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CFA Level 1 Question of the Week - Corporate Finance
Matt_AnalystPrep
MontrealPosts: 141 Associate
Which of the following statements are most likely true regarding cash dividends?
I. Cash dividends decrease the current ratio.
II. Cash dividends decrease the debt-to-assets ratio.
III. Cash dividends increase the debt-to-equity ratio.
CFA Level 1 Question of the Week - Corporate Finance 12 votes
A. I & III only
91%
11 votes
B. II & III only
0%
0 votes
C. I, II & III
8%
1 vote
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Comments
Declaring cash dividends decreases 'cash' and 'equity'. Therefore, it decreases the current ratio (Current assets / Current liabilities), and increases the debt-to-asset ratio (Total debt / Total assets) and the debt-to-equity ratio (Total debt / Total equity).