Two Christchurch academics are questioning the company's use of the formula of economic net interest-bearing debt relative to interest-bearing debt plus equity to calculate gearing, saying it was not an accurate measure because it excluded some large liabilities.
However, Fonterra's chief financial officer, Jonathan Mason, said the difference came down to the treatment of suppliers payable - the portion of the milk price still owed to its shareholder-suppliers.
Gearing is a measure of financial leverage, or the degree which a firm's activities are funded by owner's funds versus creditor's funds.
Fonterra calculates its gearing ratio as the amount of interest-bearing debt relative to the interest-bearing debt plus equity.
Mr Mason said suppliers' payable of $1.138 billion, owed to the owners of the company, was excluded because it did not have the same status as a liability owed to trade suppliers.
Accounting rules applied to co-operatives allowed it to be treated differently, and rating agencies also accepted the calculation.
However, Lincoln University's head of agribusiness and farm management, Keith Woodford, said while Fonterra's gearing was improving, from 53% a year ago to 44.9%, he believed a more accurate and better understood calculation was the ratio of total liabilities to total capital.
If this method was used, Prof Woodford wrote in his blog, Fonterra's gearing would be 60%, down from 66% a year ago, and 79% in 2008-09.
"Looking at it another way, equity is now at about 40% of total capital where it was only just over 20% back in January 2009.
"This is a huge improvement but still not high enough to allow a lot more debt to be taken on."
An independent Christchurch financial commentator and co-operative business consultant, Alan Robb, said all debt and all equity should be taken into account.
Writing in a column in the Dairy Exporter, Mr Robb saidof $8.5 billion in liabilities,net interest-bearing debt was $4.26 billion, with the balance made up of $1.25 billion intrade and other payables, $1.14 billion owing to suppliersand other liabilities and provisions for tax.
Information supplied by Fonterra reveals economic net interest-bearing debt at balance date was $4.494 billion, down from $5.931 billion in 2008.
Mr Robb said Fonterra was not alone in doing this, but it did not make it an "informative or reliable calculation".
"Gearing is a measure of the financial risk of a business. It shows the relative extent to which assets have been financed by debt or equity."
While gearing can be determined using other formula, Mr Robb said Fonterra's ratio of debt to debt plus equity was 60%, not 44.9%, and not the strongest in its history.
Fonterra's annual report reveals it has lost 823 shareholders in four years and 70 in the past year, but collectively those that remain are producing more milk.
Milk collected by the co-operative has increased from 1.210kg of milk solids (kg/ms) in 2006 to 1.286 billion kg/ms last year.
As at May 31, Fonterra had 10,463 shareholders and another 3733 sharemilkers compared to 11,286 shareholders and 3926 sharemilkers at the same date in 2006.
The number of shares Fonterra has on issue has increased from 1.216 billion in 2009 to 1.343 billion at the reporting date.
While Fonterra is handling more milk, it is employing fewer people to process, handle and market it, from 17,400 worldwide in 2006 to 15,800 people in 2010, of which 9800 are in New Zealand and 6000 overseas.
Earlier, Fonterra reported a $6.70 payout before retentions for last season, made up of a milk price of $6.10, 27c a share dividend and 33c a share retention.
Revenue rose 4% to $16.7 billion, driven mainly by a 7% increase from commodities and ingredients, including hedging gains.
Normalised earnings before interest and tax (ebit) fell from $1 billion to $904 million, reflecting higher earnings from the consumer business being offset by reduced earnings from ingredients due to pressure on margins.
