Earned Net Worth
This might be a term you haven’t heard, but it is an important one. This is an increase or decrease in your net worth that is a result of your operation’s success. Since the 1980s and the drop in farm land values, we have seen a fairly steady increase in farm land prices. Although your increasing net worth gives the appearance that you’re successfully making money each year, don’t forget to factor in real estate costs. If the value of your real estate is increasing, it could be camouflaging your real results. The advantage is in your favor in an environment with rising land prices, but what happens if land prices start declining? This will give you an indication if your operation is actually making money on a year over year basis no matter how the real estate market is performing. Earned net worth can be calculated as follows: Total Assets (using cost of real estate) – Total Liabilities = Earned Net Worth.
