A firm wants to strengthen its financial position.Which of the following actions would increase its current ratio?
A) Use cash to increase inventory holdings.
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 repurchase some of the company's own stock.
D) Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year.
E) Issue new stock and then use some of the proceeds to purchase additional inventory and hold the remainder as cash.

Question

Quizplus · Accepted Answer

Issuing new stock and using some of the proceeds to purchase additional inventory while holding the remainder as cash increases both current assets (cash and inventory) without increasing current liabilities, thus improving the current ratio.

A Firm Wants to Strengthen Its Financial Position