Self test Hathan has just concluded a ratio analysis comparing its performance and position at 31 December 2006 with those at 31 December 2005. The directors are concerned to see that the current ratio and quick ratio show a considerable decline.

Required:

(a) State and explain TWO possible causes for the decline in one or both of these ratios.

(b) State and explain TWO ways in which the company could improve these ratios.