There was an unusual increase in the current portion of the long-term debt on the balance sheet. The notable increase could have been due to an increase in health expenses, which necessitated an increase in capital. The increase would also have been caused by a need to purchase an asset carried out by one of the partners.
Ratio Interpretation
The current ratio 2016 was 1.2989, an increase from the previous years. This means that the organization can pay its short-term debts using the current assets. The acid test ratio as of 2016 was 1.1246, which also shows that the organization can pay its short-term debts using more liquid assets such as available cash. The cash ratio as of 2016 is 0.6650, which indicates that the organization can pay current debts using cash and marketable securities. All the liquidity ratios show that the organization can settle all its current liabilities using current assets.
The debt ratio as of 2016 was 0.7560, an increase from 2015. This means that the organization has a debt level of 75.6% that may not be readily manageable. The debt-to-equity ratio 2016 was 3.0982, 309.82%, an increase from 2015. This shows that the organization took on more debt in 2016. This means that a lot of debt is used to finance the organization’s operations (Dr. Anshuja Tiwari, 2014).
The ratios that have been analyzed show the state of the financial health of the organization (Drake, 2009). The organization is continuing as a viable business. The organization, however, needs to check on the sources of capital. From the ratios, it is evident that the organization highly depends on loans and has incurred a lot of debt. Therefore, The organization should look for other sources of capital to finance its operations.
References
Dr. Anshuja Tiwari, F. A. (2014). DEBT-EQUITY ANALYSIS OF RELIANCE INDUSTRIES LTD. Global Journal of Multidisciplinary Studies.
Drake, P. P. (2009). Financial Ratio Analysis. Washington.
