Question

Please provide a detailed explanation:

Assume that you work for a multinational company. You manager has informed you that different stakeholders would like to know how the firm is performing relative to the competitors.

i) Identify three potential users of financial ratios, and explain each user’s focus (i.e., the aspect of the company’s operations and the operating performance ratios that will be of interest to them).

Answer 1

	Users
1-	Creditors	Debtors would be short term solvency position of the company and short term solvency is measured by Current ratio, quick ratio and cash ratio. If these ratios are good and as per near to ideal ratio like current ratio ideal ratio is 2, quick ratio ideal ratio is 1, this ensures to the creditors that company's short term solvency is ok and company can pay it short term liabilities easily.
2-	Long term financial institutions and Bond holders	Bondholders and financial institutions are interested to know the long term solvency and they are interested to profitability of the company and ability to pay its debt. Ratios like net profit margin, operating profit margin and Interest coverage ratio and returns on capital employed are used to measure the log term solvency
3-	Investors and shareholders	Investors and shareholders would be interested to know the profitability, capital structure and return earned on investment. Ratios like return on equity, profit margin and equity multiplier and debt equity ratio would be used to measure the profitability and also various market ratios like EPS and PE ratio would be used for market performance of the company.