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Are cash discounts in the farm supply industry profitable?
Author(s) -
Bockhorn Mike,
Harris Kim
Publication year - 1989
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/1520-6297(198903)5:2<87::aid-agr2720050202>3.0.co;2-6
Subject(s) - profitability index , cash , cash conversion cycle , business , net present value , agribusiness , cash on cash return , cash and cash equivalents , cash flow , cash management , operating cash flow , economics , finance , monetary economics , microeconomics , production (economics) , agriculture , ecology , biology
The profitability of cash discounts offered by farm supply firms in southern Illinois is determined using a net present value model. Results suggest that cash discounts may reduce the profitability of farm supply firms: Among the 33 agribusinesses whose cash discounts were analyzed, over one‐half had unprofitable cash discounts. The average cost to the firms with unprofitable cash discounts was $38,800. Firms with profitable cash discount policies added, on average, about $67,600 to their firms' total profits. It was found that reducing cash discount rates is a major way to improve the profitability of cash discount policies.