Ratios for Different Stakeholders

# Choosing Ratios by Stakeholder & Decision Context

Different users want different answers from financial statements. The right ratio depends on the decision being made.

## (i) Bank Granting a ₹50 Lakh Working Capital Loan

Use → Liquidity Ratios (short-term solvency)

• Current Ratio
• Quick Ratio

The bank wants to know if short-term obligations can be met.

## (ii) Long-term Creditor Checking Security of Claim

Use → Capital Structure / Leverage Ratios

• Debt-Service Coverage Ratio (DSCR)
• Interest Coverage Ratio

These ensure long-term stability and the cushion available before defaults occur.

## (iii) Shareholder Deciding to Hold or Sell

Use → Profitability Ratios

• Return on Equity (ROE)
• Earnings per Share (EPS)
• Dividend per Share (DPS)

These measure the operational success and reward to shareholders.

## (iv) Finance Manager Evaluating Resource Efficiency

Use → Activity Ratios

• Capital Turnover Ratio
• Current Assets & Fixed Assets Turnover Ratios
• Stock, Debtors and Creditors Turnover Ratios

These reveal how well assets are being utilised in generating sales.

## Quick Reference Table