Credit risk-rating system for agricultural leases
MetadataShow full item record
Data obtained from Telmark,Inc. are used to develop a model to explain lease risk level of the forestry, dairy, and crops industries. Results show that for forestry the following financial, lessee/operator, and farmer/operator variables are useful in determining riskiness: operating expense to revenue, cash flow coverage, capital turnover, years in business, gross revenue, and owner's equity. The dairy results indicate that the following variables are important: current ratio, cash flow coverage, return on assets, capital turnover, operating expense to revenue, FHA loan secured, owner's equity, and gross revenue. The crop results indicate percent equity, current ratio, cash flow coverage ratio, return on assets, capital turnover, operating expense to revenue, interest to income, real estate owned, years in business, FHAloan-secured, and owner's equity are significant variables for determining lease risk.
Using the results from these models, a weighted average cost of misclassifying a lease is calculated. This is used to develop a profit maximizing criterion for determining whether a lease is high or low risk.
The need for future work is discussed. In the area of weighted average cost of misclassifying a lease, additional information on the costs of leasing and riskiness of the population would aid in reducing the misclassified leases in the portfolio.
Further study exploring some of the unexpected results in this study would be beneficial to both the lessee and the lessor.
- Masters Theses