Conducting a farm financial performance or financial benchmarking analysis can be daunting to those unaccustomed to doing them. There are many financial pieces of information needed to perform a proper analysis including; both beginning and ending balance sheets, either an actual accrual or accrual adjusted income statement, and a statement of cash flows. Although it might seem like a daunting task, following a method, such as the DuPont Analysis will have great benefits for your farm.

A good financial performance analysis should do more than inform about how a farm historically performed. More important, it should provide the farmer and adviser with insight regarding how to prioritize activities that will enable the farm to improve its financial performance. 

There are many methods of financial analysis. The method covered in this article is the DuPont Analysis. This method will assist the farmer or adviser in determining if they need to emphasize price, yield, asset utilization, and/or cost efficiency issues to improve farm’s financial performance. Follow this step-by-step guide to set up a financial analysis for your farm.

Farm Financial Tool: Dupont Analysis calculations 

The DuPont Analysis links a farm’s rate of return on assets (ROA) to two other ratios, the asset turnover ratio (ATO), and the operating profit margin (OPM) by the following equation: ATO x OPM = ROA 

Note, the DuPont Analysis is asset-based so it is important that the same asset valuation method (cost basis, agricultural use market value, or pure market value) be used for both the farm and the benchmark standards. This doesn’t mean that each similar asset must carry the exact same value to have a meaningful analysis. Nevertheless, it does mean that the overall appraisal method used to value the farm and benchmarks should be the same. For example, avoid comparing a farm that uses a cost basis approach of valuing assets with a benchmark standard that uses a pure market value approach. 

Steps in DuPont Analysis 

Once a farmer or adviser has calculated ATO and OPM ratios, they will be able to complete a DuPont Analysis and determine which area of the farm business needs improvement. Let’s review the steps in DuPont Analysis.  

The DuPont Analysis can be an efficient financial analysis and assist in getting to the root of farm financial performance problems. The DuPont Analysis along with benchmarks for farm enterprises can assist farmers in their quest for higher profitability.  

---