All other things held constant, which of the following ratios would not be improved if a company structures a leasing transaction as an operating lease rather than a capital lease?
A) Debt to equity ratio
B) Return on investment
C) Price-earnings ratio
D) Quick ratio

Question

Quizplus · Accepted Answer

The quick ratio measures a company's ability to pay off short-term liabilities immediately using its most liquid assets. Structuring a lease as an operating lease would not have an impact on the quick ratio since lease payments are considered operating expenses and do not affect liquidity. However, structuring a lease as an operating lease could improve the debt to equity ratio and price-earnings ratio by reducing the amount of capital leased assets on the balance sheet and increasing net income. It could also potentially improve the return on investment by reducing the amount of investment in long-term assets.

All Other Things Held Constant, Which of the Following Ratios