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ACCA Applied Knowledge · Financial Accounting · Importance and purpose of analysis of financial statements

Which of the following users of financial statements would be MOST interested in the liquidity ratios, such as the current ratio, of a company?

Short-term suppliers granting credit are most interested in liquidity ratios because these show whether the company can meet its short-term obligations as they fall due. Growth investors, statisticians and competitors have different primary information needs.

  1. AA potential equity investor focused only on long-term capital growth
  2. BShort-term suppliers who are granting credit to the companyCorrect
  3. CGovernment analysts who compile national income statistics
  4. DCompetitors wishing to copy the company's products

Explanation

Short-term trade suppliers need to judge whether the company can pay amounts due within the credit period, which is what liquidity ratios such as the current ratio indicate. The other users have different primary interests: growth, statistics or competitive information.

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