Question #9
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 4
Status: Unattempted
Correct Answer: B
Question
Paying a cash dividend is most likely to result in:
Answer Choices:
A. an increase in liquidity ratios
B. the same impact on liquidity and leverage ratios as a stock dividend
C. an increase in financial leverage ratios
Explanation
A cash dividend will increase leverage ratios such as debt-to-equity and debt-to-assets,
reflecting a decrease in the denominator. A cash dividend should decrease liquidity ratios
such as the current ratio and cash ratio, due to the decrease in cash in the numerator.
Unlike a cash dividend, a stock dividend or a stock split has no impact on liquidity or
financial leverage ratios.