Measurement of Financial and Asset
Performance of Agricultural Farms:
Operational Proposal for a New Rating
Model for Agricultural Companies
for a Sustainable Development
of the Industry
Fabian Capitanio, Felice Adinolfi, Rania Itani, and Alessio Faccia
Abstract
The aim of this research paper is to suggest an operational
rating model that can be immediately used to improve the
finance scheme of agricultural companies. Currently,
banks are employing a rating model provided by Moody’s
that uses various weighted indicators and linking the
probability of default mainly to general and non-specific
factors. The sampling carried out by Moody’s to obtain
the probability of default was based on a small sample of
agricultural companies. In this study, the authors propose
the use of a new model based on the Altman EM score,
using the Italian RICA database (Agricultural Accounting
Information Network) and other variables derived from
reclassified financial statements. This approach facilitates
to emphasize how the national distribution of companies
by rating classes is unbalanced toward the vulnerability
area, central to the classification system used, by drawing
a normal Gaussian distribution with a slight negative
asymmetry. Therefore, the authors find out that for the
evaluation of the creditworthiness of the farms, it is
recommended to include in the calculation of the rating
“historical” and economic-financial quantitative data
(such as financial statements, income tax return), trend
data (such as Internal of the credit institutions and Central
Risks Database), qualitative, and others. The above
proposed rating model has been tested on many companies and applied immediately.
Keywords
Financial performance Á Asset performance Á Rating
model Á Agriculture Á Sustainable
development
JEL Classifications
G21 Á G22 Á G23 Á M41 Á Q14
1 Introduction
Agricultural systems have evolved a lot in recent years.
Academics and policy makers showed a lot of interested in
the subject of access to risk capital (Ullah et al. 2016). The
intensification of competitive pressure increases the farmer’s
exposure to the risk associated with business activity. In this
perspective, the use of credit is not only a tool to support the
on-going concern and the growth of the company, but also
an important resource for risk management (Eidman 1990).
In fact, where the potential harm of undesirable events is
limited to farmers, the risk can be usefully assessed with
ex-post measurements. The most common of these tools is
based on the use of credit and/or savings, to avoid reductions
in the level of consumption and guarantee an adequate level
of contribution capital. Accordingly, the consequences of a
harmful event can be distributed over time, and its correspondent cost is represented by the opportunity cost of the
financial reserves that must be moved to mitigate the effects.
Nowadays, access to loan capital and the availability of
adequate financial products are therefore an essential factor
F. Capitanio (&)
Università degli Studi di Napoli Federico II, Corso Umberto I, n,
40-80138 Naples, Italy
e-mail: fabian.capitanio@gmail.com
F. Adinolfi
Alma Mater Studiorum, Università di Bologna, Dipartimento di
Medicina Veterinaria, Bologna, Italy
R. Itani Á A. Faccia
American University in the Emirates, Dubai International
Academic City, P.O. Box: 31624 Dubai, UAE
© Springer Nature Switzerland AG 2020
M. Mateev and J. Nightingale (eds.), Sustainable Development and Social Responsibility—Volume 1,
Advances in Science, Technology & Innovation, https://doi.org/10.1007/978-3-030-32922-8_10
109
Performance of Agricultural Farms:
Operational Proposal for a New Rating
Model for Agricultural Companies
for a Sustainable Development
of the Industry
Fabian Capitanio, Felice Adinolfi, Rania Itani, and Alessio Faccia
Abstract
The aim of this research paper is to suggest an operational
rating model that can be immediately used to improve the
finance scheme of agricultural companies. Currently,
banks are employing a rating model provided by Moody’s
that uses various weighted indicators and linking the
probability of default mainly to general and non-specific
factors. The sampling carried out by Moody’s to obtain
the probability of default was based on a small sample of
agricultural companies. In this study, the authors propose
the use of a new model based on the Altman EM score,
using the Italian RICA database (Agricultural Accounting
Information Network) and other variables derived from
reclassified financial statements. This approach facilitates
to emphasize how the national distribution of companies
by rating classes is unbalanced toward the vulnerability
area, central to the classification system used, by drawing
a normal Gaussian distribution with a slight negative
asymmetry. Therefore, the authors find out that for the
evaluation of the creditworthiness of the farms, it is
recommended to include in the calculation of the rating
“historical” and economic-financial quantitative data
(such as financial statements, income tax return), trend
data (such as Internal of the credit institutions and Central
Risks Database), qualitative, and others. The above
proposed rating model has been tested on many companies and applied immediately.
Keywords
Financial performance Á Asset performance Á Rating
model Á Agriculture Á Sustainable
development
JEL Classifications
G21 Á G22 Á G23 Á M41 Á Q14
1 Introduction
Agricultural systems have evolved a lot in recent years.
Academics and policy makers showed a lot of interested in
the subject of access to risk capital (Ullah et al. 2016). The
intensification of competitive pressure increases the farmer’s
exposure to the risk associated with business activity. In this
perspective, the use of credit is not only a tool to support the
on-going concern and the growth of the company, but also
an important resource for risk management (Eidman 1990).
In fact, where the potential harm of undesirable events is
limited to farmers, the risk can be usefully assessed with
ex-post measurements. The most common of these tools is
based on the use of credit and/or savings, to avoid reductions
in the level of consumption and guarantee an adequate level
of contribution capital. Accordingly, the consequences of a
harmful event can be distributed over time, and its correspondent cost is represented by the opportunity cost of the
financial reserves that must be moved to mitigate the effects.
Nowadays, access to loan capital and the availability of
adequate financial products are therefore an essential factor
F. Capitanio (&)
Università degli Studi di Napoli Federico II, Corso Umberto I, n,
40-80138 Naples, Italy
e-mail: fabian.capitanio@gmail.com
F. Adinolfi
Alma Mater Studiorum, Università di Bologna, Dipartimento di
Medicina Veterinaria, Bologna, Italy
R. Itani Á A. Faccia
American University in the Emirates, Dubai International
Academic City, P.O. Box: 31624 Dubai, UAE
© Springer Nature Switzerland AG 2020
M. Mateev and J. Nightingale (eds.), Sustainable Development and Social Responsibility—Volume 1,
Advances in Science, Technology & Innovation, https://doi.org/10.1007/978-3-030-32922-8_10
109