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

Question

A firm wants to strengthen its financial position. Which 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. Use cash to repurchase some of the company's own stock. c. Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. d. Issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash. e. Use cash to increase inventory holdings.

Explanation / Answer

A.This will increase cuurent liabilties with no change in the current asset. Hence, the current ratio will not improve.

B.This will decrease current assets and will not improve current ratio

C.It will be decrease current assets, it will not improve current ratio.

D.This will increase inventory,so, the current ratio will improve.

E.This will increase inventory,and reduce cash , so current assets does not change. So no change in current ratio.

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