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Abstract

The four profitability measures recommended by the Farm Financial Standards Task Force have limitations for examining wealth creation. Non-farm corporations, by contrast, have started to use Economic Value Added (EVA) to measure wealth creation. EVA has some advantages over other financial ratios because it fully accounts for the resources used on the farm and it includes both realized and unrealized capital gains in the calculation. This article examines the EVA metric for three years of farm financial data to determine if it provides additional information about wealth creation and profitability than do the other four ratios. Factors that help predict EVA are also examined.

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