Q. In which of the following situations, the current ratio, net working capital and debt equity ratio of a Bank will improve?
Answer: If the bank issues rights shares
Notes: The correct answer is "If the bank issues rights shares." 1. Current Ratio: This ratio measures liquidity. Issuing rights shares increases equity without increasing liabilities, improving the ratio. 2. Net Working Capital: This is current assets minus current liabilities. Rights shares increase cash (current assets) without increasing liabilities, enhancing net working capital. 3. Debt Equity Ratio: This ratio compares total debt to shareholders' equity. Issuing rights shares increases equity, thus reducing the debt-equity ratio. Trivia: Rights shares allow existing shareholders to purchase additional shares at a discount, often used to raise capital without incurring debt.