An Analysis of the Profitability and Liquidity Situation of Hungarian Agricultural Enterprises in the Period 2005-2014

Varga, József – Sipiczki, Zoltán

Keywords: agricultural financing, liquidity, profitability, O11, Q14

This article analyses the profitability and liquidity of Hungarian agricultural enterprises, from the Hungary’s Farm Accountancy Data Network (FADN) agricultural businesses database operated by the Hungarian Research Institute of Agricultural Economics. The analysis works with the data of the statistically closed 2005–2014 period.
The article describes characteristics of the database which are important in the test business system’s point of view. After that it includes a financial analysis based on financial index numbers, particularly relationships between the optimal firm size (balance sheet total), the equity, the liquidity and the profitability. It can be explored as an important link that in the case of individual farms higher profitability is related to bigger size, but in the case of joint ventures the benefits of economies of scale are decreasing.
The basic idea of the article is that in agriculture funding, liquidity and profitability are closely related. This relationship is analysed by a figure containing the two indexes merged. In the case of individual and corporate enterprises the relationship between the liquidity and profitability are much separated. For joint ventures the data show positive correlation between liquidity and profitability, but they have only weak explanatory power (correlation=0.38). So, too low liquidity can be a barrier to the company’s operation, but in our sample at 2.5 liquidity ratio the further profitability growth stops, or even decreases slightly. Individual farmers have extremely high liquidity indicators and a stronger negative correlation (correlation=-0.636) can be detected between liquidity and profitability.