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Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and
short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Solution
Primary emphasis for Managers is the profitability ratios and turnover ratios to know and
comment upon the profitability of the company for decision making process.
For Equity Investors the primary emphasis is financial ratios to get an understanding of the
financial position of the company to know whether to invest in the company or not.
Long term creditors generally emphasize on the solvency ratios to know the debt repayment
ability of the company.
Short term creditors emphasise on the liquidity ratios of a firm because they are concerned
about the day today working of the company which affects the firm's obligation to discharge its
short term liabilities.

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Financial ratio analysis is conducted by managers- equity investors- l.docx

  • 1. Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios? Solution Primary emphasis for Managers is the profitability ratios and turnover ratios to know and comment upon the profitability of the company for decision making process. For Equity Investors the primary emphasis is financial ratios to get an understanding of the financial position of the company to know whether to invest in the company or not. Long term creditors generally emphasize on the solvency ratios to know the debt repayment ability of the company. Short term creditors emphasise on the liquidity ratios of a firm because they are concerned about the day today working of the company which affects the firm's obligation to discharge its short term liabilities.