Scottish farm business income: annual estimates 2015-2016

5. Financial Strength (Assets and Liabilities)

5.1 Net worth ( Table 10)

The net worth of farm businesses is an important factor in determining the value of the business. Farm businesses are capital intensive and typically have high asset values which are not included in income measures. The average appreciation of business assets in 2015-16 was £51,700 (ranging from an appreciation of £50,000 for owner-occupied farms to £57,400 for mixed tenure farms). The average net worth of farm businesses in Scotland was £1.3m, an increase of four per cent in 2015-16.

Figure 10 shows the average change between opening and closing valuations in 2015-16 (in actual prices) for assets, liabilities and net worth of Scottish farm businesses by tenure type and the overall average for all tenures.

Figure 10: Change in assets, liabilities and net worth by tenure: 2015-16

For all farm types of all tenures, the average assets, liabilities and net worth each increased by four per cent in 2015-16 (£51,700, £5,200 and £46,400 respectively).

5.2 Debt ratio ( Table 10)

Figure 11 shows the debt ratios (liabilities:assets) expressed as percentages for each farm type and tenure. The debt ratio provides an insight into how indebted the sector is and its ability to service those debts. On average, Scottish farm businesses have relatively low debt ratios (liabilities were ten per cent of assets in 2015-16), reflecting the fact that their assets heavily outweigh their liabilities.

Figure 11: Liabilities as a percentage of assets in 2015-16

Tenanted farm businesses, where relatively little capital is owned, have higher debt ratios than other tenure types. However, on average assets still outweigh liabilities by about six to one; that is, for every pound of debt, the tenanted business has at least six pounds of assets. For owner occupied farm businesses, assets are on average around 11 times greater than liabilities and for mixed tenure types, assets are on average seven times greater than liabilities.

Specialist sheep ( LFA) farms had the lowest debt ratio on average for all tenures, at six per cent. Dairy farms had the highest ratio at 14 per cent, while those of other farm types lay between eight per cent and 13 per cent.