Hamish Macbeth wrote in message
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"Jim Webster" wrote in message
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Hamish Macbeth wrote in message
So that is why I chose return on capital. Most businesses do
function on invested capital.


But what figure do you use as capital when you own the farm?

we would basically take the capital as the money we would get if we
cashed everything in. Value of house, land, livestock, machinery, quota,
feed and fertiliser in hand.


To give a non-farming analogy. Lord Bath owns the Longleat Estate and
runs a
bussiness from it.
Do you treat the value of the estate as the captitol and consider the
turnover and profits in relationship to that?

If it was just his private house, and he ran a taxi firm from it, I
wouldn't. In his case the house and access to it is part of the business
so you have to take the value in.
Remember with a lot of these estates that the value might be enhanced if
you could demolish the house and rebuild something of your own design.
In a lot of cases the house is more of a millstone than an asset.


Or do you think his family already owned it as a private property and
utilise it to earn cash. A bit like someone owning a family car and
earning
a little extra money weekends doing private car hire.

If you count the value of the estate as the capitol then you will
probably
deduce he could do better putting the money in the building society
and that
he is running the bussiness on poor returns.

most businesses which are land based fall into that category in the UK.
In the US when land prices are lower they expect a far higher return on
capital.
Remember that the owner of a town centre shop may also be in a similar
position, and from memory several store chains have also had this
problem, they were at risk of being bought up purely for the new owner
to sell sites for development.

If you treat it as a mechanism by which he enjoys the continued
ownership of
a vast estate that otherwise would be lost to his heirs in taxes and
the
capitol is only the extras spent purely to run the business, then the
return
on capitol can look very good.

Your farm may be worth a million pounds as bare land and fixed
buildings but
you could count this as something you own and you run a business to
maintain your possesion. in which case only the non-fixtures count as
business capitol.

remember in many cases the business is paying the mortgage (or
attempting to) so the return on capital of a farm has to take into
account the capital value of land and buildings because it is the
business which has to fund the purchase of them. Longleat or similar is
unusual in this regard. In the case of most farms, even if the current
owner never had to buy the assets on the open market, they will have
often had to buy them off parents (so that parents could afford to
retire) or siblings (as your brothers and sisters are entitled to their
share.

A farm is somewhat different to most businesses, say a hairdressers or
retail shop where the bussiness premisses are normally not part of the
owners private and personal life. There is not the seperation between
what
is enjoyed as a personal posestion and life enhancement and what is
the
source of income.

if you are a businessman, the bank can demand security for your loan and
take your private house as security. In small businesses there is very
little separation between personal and business until you get to the
level where all the managers are employees of the company.


I know that the whole thiing may have been bought under a business
loan but
there is still the duality with a farm that does not exist in most
business
activities.

if you compare farms with businesses of similar size and turn over I
think you will find remarkable similarities. Look at pub landlords,
(whether owner or tenant) privately owned garages and similar.


--
Jim Webster

"The pasture of stupidity is unwholesome to mankind"

'Abd-ar-Rahman b. Muhammad b. Khaldun al-Hadrami'