Farm production potential and its impact on the economic results have been varying, therefore, it is important to examine continually changes in economic activity and anticipate their after-effects. Lithuanian scientists often research the economic development of the agricultural sector, but econometric models in farms are not common-used yet. The structure of farm production potential sometimes does not ensure an effective use of the individual production factors, and investment is made without thorough economic calculations.
The objective of the study is to evaluate the production potential of Lithuanian farms, its impact on the production scale and financial stability under different farming conditions.
The study was carried out on the grounds of scientific literature on the application of mathematical statistics methods to evaluate farm production potential and on the employment of Altman’s model to predict the probability of farm bankruptcy.
The study deals with the analysis on production and labour resources and their effective use in Lithuanian farms according to their economic size, type of farming and land quality point in 2004-2008. This analysis, with reference to the production functions estimated for every farm group according to type of farming, economic size and land quality, enables to evaluate what impact on the amount per 1 hectare of agricultural output have changes in land quality, fixed and current tangible assets, and labour force. Depending on the elasticity coefficients of production potential factors, the investment trends that increase amounts of agricultural production were identified. Relative financial indicators of farms were calculated and employing Altman’s model was evaluated the probability of bankruptcy for groups of farms according type of farming, economic size and land quality in 2004-2011. It was identified that the amounts of farm production in 2004-2008 were inadequate to their assets. The proposed evaluation of the use of production potential, taking into consideration the production functions, enables to foresee a rational structure of farm production potential and key investment trends aiming to increase farm production amounts and efficiency. The critical level of key indicators that have an impact on the probability of farm activity bankruptcy was evaluated.