13. A firm wants to strengthen its financial position. Wch of the following acti

Question

13. A firm wants to strengthen its financial position. Wch of the following actions would INCREASE its current ratio?



a) Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year.
b) Reduce the company's days' sales outstanding ratio to the industry average and use the resulting cash savings to purchase plant and equipment.
c) Use cash to increase inventory holdings.
d) Use cash to repurchase some of the company's own stock.
e) Issue new stock and use some of the proceeds to purchase additional inventory and hold the remainder of the funds received as cash.

Explanation / Answer

Since current ratio is current assets divided by current liabilities the answer is e). This increases current assets without changing current liabilities.

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