Impact of Special Dividend on Financial Ratios

Easy Dividends And Repurchases Impact On Financial Ratios

ABC Corporation has established a consistent track record of paying dividends to its shareholders. Recently, the company declared a special dividend of $2 per share, totaling $4 million. As a result, the company's total assets decreased immediately by this amount, and it also reduced its retained earnings accordingly. Given this scenario, what is the likely effect on ABC Corporation's financial ratios, particularly those related to profitability and liquidity?

The special dividend will increase both the current ratio and return on equity.

The special dividend will decrease the current ratio and increase return on equity.

The special dividend will decrease both the current ratio and return on equity.

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