Question

Why do ratios change?

Answer 1

Answer:

Generally, your current ratio shows the ability of your business to generate cash to meet its short-term obligations. A decline in this ratio can be attributable to an increase in short-term debt, a decrease in current assets, or a combination of both.

Sometimes, a low current ratio could suggest problems with inventory management, ineffective or lax standards for collecting receivables, or an excessive cash burn rate. Increases in the current ratio over time may indicate a company is "growing into" its capacity (while a decreasing ratio may indicate the opposite).