One problem with ratio analysis is that relationships can sometimes be manipulated.For example,if our current ratio is greater than 1.5,then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to INCREASE.

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The key here is to recognize that if the CR is greater than 1.0,then a given increase in both current assets and current liabilities would lead to a decrease in the CR.The reverse would hold if the initial CR were less than 1.0.Here the initial CR is greater than 1.0,so borrowing on a short-term basis to build the cash account would lower the CR.For example: 11ea856c_8bee_16a0_9aec_6fe6bea6cfc4_TB1222_00

One Problem with Ratio Analysis Is That Relationships Can Sometimes