You constructed a pro forma balance sheet for next year and found that external financing required was negative (i.e. ,the company projected a financing surplus).Which of the following options,all else equal,would NOT correct the projected imbalance?
A) A stock repurchase
B) A decrease in accounts payable
C) An increase in cash and marketable securities
D) An increase in the retention ratio

Question

Quizplus · Accepted Answer

A negative external financing required indicates a surplus of funds. Options A, B, and C utilize this surplus by either returning funds to shareholders, reducing liabilities, or increasing assets, respectively. Option D, increasing the retention ratio, implies the company retains more earnings rather than distributing them, which does not directly utilize the surplus funds to correct the imbalance.

You Constructed a Pro Forma Balance Sheet for Next Year