Land Payment per Acre Owned
How is it calculated?
(Annual Debt Payment on Land Loan + RE Taxes)/Owned Tillable Acres Operated
Goal of the Ratio
The goal of this ratio is to show the annual cost each acre of tillable land needs sufficient profitability to support. This figure would be the equivalent of cash rent per acre on rented land. The higher this figure, the higher the required profit to service the payment. The lower the figure, the lower the required profit to service the payment.
When is it used?
This is a calculation that is used in row crop businesses.
Rules of Thumb
Lower the Better - Having a lower land cost per acre is better because it effectively lowers the borrower’s breakeven point. With a lower breakeven point, the borrower’s operation is more able to absorb changes (changes in yield, changes in commodity prices, etc).
What changes in the ratio could mean:
Some example reasons why the Land Payment Per Acre Owned can change:
- Purchased additional land using debt financing
- Paid off or re-amortized existing land debt
- Sale of land
Other Relevant Terms
Want to Master Banking's Favorite Ratio?
The Debt Service Coverage Ratio (DSCR) is one of banking's favorite ratios. Want to ace it without breaking a sweat? No problem! We've got some simple, no-fuss pointers that will help you nail this ratio every time. You've got this!
Get the Cheatsheet NowNot Finding What You Are Looking For?
Let me know what terms, ratios or content you want to see covered.
Request Term or Ratio
Am I missing a key term or ratio? Let me know what you want to see covered.
Request Content
Do you have a topic idea you'd like to see covered? Send it my way.
Checkout Courses
Enhance your skills through a deeper understanding of your customers' businesses.
A bit about me
Greetings! I'm Clay Sharkey, and there is nothing I like more than assisting others in achieving their goals. I firmly believe that by enhancing a banker's understanding of their customer's' business, they can provide superior service. This superior service, in turn, leads to stronger relationships for the bank, improved performance for the businesses, and better experiences for our communities. Win-win-win.
