Measuring Cow-Calf Profitability       
     Rather than net income, return on assets (ROA) is a comprehensive measure of profit and managerial efficiency, according to Barry Dunn of South Dakota State University’s Animal and Range Science Department. Profit, as defined by ROA, is a relationship between production, marketing, annual expenses and investment of a beef cattle business.
     “Profit can arise from many combinations of these four basic units,” Dunn says. “However, there is strong indication that in consideration of risk and opportunity, a management strategy of low levels of investment, average levels of production, low levels of total annual costs, and above average marketing will help cattlemen achieve profitability and financial efficiency.”
     Dunn’s research indicates profitability has little to do with size and scale. Big operators don’t have an advantage, but financially smart operators do. Production efficiency is only part of the profit equation. Just as important is managerial efficiency.
     Dunn warns that using the right denominator to express efficiency measurements is important. Expressing efficiency ratios on a per cow, or per acre basis can be misleading. He recommends expressing income, costs and investment per hundredweight of weaned calf, calling it the most statistically sensitive measure.
								— Troy Smith