Liquidity Ratios
In reference to corporate funding, liquidity ratios define the capability of firms to disbursing short run debts obligations while utilizing cash on hand or even short run assets (Lee, Lee & Lee, 2009). In this context, investors, moneylenders normally assess the liquidity of the company as a signal of financial safety. On the other hand, managers normally assess the liquidity while assessing the performance of the company. In this case, when the ratio of liquidity is higher this implies that from the managers, moneylenders, and investors the corporation is better off to a certain degree (Lee, Lee & Lee, 2009). It is, therefore, reliable to note that liquidity ratios should always fall within the given range.
On the other hand in reference to financial leverages lenders and investors prefers it to be minimal given that it can lead to bankruptcy (Khan & Jain, 2008). When the coverage ratios are higher the investors, money lenders and managers perceive this as a positive occurrence given that the company has a higher ability to funds its operations and services. Activity ratios are better when high given that they are utilized to describe the performance of the company. Shareholders return ratios are better when high given that the objective of every corporation is to maximize the earning of shareholders (Khan & Jain, 2008). However, when they are high the lenders are affected negatively, therefore, they prefer when they are low. Given that the profitability ratios refers to the general efficiency by a company to utilize its resources. When there is efficiency there is high earning something that benefits managers and investors while lenders are negatively impacted. In other words, lenders prefer when the financial efficiency of a company is low to increase their earning while investors are objected at increasing profitability while improving performance (Khan & Jain, 2008).
References
Lee, A. C., Lee, J. C., & Lee, C. F. (2009). Financial analysis, planning & forecasting: Theory and application. Singapore: World Scientific.
Khan, M. Y., & Jain, P. K. (2008). Cost accounting and financial management for CA Professional Competence Examination. New Delhi: Tata McGraw-Hill Publishing Company Ltd.
