Question

List three ratios for each of the above mentioned groups in which they will have more interest
and explain why these groups will be more interested in those ratios?

Answer 1

Management: Turnover and Operating Performance Ratios

The management of the company may not be so concerned with the results. They are usually more interested in the cause. This is because while other classes of stakeholders do not have control over the working of the firm i.e. the cause, the management does. All the other stakeholders question the management at the annual general meeting. Hence, management tries to get as much insight into the ratios as possible.

Shareholders: Profitability

Shareholders, for obvious reasons, are most concerned about profitability. Their investments are at risk and they expect to gain the maximum. For the shareholders, the profitability ratios are the beginning point. They then follow the trail the ratios leave.

Debt holders and Suppliers: Cash Flow and Liquidity

Debt holders and suppliers are concerned whether they will be paid the amount promised to them at the date that was promised to them. It is for this reason that they are very concerned about the liquidity of the firm.

Credit Rating Agencies: Solvency

While debt holders are suppliers are concerned about short term liquidity and cash flow, credit rating agencies go a step ahead. They use solvency ratios to rigorously analyze whether the company will be able to make good its obligations in the long run.