A slight decrease in the current ratio and quick ratio is noted from the liquidity ratios computed above. This implies that the capability of the current assets and most liquid assets to cover the current liabilities of the organization has diminished.
Such movements in financial ratios indicate a weakening in the financial position of the company. However, it is not yet at an alarming stage since only an immaterial decrease was noted. It is yet important that management considers such aspect meticulously to avoid any financial crises.
The liquidity concern is further highlighted by the decrease in the days cash on hand ratio. This ratio indicates the capability of the institution in terms of number of days in meeting daily operating expenditure on the presumption that no cash inflows are received during that time frame.
The lower the number of days, the more vulnerable is the organization to changes in cash flow stemming from sales revenue. The ten-day decrease noted in this ratio therefore highlights that Hopeful Happy Health Care Systems Incorporation cash strength is diminishing. The firm is therefore more susceptible to competitive moves and adverse changes in the economic environment.
The only liquidity ratio that remained fairly stable is the debt ratio. Such ratio indicates the leverage of the company in terms of what portion of the company’s assets is financed by debts.
The higher the debt ratio the greater the leverage and the higher the associated risks. Even though this ratio remained static, a high debt ratio exceeding 50% can be noted. It is therefore pertinent that a company holds a strong financial position to be able to counter for commitments stemming from long-term debts.
Overall a weakening financial position can be noted from the ratios computed above. This is a negative aspect concerning the financial health of the firm.
On the contrary the profitability of the organization improved drastically during the two-year time frame examined. Indeed the net income increased by 2,533%. Such improvement provided is not only shown by the horizontal analyses of net income just conducted above. The return on assets ratio also sheds light on such matter. Indeed the profitability of the company in relation to its total assets improved drastically from a mere 0.07% to 1.80%.
However, the profit margin generated from every $100 of sales remained stable in the two years analyzed. This is outlined by the return on sales ratio.
Therefore we can state that the improved profitability noted in the previous paragraph is not the result of increased profit margins stemming from increase in prices. It is mainly arising from better control on operating expenses. This is a very positive feature for the financial health of Hopeful Happy Health Care Systems Incorporation.