Using market values, what is the farm's ratio of total debt to equity?

Using market values, what is the farm's ratio of total debt to equity?

• A. 0.50
• B. 0.57
• C. 0.60
• D. 0.65

Answer: (B)

Debt-to-equity ratio using market values shows how much funding comes from debt relative to owner capital. Compute it by dividing total debt by total equity, using the market values of both. If the calculated ratio is 0.57, that means debt is 57% of equity (for every dollar of equity, there are 57 cents of debt). This aligns with the given option of 0.57, making it the best choice. In practical terms, a 0.57 ratio indicates moderate leverage—debt financing is present but not excessive compared with equity. If the ratio were 0.50, debt would be 50% of equity; 0.60 would be 60%; 0.65 would be 65%.

Debt-to-equity ratio using market values shows how much funding comes from debt relative to owner capital. Compute it by dividing total debt by total equity, using the market values of both. If the calculated ratio is 0.57, that means debt is 57% of equity (for every dollar of equity, there are 57 cents of debt). This aligns with the given option of 0.57, making it the best choice. In practical terms, a 0.57 ratio indicates moderate leverage—debt financing is present but not excessive compared with equity. If the ratio were 0.50, debt would be 50% of equity; 0.60 would be 60%; 0.65 would be 65%.