Profitability Report

The Profitability report provides four measures of the ranch business's projected ability to generate profit during the year following the inventory date: Rate of Return on Assets, Rate of Return on Equity, Operating Profit Margin Ratio, and Net Ranch Income. These measures are also important information for potential lenders or investors.

Profitability looks beyond whether the ranch simply has a positive or negative bottom line. These measures help evaluate the financial return being generated by the assets and equity invested in the business and the portion of gross revenue retained as operating profit.

Rate of Return on Assets (ROA)

Formula: (Projected Year 1 Economic Profit / Total Assets) x 100.

Total Assets are measured as of the inventory date.

This expresses projected Year 1 economic profit as a percentage of the ranch assets used to support the business.

Rate of Return on Equity (ROE)

Formula: (Projected Year 1 Economic Profit / Total Equity) x 100.

Total Equity is measured as of the inventory date.

This expresses projected Year 1 economic profit as a percentage of the owner's equity in the ranch business.

Operating Profit Margin Ratio

Formula: (Net Income from Operations + Interest Expense - Value of Unpaid Labor and Management) / Gross Revenues.

This measures the portion of gross revenue remaining as operating profit after accounting for operating expenses and the value of unpaid labor and management.

Net Ranch Income

Formula: Gross Revenues - All Expenses, without regard to the exchange of cash.

Net Ranch Income reflects normal profit without opportunity costs. It provides the normal-profit figure to compare with Ranch Vision's economic Profit/Loss measure.

How to use it: Review these measures together rather than relying on a single number. They provide different perspectives on the ranch's projected ability to generate earnings from its revenue, assets, and equity.