Future Business Leaders of America (FBLA) Agribusiness Practice Test

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Enhance your FBLA Agribusiness knowledge with our comprehensive test. Dive into flashcards and multiple-choice questions, complete with hints and explanations, to ensure exam success. Prepare confidently for a bright future!

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How is the debt-to-asset ratio calculated?

  1. By dividing total liabilities by total assets

  2. By dividing total assets by total liabilities

  3. By subtracting total liabilities from total assets

  4. By adding total liabilities to total assets

The correct answer is: By dividing total liabilities by total assets

The debt-to-asset ratio is calculated by dividing total liabilities by total assets. This ratio provides insight into the financial leverage and overall risk of a company by showing the proportion of the company's assets that are financed through debt. A higher debt-to-asset ratio indicates more leverage and a greater reliance on borrowed funds, which can suggest higher financial risk. Conversely, a lower ratio indicates that a larger portion of the assets is financed through equity. Understanding this ratio is essential for assessing the financial health of a business and making informed investment or lending decisions. This measure is particularly important in agribusiness, where understanding the balance between liabilities and assets can influence operational decisions and long-term sustainability.

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