A company has a Proprietary Ratio of 25%. To maintain this ratio at 30%, what should it do?
Answer & explanation
Correct answer: option 4
Proprietary ratio expresses relationship of proprietor’s (shareholders) funds to net assets and is calculated as follows :
Proprietary Ratio = Shareholders’, Funds/Capital employed (or net assets)
Equity increase makes the shareholders fund and capital employed by the same amount which makes it increase.
Debts decrease make the capital employed to decrease which ultimately makes the ratio to increase and can make it to 30%