A farm firm that has relatively more equity than another farm firm is

A farm firm that has relatively more equity than another farm firm is

• A. More solvent
• B. More leveraged
• C. Illiquid
• D. Insolvent

Answer: (A)

Solvency is the key idea here: it’s about whether a firm can meet its long-term obligations. When a farm has relatively more equity, it has a larger owner’s cushion to cover debts if things dip—assets minus liabilities stays positive by a wider margin, which strengthens creditworthiness and the ability to weather downturns. Having more equity also means less use of debt. Leverage is about how much debt a firm uses relative to its equity, so more equity typically means the firm is less leveraged, not more. Illiquidity concerns the ability to convert assets to cash quickly to cover short-term needs, which isn’t directly about how much equity a firm holds. Insolvent means liabilities exceed assets, which is unlikely when equity is higher because assets still exceed liabilities by a bigger amount. So, the firm with more equity is more solvent because its financial cushion against losses is larger, supporting long-term financial stability.

Solvency is the key idea here: it’s about whether a firm can meet its long-term obligations. When a farm has relatively more equity, it has a larger owner’s cushion to cover debts if things dip—assets minus liabilities stays positive by a wider margin, which strengthens creditworthiness and the ability to weather downturns.

Having more equity also means less use of debt. Leverage is about how much debt a firm uses relative to its equity, so more equity typically means the firm is less leveraged, not more. Illiquidity concerns the ability to convert assets to cash quickly to cover short-term needs, which isn’t directly about how much equity a firm holds. Insolvent means liabilities exceed assets, which is unlikely when equity is higher because assets still exceed liabilities by a bigger amount.

So, the firm with more equity is more solvent because its financial cushion against losses is larger, supporting long-term financial stability.