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The ability of a sheep enterprise to service increasing levels of drought-related debt is directly related to the enterprise's ability to generate a large cash surplus after paying variable costs, living expenses, fixed costs and tax. Three typical sheep enterprises with gross margins (GM) ranging from $15 to $25 per DSE were analysed at 10 DSE/ha increasing to 12.5 and 15 DSE/ha. These enterprises were overlaid with various levels of debt, ranging from $200,000 to $2,000,000, and assessed using a 10-year 'cash flow' calculator. Interest rates were varied from 8.5% to 12.5% for the overdraft account and 7% to 10.5% for the term loan. The analysis included one-and-a-half years of Exceptional Circumstance assistance as a subsidy equalling 80% of the interest. Each enterprise was inflicted with a 12 and 24-week period of further drought feeding. Each analysis included $50,000 of living expenses and overhead costs varied from $30,000 up to $50,000 to account for increased labour cost for higher stocking rates. The number of ewes ranged from 4,000 to 6,000 and the cost of increasing ewe numbers was included. The results indicated that a sheep enterprise with a GM of $15/DSE at a stocking rate of 10 DSE/ha would have difficulty servicing a $200,000 debt where as an enterprise with a GM of $25/DSE at a stocking rate of 15 DSE/ha could possibly service a debt of $2,000,000.


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