If total farm equity is 350,000 and total farm assets are 500,000, the equity to asset ratio is which value?

If total farm equity is 350,000 and total farm assets are 500,000, the equity to asset ratio is which value?

• A. 0.70
• B. 0.35
• C. 1.43
• D. 0.50

Answer: (A)

The key idea is that the equity to asset ratio is equity divided by assets. It shows what portion of the farm’s assets is financed by owner equity versus debt. Here, 350,000 divided by 500,000 equals 0.70, or 70%. So the farm’s assets are 70% funded by equity and 30% by liabilities. This is the correct interpretation for the given numbers; reversing the calculation (assets divided by equity) would give about 1.43, not 0.70, and would not reflect the provided figures.

The key idea is that the equity to asset ratio is equity divided by assets. It shows what portion of the farm’s assets is financed by owner equity versus debt. Here, 350,000 divided by 500,000 equals 0.70, or 70%. So the farm’s assets are 70% funded by equity and 30% by liabilities. This is the correct interpretation for the given numbers; reversing the calculation (assets divided by equity) would give about 1.43, not 0.70, and would not reflect the provided figures.