CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following will lead to a reduction in the long-term debt to equity ratio?
A. Successfully implementing a cost reduction program which will reduce COGS by 10%
B. Paying outstanding bills from suppliers
C. Raising new long-term funding from bank loans and paying a one-off dividend to shareholders
Explanation: By reducing the cost base, the firm is likely to make higher profits. These profits will add to equity and therefore reduce the debt to equity ratio. Paying outstanding bills from suppliers does not reduce the debt to equity ratio as it relates to short-term debt. Paying a one-off dividend to shareholders reduces equity and raising new funding from bank loans increases long-term debt.

User Contributed Comments 2

User Comment
chenyx cost decrease----profit increase----equity increase----debt to equity decrease
vinoth84 Thanks for explaining better
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