Question

From the perspective of management, discuss how you think the investor ratios calculated will affect external stakeholders’ behavior?

Answer 1

Financial analysis is the crucial part of any financial disclosures and reports. Management calculate investor ratios to present a clear picture of the performance of the business operations to the investors and external stakeholders. Investors are the owners of the business and they expect a return from the business.

Wit good investor ratios it will be easy for businesses to raise funds and with poor ratios investors will be in a confidence to withdraw their money or will know the performance of their investments.

Some of the ratios like return on equity gives the return on shareholders money. They might also be interested in Dividend cover i.e. how many times the income is of the dividend distributed. There are many more such ratios that need to given in ratio analysis to attract more investors to invest money needed for growth of the business.