# 9 50:50 Sharemilkers: Equity and Capital Financial Analysis

## 9.1 Introduction

This section considers the equity and capital position of dairy farms, with additional information about trends over time in these positions.

Operating return on dairy assets was at 12.4 percent for sharemilkers, while total return on assets was measured at 18 percent. The level of debt to assets increased to 61.6 percent at close, while term liabilities of $3.78 per kilogram milksolids was similar to the previous season. ## 9.2 Dairy Assets Total dairy assets increased in value by$10,474 during the 2018-19 season, closing at $1.0 million per farm. Livestock accounted for 75 percent of total closing dairy assets, following a small decrease in value throughout the season. ## 9.3 Liabilities and Debt Servicing The flow of funds (Table 9.1) shows the components of the change in working capital, including the source and application of cash funds. Funds for 2018-19 were mostly from farm operations. Term debt increased ($33,643) on loans by the close of the season. Of the funds applied, 27% was spent on drawings, 46% was spent on capital transactions and 15% was spent on interest payments. Tax payments required 12 percent of funds at $30,109 per herd. Table 9.1: Flow of funds 2017-18 2018-19 WORKING CAPITAL: Change in Current Assets 2,932 -24,375 - Change in Current Liabilities 15,668 -10,322 Change in Working Capital -12,736 -14,053 SOURCE OF FUNDS: Cash Operating Surplus 169,323 213,273 + non-dairy cash income 1,996 2,659 + net off-farm income 4,071 5,230 + introduced funds 14,806 -19,006 + income equalisation 0 470 + increase in term debt 20,730 33,643 = Total source of funds 169,466 222,216 APPLICATION OF FUNDS: rent 2,320 827 + interest 31,626 36,976 + tax 24,199 30,109 + capital transactions 49,540 113,811 + drawings 74,517 67,169 = Total application of funds 182,202 248,891 Source less Application of funds -12,736 -26,675 The average 50:50 sharemilkers cash operating surplus was$213,273, which was well above the previous season’s $169,323. This level of cash operating surplus for 2018-19 translates to around$1.15 per kilogram milksolids, the same as last season’s level. In 2018-19, the average level of discretionary cash of $153,251 per farm was well above last season’s at$113,174 (Table 13.5). It continued the strong position also observed in 2016-17, in strong contrast to the instance in 2015-16 where discretionary cash was negative (-$31,172). Typically, these funds are required to reduce debt, sustain drawings and to fund capital expenditure. For the 2018-19 season, term liabilities declined from$3.78 relative to the 2017-18 season of $3.81. Interest and rent expenditure at 20 cents per kilogram milksolids was 3 cents less than the previous year. Interest and rent per dollar of gross farm revenue decreased from 6.1% to 5.6% (Table 9.2). Table 8.1: Debt Servicing Ratios 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 DEBT SERVICING: Interest & rent$/kg MS 0.38 0.35 0.26 0.27 0.27 0.24 0.27 0.25 0.23 0.20
Interest & rent % GFR 10.9% 8.2% 6.5% 7.0% 6.2% 7.1% 11.5% 7.3% 6.1% 5.6%

## 9.5 Returns

The operating return on dairy assets (excluding capital appreciation) is discussed under profitability (see Section 7.3). Total return on assets (profit including capital change generated by the assets employed) in 2018-19 was 18 percent, as shown in Figure 9.1. Net returns from dairy activity yielded $116,649 across the 2018-19 season, combined with an average change in capital value of$82,092 per herd. Sharemilker returns are more volatile than those earned by Owner-operators due to livestock being their most significant asset class and livestock values fluctuating with greater magnitude than land prices.

Figure 9.1: Owner Operator Total Return on Assets

Total returns on sharemilkers equity averaged an increase of 36.7% in 2018-19. This was well above last seasons -2.9% return.