If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, which ratios would...

If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, which ratios would each group be most interested in, and for what reasons

Expert Solution

The short term users would be more interested in the liquidity ratios, which are the current ratio and the quick ratio. As these lenders have extended short term credit to the business. They prefer that a business has a high current and quick ratio , so that they can recover their money quickly.

Long term lenders are interested in the solvency ratios. Solvency ratios , study the ability of the business to pay off the long term obligations. The solvency ratios are , debt ratio, debt to equity ratio and the times interest earned ratio.As these lenders would only lend to the company if there is no too much debt in the company as too much of debt increases the chances of default .They would also need to know that the company has an ability to pay back the interest obligations as they become due indicated by the times interest ratio.

The stock holders are the people who have invested into the company, so they are interested in the profitability ratios, the liquidity ratios, debt ratios and the efficiency ratio. They wish to understand the overall functioning of the business by the study of these financial ratios. They are particularly interested in profitability which indicates the profits earned by the business and solvency ratios which indicates the level of debt in the company.

jeff jeffy answered 1 year ago

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