Future Business Leaders of America (FBLA) Agribusiness Practice Test

What can affect a business's repayment capacity?

1. The overall market trends

2. Changes in interest rates

3. The volume of goods sold and expenses

4. The number of employees

The correct answer is: The volume of goods sold and expenses

The volume of goods sold and expenses plays a crucial role in determining a business's repayment capacity. This is primarily because a company's cash flow is directly impacted by its sales revenue and operating expenses. When a business sells more goods, it generates higher income, which provides the financial resources necessary to cover obligations, including loan repayments. Conversely, if expenses are high relative to sales, this can strain the business's budget and affect its ability to make timely repayments. For instance, if a business is able to maintain a healthy profit margin by effectively managing its costs while increasing sales, it will likely have sufficient cash flow to meet its debt obligations. On the other hand, poor sales performance or unexpected increases in expenses can hinder repayment capabilities, leading to financial distress. While overall market trends, changes in interest rates, and the number of employees can also influence a business's financial health, the direct relationship between the volume of goods sold, expenses, and cash flow makes this option the most impactful on repayment capacity. Market trends may affect sales, interest rates influence borrowing costs, and employee numbers can affect operational efficiency, but the most immediate factors impacting cash flow are the goods sold and associated expenses.