Most decisions made by management impact the ratios analysts use to evaluate per

Question

Most decisions made by management impact the ratios analysts use to evaluate performance. Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is less than 1.0 before the action is taken Current Ratio Acid-Test Debt to Action Ratio Equity Ratio 1. Issuance of long-term bonds 2. Issuance of short-term notes 3. Payment of accounts payable 4. Purchase of inventory on account 5. Purchase of inventory for cash 6. Purchase of equipment with a 4-year note 7. Retirement of bonds 8. Sale of common stock 9 Write-off of obsolete inventory 101 Purchase of short-term investment for cash 11, Decision to refinance on a long-term basis some currently maturing debt

Explanation / Answer

Current ratio Acid-test ratio Debt to equity ratio 1 I I I 2 I I I 3 D D D 4 I D I 5 N D N 6 N N I 7 D D D 8 I I D 9 D N I 10 N N N 11 I I N

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