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

Alexander Zorn, Michele Esteves, Ivo Baur and Markus Lips
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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

Sustainability, 2018, vol. 10, issue 8, 1-20

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.

Keywords: agriculture; sustainability assessment; indicator; accounting; financial ratio; farm management (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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