- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 3. Analyzing Balance Sheets
- Subject 5. Ratios and Common-Size Analysis
CFA Practice Question
Working capital is $45,000. If the firm gets $18,000 by issuing common stock, what will happen to the current ratio?
B. It will remain unchanged.
C. It will increase.
A. It will decrease.
B. It will remain unchanged.
C. It will increase.
Correct Answer: C
The current ratio will increase. The current ratio is the relationship of current assets to current liabilities. Since the working capital (current assets - current liabilities) will be $63,000 after the stock issue, the current ratio will be (and was) greater than 1 to 1.
User Contributed Comments 4
| User | Comment |
|---|---|
| accounting | the issuing of stock increases assets |
| nagri | To be more precise, it should increase current assets and not just assets and in this case cash is increased |
| SaeedAlam | I'm guessing it should increase debit cash on one side and credit contibuted capital on the other side? |
| george1803 | Issuing stock will increase Assets on one side Stockholders Equity on the other side, Therefore, the current assets go up while the current liabilities stay the same so answer C |