Brand Building, Launch and Promotion on Social Web
Social Networks provide great opportunity for advertising as well as promoting the brands. The fact that you can present your brand in front of over 200 million people who are participating in the discussions at various Social Networks provides a different dimension to the concept of advertising. It is important for us to remember that […]
Advertisements and Public Relations
Advertising and public relations are two different industries altogether. Let us carefully examine the difference between advertisements and public relations: Organizations need to pay for every single advertisement aired on television/radio. Organizations need to buy space/slots in various newspapers, TV Channels, Radio Channels to advertise about their organization/product/service. Public relations experts strive hard to gain […]
Decision Support Systems Introduction, Categorization and Development
When it comes to good decision making, relying too heavily on automatic decisions stemming from perception or depending too much on conventions when information is bombarded on to us from all sides can be dangerous. Sometimes, you fail to either notice or seek out crucial information that supports decision making. This may be because of […]
Real Estate Investments: As Safe as Houses?
Investors usually refer to an extremely safe investment with the phrase “As Safe as Houses”. This shows the traditional mentality that real estate is one of the safest investment options. The old school chain of thought believes that real estate investing is largely risk-free and provides the best hedge against inflation. However, the world has […]
Consultant-Client Relations
What the Code of Conduct Says Consultants are expected to maintain professional and ethical standards when dealing with their clients. This can take the form of maintaining arm’s length relationships, not intervening in the internal affairs and politics of the client’s organizations, keeping confidential information away from interested parties looking for insider knowledge, and reporting […]
As we have seen earlier that there is a wide variety of financial ratios available. They fall into many categories and if variations are included there are hundreds of types of ratios that are common in practice. However, all the ratios are not used by everyone on a regular basis. There are some ratios which are more important to some user groups than they are to other user groups. This article explains why this is the case:
The management of the company may not be so concerned with the results. They are usually more interested in the cause. This is because while other classes of stakeholders do not have control over the working of the firm i.e. the cause, the management does. All the other stakeholders question the management at the annual general meeting. Hence, management tries to get as much insight into the ratios as possible. They create operating performance ratios and compare it to their previous performance and to the performance of others to learn from the past as well as to be able to give satisfactory answers to the investors.
Shareholders, for obvious reasons, are most concerned about profitability. Their investments are at risk and they expect to gain the maximum. Investors scrutinize profitability numbers and pounce upon the slightest signs of mismanagement. For the shareholders, the profitability ratios are the beginning point. They then follow the trail the ratios leave. However over the past two decades the focus has been steadily shifting towards cash flow ratios.
Debt holders and suppliers are concerned whether they will be paid the amount promised to them at the date that was promised to them. It is for this reason that they are very concerned about the liquidity of the firm. Slightest signs of liquidity issues are met with supply cutbacks from suppliers.
The fact that debt holders are concerned about the same ratios creates a self reinforcing negative loop for the company. This is because at the same time when suppliers cut credit and supplies, debt holders refuse to lend more money and the whole situation becomes a cash crunch.
While debt holders are suppliers are concerned about short term liquidity and cash flow, credit rating agencies go a step ahead. They use solvency ratios to rigorously analyze whether the company will be able to make good its obligations in the long run.
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