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.

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Financial ratios use financial statements such as balance sheet, income statements and cashflow statements to carry out quantitative analysis to assess the company’s growth (Kadim, 2020). It is the most important aspect that investors need to consider when setting up a business. These ratios are used by management, investors, and creditors. Financial analysis on the other hand involves evaluating finance related transactions to determine the sustainability of the business. It helps in comparison of data between a company and other companies or against the company’s own historical performance (Musallam, 2018). In this study we are going to focus on purposes and importance of financial ratios and analysis, their limitations, and the users.

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