Title page for ETD etd-12232009-020554


Type of Document Master's Thesis
Author Jarvis, Marilyn Adams
URN etd-12232009-020554
Title Credit risk-rating system for agricultural leases
Degree Master of Science
Department Agricultural Economics
Advisory Committee
Advisor Name Title
Kohl, David M. Committee Co-Chair
McGuirk, Anya M. Committee Co-Chair
White, Alexander B. Committee Member
Keywords
  • operating expense to revenue
  • capital turnover
  • return on assets
  • cash flow coverage ratio
  • current ratio
  • Credit ratings Agricultural leases issued to fores
  • 1990
  • dairy and cash crops operators from 1980-1992 are
  • literature review and the Recommendations of the F
  • operator/lessee and farmer/operator variables are
  • Inc. are used to develop a model to explain lease
  • dairy
  • and crops industries. Results show that for forest
  • lessee/operator
  • cash flow coverage
  • and farmer/operator variables are useful in determ
  • years in business
  • capital turnover
  • gross revenue
  • cash flow coverage
  • and owner's equity. The dairy results indicate tha
  • return on assets
  • capital turnover
  • operating expense to revenue
  • FHA loansecured
  • owner's equity
  • and gross revenue. The crop results indicate perce
  • interest to income
  • real estate owned
  • years in business
  • FHA
Date of Defense 1992-12-05
Availability restricted
Abstract
Agricultural leases issued to forestry, dairy and cash crops operators from 1980-1992 are reviewed to determine factors statistically significant in predicting risk level (probability of default and/or probability of late payment) of the lessee for each industry. From a previous study of Telmark, 1990, literature review and the Recommendations of the Farm Financial Standards Task Force financial, operator/lessee and farmer/operator variables are selected for analysis.

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.

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