One problem with ratio analysis is that relationships can 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.

Question

Quizplus · Accepted Answer

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:
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One Problem with Ratio Analysis Is That Relationships Can Be