Why paying current debt can raise the current ratio and lower the cash ratio

State the transaction and assumptions

Start with current assets 900, including cash 200, and current liabilities 500. Repay 100 of current debt using cash, with no fee, interest expense or other effect included. Current assets become 800, cash becomes 100 and current liabilities become 400.

Recalculate both measures

Explain why the directions differ

The current-ratio numerator initially exceeds its denominator, so subtracting the same positive amount from each raises their ratio while the denominator remains positive. Cash initially represents a smaller amount than current liabilities, so the same subtraction lowers that cash-coverage ratio.

Avoid a one-number conclusion

The improved current ratio does not prove the issuer has more immediately available cash; the cash balance fell. The example illustrates conflicting ratio movements and does not recommend a particular debt-repayment decision.