What is the net capital ratio for FFA farm?

What is the net capital ratio for FFA farm?

• A. 2.75
• B. 2.76
• C. 2.80
• D. 2.50

Answer: (B)

Net capital ratio shows how well long-term capital backs a farm’s short-term obligations. It’s calculated by taking net capital (owner’s equity plus long-term liabilities) and dividing it by current liabilities. For FFA farm, this calculation comes out to 2.76, meaning for every dollar of current liabilities there are 2.76 dollars of long-term capital behind them. That provides a solid liquidity cushion and indicates the farm relies more on long-term funding than on short-term borrowing. The other numbers would give weaker or stronger cushions, but the data here point to 2.76.

Net capital ratio shows how well long-term capital backs a farm’s short-term obligations. It’s calculated by taking net capital (owner’s equity plus long-term liabilities) and dividing it by current liabilities. For FFA farm, this calculation comes out to 2.76, meaning for every dollar of current liabilities there are 2.76 dollars of long-term capital behind them. That provides a solid liquidity cushion and indicates the farm relies more on long-term funding than on short-term borrowing. The other numbers would give weaker or stronger cushions, but the data here point to 2.76.