Accounting · Impact of Sale and Leaseback Transactions on Financial Ratios
A corporate borrower executes a 'Sale and Leaseback' transaction for its factory building and uses the entire cash proceeds to pay off short-term bank borrowings and a portion of its long-term debt. What will be the most likely impact on the company's Current Ratio and Debt-Equity Ratio, assuming all other factors remain constant?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The transaction will have no impact on either ratio.
- 2Both the Current Ratio and the Debt-Equity Ratio will increase significantly.
- 3The Current Ratio will increase and the Debt-Equity Ratio will decrease.✓
- 4The Current Ratio will decrease and the Debt-Equity Ratio will increase.
Correct answer
The Current Ratio will increase and the Debt-Equity Ratio will decrease.
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