Discuss the purpose and importance of financial ratios and financial analysis. What are the limitations of financial ratio analysis? If we divided the users of financial ratios, such as short-term lenders, long-term lenders, and stockholders, which ratios would each prefer and why? Provide examples.
Requirements: APA | Essay | 4 pages, Double spaced
Financial analysis serves various purposes and have several usefulness to the business as follows. Financial analysis serves the purpose of evaluation of company’s balance sheet, income statement and cash flow statement. It is important since it assists small businesses in planning by providing information to management which they use to make projections of revenues and profits (Padovani, 2021). Financial analysis also helps to examine company’s past and current financial statements. This is important since the company will be able to know possible weaknesses and problem areas that need to be addressed. The analysis also helps in comparing values between a company and other companies. This plays an important role of measuring a company against others in the entire industry. Finally, financial analysis serves the purpose of gauging the company’s strengths and weaknesses. This is important to a company in making investment decisions and recommendations.