firm wants to strengthen its financial position. Which of the following actions

Question

firm wants to strengthen its financial position. Which of the following actions would increase its current ratio? O Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment Use cash to repurchase some of the company's own stock. Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year o Issue new stock and then use some of the proceeds to purchase aditional inventory and hold the remainder as cash o Use cash to increase inventory holdings

Explanation / Answer

Ans Issue new stock and then use some of the proceeds to purchase additional inventory and hold the remainder as cash.

Issue of Stock leads to generation of Cash/Bank. Once the cash/Bank is generated it can be converted into inventory. In this way cash and inventory both leads to increase in current assets.

Issue of new stock affects equity side. It does not affect current liabilities.

Thus, increase in current assets and no effect on current liabilities will increase the current ratio (current assets/ current liabilities).

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.