Corporate Finance【Reading 39】Sample
Paying a cash dividend is most likely to result in: A)
| an increase in financial leverage ratios. |
| B)
| an increase in liquidity ratios. |
| C)
| the same impact on liquidity and leverage ratios as a stock dividend. |
|
A cash dividend will increase leverage ratios such as debt-to-equity and debt-to-assets, reflecting a decrease in the denominator. A cash dividend should decrease liquidity ratios such as the current ratio and cash ratio, due to the decrease in cash in the numerator. Unlike a cash dividend, a stock dividend or a stock split has no impact on liquidity or financial leverage ratios. |