Scottish farm business income: annual estimates 2013-2014

5. Financial Strength (Assets and Liabilities)

5.1 Net worth (Table 10)
The net worth of farm businesses is an important determinant of the value of the business. Farm businesses are capital intensive and typically have high asset values which are not included in income measures. The appreciation of business assets in 2013-14 exceeded the income generated from farming activities. The average net worth of farm businesses in Scotland was £1.3m.

Figure 9 shows the average change between 2012-13 and 2013-14 (in actual prices) of assets, liabilities and net worth of Scottish farm businesses by tenure type and the overall average for all tenures.

Figure 9: Change in assets, liabilities and net worth by tenure, 2013-14

Overall, asset values increased by around two per cent (£33,000) while liabilities increased by around five per cent (£6,000), resulting in an overall increase of two per cent (£27,000) in net worth. Tenanted farms, on average, have seen a fall in assets of -£11,000 which has led to 0.7 percentage point increase in the debt ratio compared to a 0.2 percentage point increase for the other tenure types.

5.2 Debt ratio (Table 10)
Figure 10 shows the debt ratio (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. Overall, Scottish farm businesses have, on average, relatively low debt ratios (liabilities nine per cent of assets), reflecting the fact that their assets heavily outweigh their liabilities.

Tenanted farm businesses, where relatively little capital is owned, have higher debt ratios, though 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 12 times greater than liabilities.

Figure 10: Liabilities as a percentage of assets, 2013-14

Cereal, general cropping and specialist sheep farms had the lowest debt ratio, at seven per cent. Dairy farms had the highest ratio at 14 per cent, while those of other farm types lay between ten per cent and 12 per cent; the overall average debt ratio was nine per cent.