Users of Financial Ratios
Stakeholders are users of financial information with an interest in better understanding a company or organization. Internal users can include division managers and executive officers. External users such as bankers and other lenders rely heavily on financial ratios when making loan and other credit decisions. Investors employ financial ratios when reviewing existing investment positions or evaluating new opportunities. Less obvious parties could include a raw material supplier who may want to gauge the quality of a new client. Ratios can be applied to charitable organization to evaluate their operating efficiency. The type and extent of financial analysis with ratios will be dependent upon the end goals of the users.
Financial analysts serve the role of analyzing financial data in a variety of different capacities. An analyst may specialize in some or more of the following: investment, securities, research, equity, rating, and others. Analysts may work within a company providing internal analytics or outside, using publically available information. Generally they are charged with finding value in their research so that decisions may be made. Internally, analysts may conclude, for example, that revenue is projected to increase and that staffing must be adjusted. An outside analyst may conclude that a particular stock is undervalued and therefore be purchased. Analysts typically, but not always, hold an economics, finance, or business related degree. The Chartered Financial Analyst (CFA) designation may also be obtained when certain testing and work experience requirements are made.
Learn about finance and accounting with over 100 flashcards coordinated with video, audio, and traditional lessons. Covering the following ratio types: liquidity, profitability, debt, solvency, operating performance, cash flow, and valuation.