Question

How has the company composition of current and long term liabilities change significantly over a period?

Please analyze and tell where there room for improvements

12/31/2018	12/31/2017	12/31/2016	12/31/2015	12/31/2014
Assets
Cash & Equivalents	41,114	41,711	29,449	18,434	11,199
Receivables	7,587	5,832	3,993	2,559	1,678
Notes Receivable	0	0	0	0	0
Inventories	0	0	0	0	0
Other Current Assets	1,779	1,020	959	659	793
Total Current Assets	50,480	48,563	34,401	21,652	13,670
Net Property & Equipment	24,683	13,721	8,591	5,687	3,967
Investments & Advances	0	0	0	0	0
Other Non-Current Assets	0	0	0	0	0
Deferred Charges	0	0	0	0	0
Intangibles	19,595	20,105	20,657	21,272	21,910
Deposits & Other Assets	2,576	2,135	1,312	796	637
Total Assets	97,334	84,524	64,961	49,407	40,184

Liabilities & Shareholders Equity	12/31/2018	12/31/2017	12/31/2016	12/31/2015	12/31/2014
Notes Payable	0	0	0	0	0
Accounts Payable	820	380	302	196	176
Current Portion Long-Term Debt	0	0	0	0	0
Current Portion Capital Leases	0	0	0	7	114
Accrued Expenses	5,509	2,892	2,203	1,449	866
Income Taxes Payable	0	0	0	0	0
Other Current Liabilities	688	488	370	273	268
Total Current Liabilities	7,017	3,760	2,875	1,925	1,424
Mortgages	0	0	0	0	0
Deferred Taxes/Income	0	0	0	0	0
Convertible Debt	0	0	0	0	0
Long-Term Debt	0	0	0	0	0
Non-Current Capital Leases	0	0	0	107	119
Other Non-Current Liabilities	6,190	6,417	2,892	3,157	2,545
Minority Interest (Liabilities)	0	0	0	0	0
Total Liabilities	13,207	10,177	5,767	5,189	4,088

Shareholders Equity	12/31/2018	12/31/2017	12/31/2016	12/31/2015	12/31/2014
Preferred Stock	0	0	0	0	0
Common Stock (Par)	0	0	0	0	0
Capital Surplus	42,906	40,584	38,227	34,886	30,225
Retained Earnings	41,981	33,990	21,670	9,787	6,099
Other Equity	-760	-227	-703	-455	-228
Treasury Stock	0	0	0	0	0
Total Shareholder's Equity	84,127	74,347	59,194	44,218	36,096
Total Liabilities & Shareholder's Equity	97,334	84,524	64,961	49,407	40,184
Total Common Equity	84,127	74,347	59,194	44,218	36,096
Shares Outstanding	2,854.00	2,906.00	2,886.00	2,834.00	2,779.00
Book Value Per Share	29.48	25.58	20.51	15.60	12.99

Answer 1

Solution:-

In order to understand how the company's current and long-term liabilities have moved over the years, let's calculate and analyze the few ratios relevant for our purpose:

Particulars	2018	2017	2016	2015	2014
Current Assets	50,480	48,563	34,401	21,652	13,670
Current liabilities (A)	7,017	3,760	2,875	1,925	1,424
Current Ratio (Current Assets/Current liabilities	7.19	12.92	11.97	11.25	9.60
Total long-term liabilities (Non-Current Capital Leases + Other Non-Current liabilities) (B)	6,190	6,417	2,892	3,264	2,664
Equity	84,127	74,347	59,194	44,218	36,096
Long-term liability to equity ratio (%)	7.36%	8.63%	4.89%	7.38%	7.38%
Current liabilities/long-term liabilities [(A)/(B)]	1.13	0.59	0.99	0.59	0.53

Analysis of current and long-term liabilities

It's important to not that increase in current liabilities or long-term liabilities is not a problem as long as it happens due to business growth and done in the right way, i.e. if company's current ratio continues to be healthy, it means that the business continues to increase current assets to cover its increase in current liabilities. Similarly, if the increase in long-term liabilities goes along with parallel increase in shareholder's equity, it means that the financing risk is under control and increase is rather just a sign of growth in business.

We see above that company's long-term liability to equity ratio has been consistent over the years maintaining at around 7-8% which means that long-term financing risk is under control.

The company's current ratio saw improvements from 2014 to 2017 but has taken a slight hit in 2018 going down to 7 times which is still healthy in absolute terms but nonetheless its a decrease from even higher levels.

This can also be seen in the current liabilities to long-term liabilities ratio which was more or less consistent till 2017 but almost doubled in 2018 to 1.13 (2017: 0.59). This was due to steep rise in accrued expenses in 2018 resulting in current liabilities going up steeply.

This means that the company's current liabilities have now become more than non-current liabilities which is not a positive sign. Comparatively, they were just 59% of non-current liabilities in 2017.

Therefore, we see that while company has shown consistency in maintaining a stable levels of long-term liabilities but their current liabilities have shot up in 2018 due to substantial increase in accrued expenses. Also, the increase in accrued expenses was not reciprocated by comparable increase in current assets either, which resulted in fall in current ratio.

Scope of improvement

While clearly the accrued expenses have shot up significantly resulting in more than normal increase in the levels of current liabnilities, the company has a more than sufficient current assets to cover them with a current ratio of 7 times assuring solid liquidity position for the firm.

In terms of improvement, the company should ensure that the abnormal rise in accrued expenses is taken care of and contained to only 2018. The company's future current ratio must ideally be maintained at higher levels as in the past from 2014-17.