Deck 4: Analysis of Financial Statements

Question 1

The days sales outstanding ratio tells us how long it takes,on average,to collect after a sale is made.The DSO can be compared with the firm's credit terms to get an idea of whether customers are paying on time.

Answer 1

True

Question 2

High current and quick ratios always indicate that the firm is managing its liquidity position well.

Answer 2

False

Question 3

The current and quick ratios help us measure a firm's liquidity.The current ratio measures the relationship of the firm's current assets to its current liabilities,while the quick ratio measures the firm's ability to pay off short-term obligations without relying on the sale of inventories.

Answer 3

True

Question 4

The operating margin measures operating income per dollar of assets.

Question 5

Profitability ratios show the combined effects of liquidity,asset management,and debt management on a firm's operating results.

Question 6

Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.

Question 7

If a firm's fixed assets turnover ratio is significantly higher than the average for its industry,then it could be that the firm uses its fixed assets very efficiently or is operating at over capacity and should probably add fixed assets.

Question 8

If a firm sold some inventory for cash and left the funds in its bank account,its current ratio would probably not change much,but its quick ratio would decline.

Question 9

In general,it's better to have a low inventory turnover ratio than a high one,as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.

Question 10

The profit margin measures net income per dollar of sales.

Question 11

The more conservative a firm's management is,the higher the firm's total debt to total capital ratio [measured as (Short-term debt + Long-term debt)/(Debt + Preferred stock + Common equity)] is likely to be.

Question 12

If a firm sold some inventory on credit,its current ratio would probably not change much,but its quick ratio would increase.

Question 13

Other things held constant,the higher a firm's total debt to total capital ratio [measured as (Short-term debt + Long-term debt)/(Debt + Preferred stock + Common equity)],the higher its TIE ratio will be.

Question 14

If a firm sold some inventory on credit as opposed to cash,there is no reason to think that either its current or quick ratio would change.

Question 15

The times-interest-earned ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs.

Question 16

A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position,i.e. ,that it is becoming more liquid.

Question 17

The basic earning power ratio (BEP)reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

Question 18

Although a full liquidity analysis requires the use of a cash budget,the current and quick ratios provide fast and easy-to-use estimates of a firm's liquidity position.

Question 19

Ratio analysis involves analyzing financial statements to help appraise a firm's financial position and strength.

Question 20

The inventory turnover ratio and days sales outstanding (DSO)are two ratios that are used to assess how effectively a firm is managing its current assets.

Question 21

Other things held constant,the more debt a firm uses,the lower the firm's profit margin will be.

Question 22

Suppose you are analyzing two firms in the same industry.Firm A has a profit margin of 10% versus a margin of 8% for Firm B.Firm A's total debt to total capital ratio [measured as (Short-term debt + Long-term debt)/(Debt + Preferred stock + Common equity)] is 70% versus 20% for Firm B.Based only on these two facts,you cannot reach a conclusion as to which firm is better managed,because the difference in debt,not better management,could be the cause of Firm A's higher profit margin.

Question 23

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.These ratios include the Price/Earnings,the Market/Book,and Enterprise Value/EBITDA ratios.

Question 24

Other things held constant,the more debt a firm uses,the lower the firm's return on total assets will be.

Question 25

The price/earnings (P/E)ratio tells us how much investors are willing to pay for a dollar of current earnings.In general,investors regard companies with higher P/E ratios as less risky and/or more likely to enjoy higher growth in the future.

Question 26

Other things held constant,a decline in sales accompanied by an increase in financial leverage must result in a lower profit margin.

Question 27

The advantage of the basic earning power ratio (BEP)over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.

Question 28

The "apparent," but not necessarily the "true," financial position of a company whose sales are seasonal can change dramatically during a given year,depending on the time of year when the financial statements are constructed.

Question 29

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all of the firms being compared have the same proportion of fixed assets to total assets.

Question 30

In general,if investors believe that a company is relatively risky and/or has relatively poor growth prospects,then the company will have relatively high P/E,M/B,and EV/EBITDA ratios.

Question 31

The return on common equity (ROE)is generally regarded as being less significant,from a stockholder's viewpoint,than the return on total assets (ROA).

Question 32

Klein Cosmetics has a profit margin of 5.0%,a total assets turnover ratio of 1.5 times,no debt and therefore an equity multiplier of 1.0,and an ROE of 7.5%.The CFO recommends that the firm borrow money,use the funds to buy back stock,and raise the equity multiplier to 2.0.The size of the firm (assets)would not change.She thinks that operations would not be affected,but interest on the new debt would lower the profit margin to 4.5%.This would probably be a good move,as it would increase the ROE from 7.5% to 13.5%.

Question 33

Other things held constant,the more debt a firm uses,the lower the firm's operating margin will be.

Question 34

Since the ROA measures the firm's effective utilization of assets without considering how these assets are financed,two firms with the same EBIT must have the same ROA.

Question 35

Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used the same or similar accounting methods.

Question 36

The return on invested capital measures the total return that a company has provided for its investors.

Question 37

The return on invested capital (ROIC)differs from the return on assets (ROA).First,ROIC is based on total invested capital rather than total assets.Second,the numerator of the ROIC is after-tax operating income rather than net income.

Question 38

The market/book (M/B)ratio tells us how much investors are willing to pay for a dollar of accounting book value.In general,investors regard companies with higher M/B ratios as less risky and/or more likely to enjoy higher growth in the future.

Question 39

Suppose all firms follow similar financing policies,face similar risks,have equal access to capital,and operate in competitive product and capital markets.However,firms face different operating conditions because,for example,the grocery store industry is different from the airline industry.Under these conditions,firms with high profit margins will tend to have high asset turnover ratios,and firms with low profit margins will tend to have low turnover ratios.

Question 40

The inventory turnover and current ratio are related.The combination of a high current ratio and a low inventory turnover ratio,relative to industry norms,suggests that the firm has an above-average inventory level and/or that part of the inventory is obsolete or damaged.

Question 41

Which of the following would generally indicate an improvement in a company's financial position,holding other things constant?

A) The TIE declines.
B) The DSO increases.
C) The quick ratio increases.
D) The current ratio declines.
E) The total assets turnover decreases.

Question 42

A firm wants to strengthen its financial position.Which of the following actions would increase its current ratio?

A) Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase a new plant and equipment.
B) Use cash to repurchase some of the company's own stock.
C) Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year.
D) Issue new stock,then use some of the proceeds to purchase additional inventory and hold the remainder as cash.
E) Use cash to increase inventory holdings.

Question 43

One problem with ratio analysis is that relationships can be manipulated.For example,we know that if our current ratio is less than 1.0,then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

Question 44

Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable.This action had no effect on the company's total assets or operating income.Which of the following effects occurred as a result of this action?

A) The company's current ratio increased.
B) The company's times interest earned ratio decreased.
C) The company's basic earning power ratio increased.
D) The company's equity multiplier increased.
E) The company's total debt to total capital ratio increased.

Question 45

A firm's new president wants to strengthen the company's financial position.Which of the following actions would make the company financially stronger?

A) Increase accounts receivable while holding sales constant.
B) Increase EBIT while holding sales and assets constant.
C) Increase accounts payable while holding sales constant.
D) Increase notes payable while holding sales constant.
E) Increase inventories while holding sales constant.

Question 46

One problem with ratio analysis is that relationships can sometimes be manipulated.For example,if our current ratio is greater than 1.5,then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to INCREASE.

Question 47

If a firm's ROE is equal to 9% and its ROA is equal to 6%,its equity multiplier must be 1.5.

Question 48

Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year.Trend analysis is one method of examining changes in a firm's performance over time.

Question 49

Which of the following actions is an example of "window dressing?"

A) Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt.
B) Borrowing on a long-term basis and using the proceeds to retire short-term debt.
C) Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase fixed assets.
D) Using some of the firm's cash to reduce long-term debt.
E) Any action that does not improve a firm's fundamental long-run position and thus increases its intrinsic value.

Question 50

Which of the following would indicate an improvement in a company's financial position,holding other things constant?

A) The inventory and total assets turnover ratios both decline.
B) The total debt to total capital ratio increases.
C) The profit margin declines.
D) The times-interest-earned ratio declines.
E) The current and quick ratios both increase.

Question 51

Firms A and B have the same current ratio,0.75,the same amount of sales,and the same amount of current liabilities.However,Firm A has a higher inventory turnover ratio than B.Therefore,we can conclude that A's quick ratio must be smaller than B's.

Question 52

Suppose Firms A and B have the same amount of assets,total assets are equal to total invested capital,pay the same interest rate on their debt,have the same basic earning power (BEP),finance with only debt and common equity,and have the same tax rate.However,Firm A has a higher debt to capital ratio.If BEP is greater than the interest rate on debt,Firm A will have a higher ROE as a result of its higher debt ratio.

Question 53

If a bank loan officer were considering a company's loan request,which of the following statements would be CORRECT,other things held constant?

A) The lower the company's inventory turnover ratio,the lower the interest rate the bank should charge.
B) The higher the days sales outstanding ratio,the lower the interest rate the bank should charge.
C) The lower the total debt to total capital ratio,the lower the interest rate the bank should charge.
D) The lower the company's TIE ratio,the lower the interest rate the bank should charge.
E) The lower the current ratio,the lower the interest rate the bank should charge.

Question 54

A firm's ROE is equal to 9% and its ROA is equal to 6%.The firm finances only with short-term debt,long-term debt,and common equity,so assets equal total invested capital.The firm's total debt to total capital ratio must be 50%.

Question 55

Suppose a firm wants to maintain a specific TIE ratio.It knows the amount of its debt,the interest rate on that debt,the applicable tax rate,and its operating costs.With this information,the firm can calculate the amount of sales required to achieve its target TIE ratio.

Question 56

Considered alone,which of the following would increase a company's current ratio?

A) An increase in net fixed assets.
B) An increase in accrued liabilities.
C) An increase in notes payable.
D) An increase in accounts receivable.
E) An increase in accounts payable.

Question 57

Even though Firm A's current ratio exceeds that of Firm B,Firm B's quick ratio might exceed that of A.However,if A's quick ratio exceeds B's,then we can be certain that A's current ratio is also larger than B's.

Question 58

Companies E and P each reported the same earnings per share (EPS),but Company E's stock trades at a higher price.Which of the following statements is CORRECT?

A) Company E probably has fewer growth opportunities.
B) Company E is probably judged by investors to be riskier.
C) Company E must have a higher market-to-book ratio.
D) Company E must pay a lower dividend.
E) Company E trades at a higher P/E ratio.

Question 59

Which of the following statements is CORRECT?

A) A reduction in inventories will have no effect on the current ratio.
B) An increase in inventories will have no effect on the current ratio.
C) If a firm increases its sales while holding its inventories constant,then,other things held constant,its inventory turnover ratio will increase.
D) A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
E) If a firm increases its sales while holding its inventories constant,then,other things held constant,its fixed assets turnover ratio will decline.

Question 60

If the CEO of a large and diversified firm were filling out a fitness report on a division manager (i.e. ,"grading" the manager),which of the following situations would be likely to cause the manager to receive a better grade? In all cases,assume that other things are held constant.

A) The division's basic earning power ratio is above the average of other firms in its industry.
B) The division's total assets turnover ratio is below the average for other firms in its industry.
C) The division's total debt to total capital ratio is above the average for other firms in the industry.
D) The division's inventory turnover is 6×,whereas the average for its competitors is 8×.
E) The division's DSO (days' sales outstanding)is 40 days,whereas the average for its competitors is 30 days.

Question 61

Amram Company's current ratio is 2.0.Considered alone,which of the following actions would lower the current ratio?

A) Borrow using short-term notes payable and use the proceeds to reduce accruals.
B) Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
C) Use cash to reduce accruals.
D) Use cash to reduce short-term notes payable.
E) Use cash to reduce accounts payable.

Question 62

Which of the following statements is CORRECT?

A) Other things held constant,the more debt a firm uses,the higher its operating margin will be.
B) Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.
C) Other things held constant,the more debt a firm uses,the higher its profit margin will be.
D) Other things held constant,the higher a firm's total debt to total capital ratio,the higher its TIE ratio will be.
E) Debt management ratios show the extent to which a firm's managers are attempting to reduce risk through the use of financial leverage.The higher the total debt to total capital ratio,the lower the risk.

Question 63

Companies HD and LD are both profitable,and they have the same total assets (TA),total invested capital,sales (S),return on assets (ROA),and profit margin (PM).Both firms finance using only debt and common equity.However,Company HD has the higher total debt to total capital ratio.Which of the following statements is CORRECT?

A) Company HD has a lower total assets turnover than Company LD.
B) Company HD has a lower equity multiplier than Company LD.
C) Company HD has a higher fixed assets turnover than Company LD.
D) Company HD has a higher ROE than Company LD.
E) Company HD has a lower operating income (EBIT)than Company LD.

Question 64

Companies HD and LD have the same sales,tax rate,interest rate on their debt,total assets,and basic earning power.Both firms finance using only debt and common equity,and total assets equal total invested capital.Both companies have positive net incomes.Company HD has a higher total debt to total capital ratio and therefore a higher interest expense.Which of the following statements is CORRECT?

A) Company HD pays less in taxes.
B) Company HD has a lower equity multiplier.
C) Company HD has a higher ROA.
D) Company HD has a higher times-interest-earned (TIE)ratio.
E) Company HD has more net income.

Question 65

Which of the following statements is CORRECT?

A) If a firm has high current and quick ratios,then it must be managing its liquidity position well.
B) If a firm sold some inventory for cash and left the funds in its bank account,then its current ratio would probably not change much,but its quick ratio would decline.
C) If a firm sold some inventory on credit,then its current ratio would probably not change much,but its quick ratio would decline.
D) If a firm sold some inventory on credit as opposed to cash,then there is no reason to think that either its current or quick ratio would change.
E) The inventory turnover ratio and days sales outstanding (DSO)are two ratios that are used to assess how effectively a firm is managing its current assets.

Question 66

Which of the following statements is CORRECT?

A) The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.
B) If two firms have the same ROA,the firm with the most debt can be expected to have the lower ROE.
C) An increase in the DSO,other things held constant,could be expected to increase the total assets turnover ratio.
D) An increase in the DSO,other things held constant,could be expected to increase the ROE.
E) An increase in a firm's total debt to total capital ratio,with no changes in its sales or operating costs,could be expected to lower its profit margin.

Question 67

HD Corp and LD Corp have identical assets,sales,interest rates paid on their debt,tax rates,and EBIT.Both firms finance using only debt and common equity,and total assets equal total invested capital.However,HD uses more debt than LD.Which of the following statements is CORRECT?

A) Without more information,we cannot tell if HD or LD would have a higher or lower net income.
B) HD would have the lower equity multiplier for use in the DuPont equation.
C) HD would have to pay more in income taxes.
D) HD would have the lower net income as shown on the income statement.
E) HD would have the higher operating margin.

Question 68

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

A) Offer price reductions along with generous credit terms that would (1)enable the firm to sell some of its excess inventory and (2)lead to an increase in accounts receivable.
B) Issue new common stock and use the proceeds to increase inventories.
C) Speed up the collection of receivables and use the cash generated to increase inventories.
D) Use some of its cash to purchase additional inventories.
E) Issue new common stock and use the proceeds to acquire additional fixed assets.

Question 69

Which of the following statements is CORRECT?

A) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9,but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.The firm finances using only debt and common equity,and total assets equal total invested capital.Under these conditions,the ROE will increase.
B) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9,but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.The firm finances using only debt and common equity,and total assets equal total invested capital.Without additional information,we cannot tell what will happen to the ROE.
C) The DuPont equation provides information about how operations affect the ROE,but the equation does not include the effects of debt on the ROE.
D) Other things held constant,an increase in the total debt to total capital ratio will result in an increase in the profit margin.
E) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9,but at the same time its profit margin rises from 9% to 10%and its debt increases from 40% of total assets to 60%.The firm finances using only debt and common equity,and total assets equal total invested capital.Under these conditions,the ROE will decrease.

Question 70

Which of the following statements is CORRECT?

A) A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position,i.e. ,that it is becoming more liquid.
B) In general,it's better to have a low inventory turnover ratio than a high one,as a low one indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.
C) If a firm's fixed assets turnover ratio is significantly lower than the average for its industry,then it could be that the firm uses its fixed assets very efficiently or is operating at over capacity and should probably add fixed assets.
D) The more conservative a firm's management is,the higher the firm's total debt to total capital ratio is likely to be.
E) The days sales outstanding ratio tells us how long it takes,on average,to collect after a sale is made.The DSO can be compared with the firm's credit terms to get an idea of whether customers are paying on time.

Question 71

You observe that a firm's ROE is above the industry average,but both its profit margin and equity multiplier are below the industry average.Which of the following statements is CORRECT?

A) Its total assets turnover must be above the industry average.
B) Its return on assets must equal the industry average.
C) Its TIE ratio must be below the industry average.
D) Its total assets turnover must be below the industry average.
E) Its total assets turnover must equal the industry average.

Question 72

Taggart Technologies is considering issuing new common stock and using the proceeds to reduce its outstanding debt.The stock issue would have no effect on total assets,the interest rate Taggart pays,EBIT,or the tax rate.Which of the following is likely to occur if the company goes ahead with the stock issue?

A) The ROA will decline.
B) Taxable income will decline.
C) The tax bill will increase.
D) Net income will decrease.
E) The times-interest-earned ratio will decrease.

Question 73

Which of the following statements is CORRECT?

A) If a security analyst saw that a firm's days' sales outstanding (DSO)was higher than the industry average and trending still higher,this would be interpreted as a sign of strength.
B) A high average DSO indicates that none of the firm's customers are paying on time.In addition,it makes no sense to evaluate the firm's DSO with the firm's credit terms.
C) There is no relationship between the days' sales outstanding (DSO)and the average collection period (ACP).These ratios measure entirely different things.
D) A reduction in accounts receivable would have no effect on the current ratio,but it would lead to an increase in the quick ratio.
E) If a firm increases its sales while holding its accounts receivable constant,then its days' sales outstanding will decline,other things held constant.

Question 74

Companies HD and LD have the same tax rate,sales,total assets,and basic earning power.Both companies have positive net incomes.Both firms finance using only debt and common equity,and total assets equal total invested capital.Company HD has a higher total debt to total capital ratio and therefore a higher interest expense.Which of the following statements is CORRECT?

A) Company HD has a lower equity multiplier.
B) Company HD has more net income.
C) Company HD pays more in taxes.
D) Company HD has a lower ROE.
E) Company HD has a lower times-interest-earned (TIE)ratio.

Question 75

Which of the following statements is CORRECT?

A) In general,if investors regard a company as relatively risky and/or having relatively poor growth prospects,then it will have relatively high P/E and M/B ratios.
B) The basic earning power ratio (BEP)reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.
C) The "apparent," but not necessarily the "true," financial position of a company whose sales are seasonal can change dramatically during a given year,depending on the time of year when the financial statements are constructed.
D) The market/book (M/B)ratio tells us how much investors are willing to pay for a dollar of accounting book value.In general,investors regard companies with higher M/B ratios as more risky and/or less likely to enjoy higher future growth.
E) It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Question 76

Which of the following statements is CORRECT?

A) The use of debt financing will tend to lower the basic earning power ratio,other things held constant.
B) A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.
C) If two firms have identical sales,interest rates paid,operating costs,and assets,but differ in the way they are financed,the firm with less debt will generally have the higher expected ROE.
D) The numerator used in the TIE ratio is earnings before taxes (EBT).EBT is used because interest is paid with post-tax dollars,so the firm's ability to pay current interest is affected by taxes.
E) Other things held constant,increasing the total debt to total capital ratio will increase the ROA.

Question 77

Which of the following statements is CORRECT?

A) If one firm has a higher total debt to total capital ratio than another,we can be certain that the firm with the higher total debt to total capital ratio will have the lower TIE ratio,as that ratio depends entirely on the amount of debt a firm uses.
B) A firm's use of debt will have no effect on its profit margin.
C) If two firms differ only in their use of debt-i.e. ,they have identical assets,identical total invested capital,sales,operating costs,interest rates on their debt,and tax rates-but one firm has a higher total debt to total capital ratio,then the firm that uses more debt will have a lower profit margin on sales and a lower return on assets.
D) The total debt to total capital ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases,so the debt ratios of firms that lease different percentages of their assets are still comparable.
E) If two firms differ only in their use of debt-i.e. ,they have identical assets,identical total invested capital,operating costs,and tax rates-but one firm has a higher total debt to total capital ratio,then the firm that uses more debt will have a higher operating margin and return on assets.

Question 78

Which of the following statements is CORRECT?

A) If Firms X and Y have the same P/E ratios,then their market-to-book ratios must also be equal.
B) If Firms X and Y have the same net income,number of shares outstanding,and price per share,then their P/E ratios must also be the same.
C) If Firms X and Y have the same earnings per share and market-to-book ratio,then they must have the same price/earnings ratio.
D) If Firm X's P/E ratio exceeds that of Firm Y,then Y is likely to be less risky and/or be expected to grow at a faster rate.
E) If Firms X and Y have the same net income,number of shares outstanding,and price per share,then their market-to-book ratios must also be the same.

Question 79

Which of the following statements is CORRECT?

A) Other things held constant,the less debt a firm uses,the lower its return on total assets will be.
B) The advantage of the basic earning power ratio (BEP)over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.
C) The return on common equity (ROE)is generally considered less significant,from a stockholder's viewpoint,than the return on total assets (ROA).
D) The price/earnings (P/E)ratio tells us how much investors are willing to pay for a dollar of current earnings.In general,investors regard companies with higher P/E ratios as more risky and/or less likely to enjoy higher future growth.
E) Suppose you are analyzing two firms in the same industry.Firm A has a profit margin of 10% versus a margin of 8% for Firm B.Firm A's total debt to total capital ratio is 70% versus 20% for Firm B.Based only on these two facts,you cannot reach a conclusion as to which firm is better managed,because the difference in debt,not better management,could be the cause of Firm A's higher profit margin.

Question 80

Walter Industries' current ratio is 0.5.Considered alone,which of the following actions would increase the company's current ratio?

A) Borrow using short-term notes payable and use the cash to increase inventories.
B) Use cash to reduce accruals.
C) Use cash to reduce accounts payable.
D) Use cash to reduce short-term notes payable.
E) Use cash to reduce long-term bonds outstanding.