How will declararion of dividend affect debt to equity ratio?? Related: Ratios (Important Questions) : Accountancy Class 12

Question

How will declararion of dividend affect debt to equity ratio?? Related:  Ratios (Important Questions) : Accountancy Class 12

Answer

When a company declares dividend, the amount of the profits available with the company reduces and gets converted into current liabilities (as the dividend becomes payable ). Therefore, equity decreases, while there is no effect on debt.
Therefore, the debt equity ratio increases....
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