(a)
Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.
To determine: The characteristics of a company.
(a)
Explanation of Solution
The belief of JR is not correct. Following are the three characteristics towards directing the company’s financial statements:
- Liquidity: Liquidity explains the extent of cash’s nearness to assets and liabilities.
- Profitability: Profitability ratios are used to determine how profitable the company performs.
- Solvency: Solvency ratios are those ratios that are used to find out the ability of the company to pay the long-term liabilities.
b)
To find: The interest of few parties in same characteristics of a company.
b)
Explanation of Solution
When short-term creditors, long-term creditors, and stockholders are considered, they do not have interest towards same characteristics of a company. Instead, short-term creditors mainly have interest towards liquidity of the company. Whereas, when stockholders and long-term creditors are considered, they are mainly interested in “solvency and profitability” of company.
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