A company's current assets are less than its current liabilities. Company issues new shares at full market price.
What will be the effect of this transaction upon company's working capital and on its current ratio?
Working capital Current ratio
A Increase Increase
B Constant Increase
C Constant Decrease
D Decrease Decrease
Solution:
The answer is A.
The cash balance will increase, which means there is more working capital. Current ratio will increase as there are more current assets than current liabilities.