a farm business has an equity - to - asset ratio of 0.60 (60%). what is the businesss debt - to - asset…

a farm business has an equity - to - asset ratio of 0.60 (60%). what is the businesss debt - to - asset ratio? 0.20 (20%) 0.40 (40%) 0.67 (67%)

a farm business has an equity - to - asset ratio of 0.60 (60%). what is the businesss debt - to - asset ratio? 0.20 (20%) 0.40 (40%) 0.67 (67%)

Answer

Explanation:

Step1: Recall accounting - asset formula

Assets = Liabilities+Equity.

Step2: Express ratios

Equity - to - asset ratio = $\frac{Equity}{Assets}=0.60$. Let Debt = Liabilities. Then Debt - to - asset ratio = $\frac{Debt}{Assets}=\frac{Assets - Equity}{Assets}=1-\frac{Equity}{Assets}$.

Step3: Calculate debt - to - asset ratio

Substitute $\frac{Equity}{Assets}=0.60$ into the formula: $1 - 0.60=0.40$.

Answer:

0.40 (40%)