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 69(2), pages 160-179, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ogawa, Keishi & Garrod, Guy & Yagi, Hironori, 2023. "Sustainability strategies and stakeholder management for upland farming," Land Use Policy, Elsevier, vol. 131(C).
    2. Maria G. Lampridi & Claus G. Sørensen & Dionysis Bochtis, 2019. "Agricultural Sustainability: A Review of Concepts and Methods," Sustainability, MDPI, vol. 11(18), pages 1-27, September.
    3. Aderajew, Tamirat S. & Du, Xiaoxue & Pennings, Joost M. E. & Trujillo-Barrera, Andres, 2020. "Farm-Level Risk-Balancing Behavior and the Role of Latent Heterogeneity," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 45(2), March.
    4. Paulson, Nicholas, . "The Impact of Revenues and Costs on the Relative Returns of Illinois Grain Farms," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2013, pages 1-14.
    5. Leonardo Becchetti & Annalisa Castelli & Iftekhar Hasan, 2010. "Investment–cash flow sensitivities, credit rationing and financing constraints in small and medium-sized firms," Small Business Economics, Springer, vol. 35(4), pages 467-497, November.
    6. Bauman, Allison & Jablonski, Becca B. R. & Key, Nigel D. & Hadrich, Joleen C., 2022. "Land tenure and profitability outcomes for U.S. beginning farmers and ranchers," 2024 Annual Meeting, July 28-30, New Orleans, LA 322233, Agricultural and Applied Economics Association.
    7. Soliwoda, Michał, 2016. "How to Improve a Farm Financial Management? The Lesson from Poland," Rural Areas and Development, European Rural Development Network (ERDN), vol. 13, pages 1-12.
    8. Samir Mili & Javier Martínez-Vega, 2019. "Accounting for Regional Heterogeneity of Agricultural Sustainability in Spain," Sustainability, MDPI, vol. 11(2), pages 1-20, January.
    9. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," Discussion Paper Series 26185, Hamburg Institute of International Economics.
    10. John M. Griffin & Michael L. Lemmon, 2002. "Book‐to‐Market Equity, Distress Risk, and Stock Returns," Journal of Finance, American Finance Association, vol. 57(5), pages 2317-2336, October.
    11. Becchetti, Leonardo & Castelli, Annalisa & Hasan, Iftekhar, 2008. "Investment-cash flow sensitivities, credit rationing and financing constraints," Bank of Finland Research Discussion Papers 15/2008, Bank of Finland.
    12. Wang, Zhuo & Wang, Ziyue & Wu, Ke, 2023. "The role of anchoring on investors’ gambling preference: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    13. Minhas Akbar & Ahsan Akbar & Petra Maresova & Minghui Yang & Hafiz Muhammad Arshad, 2020. "Unraveling the Bankruptcy Risk‒Return Paradox across the Corporate Life Cycle," Sustainability, MDPI, vol. 12(9), pages 1-19, April.
    14. Wu, Zhenshu & Pownall, Rachel & Shih, Yi-Cheng & Zhang, Chendi, 2025. "State ownership and the value of sustainability: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 102(C).
    15. Eleonora Bartoloni & Maurizio Baussola, 2014. "Financial Performance in Manufacturing Firms: A Comparison Between Parametric and Non-Parametric Approaches," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 49(1), pages 32-45, January.
    16. Pindado, Julio & Rodrigues, Luis & de la Torre, Chabela, 2008. "Estimating financial distress likelihood," Journal of Business Research, Elsevier, vol. 61(9), pages 995-1003, September.
    17. Becchetti, Leonardo & Castelli, Annalisa & Hasan, Iftekhar, 2008. "Investment-cash flow sensitivities, credit rationing and financing constraints," Research Discussion Papers 15/2008, Bank of Finland.
    18. Jindřich Špička, 2018. "How Do Agricultural Biogas Investments Affect Czech Farms?," Central European Business Review, Prague University of Economics and Business, vol. 2018(4), pages 34-60.
    19. Serhiy Zabolotnyy & Mirosław Wasilewski, 2019. "The Concept of Financial Sustainability Measurement: A Case of Food Companies from Northern Europe," Sustainability, MDPI, vol. 11(18), pages 1-16, September.
    20. Bhagat, Sanjai & Moyen, Nathalie & Suh, Inchul, 2005. "Investment and internal funds of distressed firms," Journal of Corporate Finance, Elsevier, vol. 11(3), pages 449-472, June.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:10:y:2018:i:8:p:2942-:d:164544. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.