Which of the following actions can a firm take to increase its current ratio?
A) Issue short-term debt and use the proceeds to buy back long-term debt with a maturity of more than one year.
B) Reduce the company's days sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment.
C) Use cash to purchase additional inventory.
D) Statements a and b are correct.
E) None of the statements above is correct.

Question

Quizplus · Accepted Answer

Issuing short-term debt or reducing days sales outstanding to purchase long-term assets or equipment does not increase the current ratio. Using cash to purchase inventory does not change the current ratio as both are current assets.

Which of the Following Actions Can a Firm Take to Increase