Question

Detail which stakeholder entities (suppliers, employees, managers, investors, etc.) would care most about each of the four financial ratio categories. Why? (Be specific and not merely that all entities care about all categories)

Answer 1

A financial ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.

There are various stakeholders that may depend on different financial ratios according to their needs.

1. Suppliers - Suppliers and other trade creditors are much worried about the credit lending and recovery of their investment.

So mainly they depend on these financial ratios :

(a) Profitability Ratio (b) Liquidity Ratio   

2. Employees - Employees are very innocent and worried about their being in the firm. So they depend on these financial ratios :

(a) Return on Capital Employed (b) Profitability Ratio

3. Managers - The manager is a person responsible for controlling or administering an organization or group of staff. They are mostly worried about company performance. So they look at these financial ratios :

(a) Profitability Ratio (b) Liquidity Ratio (c) Asset Turnover Ratio (d) Sales Turnover Ratio

4. Investors - Investor is a person or organization that puts money into financial schemes, property, etc. with the expectation of achieving a profit. So they mainly look at these financial ratios :

  (a) Profitability Ratio (b) Return on Capital Employed (c) Interest Coverage Ratio