Answer: Stock dividends

## Explanation **Stock dividends** (Option B) do not affect a company's leverage ratios because they involve issuing additional shares to existing shareholders without any cash outflow from the company. ### Why stock dividends don't affect leverage ratios: - **No cash outflow**: The company doesn't pay out cash, so assets remain unchanged - **No change in debt levels**: Total liabilities stay the same - **Only equity restructuring**: The equity section is restructured by transferring amounts from retained earnings to contributed capital, but total equity remains unchanged ### Why other options affect leverage ratios: - **Regular cash dividends** (Option C): Reduce cash (assets) and retained earnings (equity), increasing leverage ratios - **Extra dividends** (Option A): Also reduce cash and retained earnings, increasing leverage ratios Leverage ratios (like debt-to-equity, debt-to-assets) are affected when there are changes to the numerator (debt) or denominator (equity or assets). Stock dividends only rearrange equity components without changing total equity or assets.

Author: LeetQuiz .