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 increase in the health expenses which necessitated an increase in the capital. The increase would have also been caused by a need to purchase an asset carried out by one of the partners.
Ratio interpretation
The current ratio on 2016 was 1.2989 which was an increase from the previous years. This means that the organization can be able to pay its short-term debts using the current assets. The acid test ratio as at 2016 was 1.1246 which also shows that the organization can be able to pay its short-term debts using more liquid assets such as available cash. The cash ratio as at 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 be able to settle all its current liabilities using current assets.
The debt ratio as at 2016 was 0.7560 which was an increase from 2015. This means that the organization has a debt level of 75.6% which may not be readily manageable. The debt to equity ratio in 2016 was 3.0982 which is 309.82% which was an increase from 2015, and it shows that the organization took more debt in 2016. This means that a lot of debt is used to finance the operations of the organization (Dr. Anshuja Tiwari, 2014).
From the ratios that have been analyzed, they show the state of the financial health in 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. The organization should, therefore, look for other sources of getting 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.
