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ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements

Which of the following users of financial statements is MOST likely to use ratio analysis primarily to assess whether a company will be able to repay its debts as they fall due over the next twelve months?

A trade supplier considering granting credit is most likely to use ratio analysis to judge short-term debt repayment, because it needs to be paid on time. Liquidity measures such as the current ratio suit this need, whereas equity investors look mainly at returns and growth.

  1. AA trade supplier considering granting credit termsCorrect
  2. BAn equity investor assessing long-term dividend growth
  3. CA government tax authority
  4. DA prospective employee comparing pay scales

Explanation

A trade supplier is concerned with short-term liquidity and the ability to pay invoices when due, so it relies on current ratio, quick ratio and payables days. Equity investors focus mainly on profitability, returns and growth, which makes them less focused on near-term repayment capacity.

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