Which of the following ratios are of more concern for the shareholders?
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A. B. C. D.D
The answer is D. Profitability and leverage.
Shareholders are interested in the financial health of a company as it directly impacts their investments. Therefore, they are concerned about the profitability and leverage of the company.
Profitability ratios indicate a company's ability to generate profits relative to its revenue, assets, or equity. These ratios provide insights into the company's financial performance, such as its ability to generate earnings and cash flow. Profitability ratios include return on equity (ROE), return on assets (ROA), gross profit margin, and net profit margin. Shareholders are interested in high profitability ratios, as it indicates a healthy company that can generate returns on their investments.
Leverage ratios indicate a company's use of debt to finance its operations. These ratios provide insights into the company's financial risk and ability to meet its debt obligations. Leverage ratios include debt-to-equity ratio, debt-to-asset ratio, and interest coverage ratio. Shareholders are concerned about high leverage ratios, as it indicates the company has high debt levels relative to its assets or equity, which increases the risk of default or bankruptcy.
Liquidity ratios, on the other hand, indicate a company's ability to meet its short-term obligations using its current assets. These ratios provide insights into the company's ability to manage its cash flow and meet its current obligations. Liquidity ratios include current ratio, quick ratio, and cash ratio. While shareholders may also be interested in a company's liquidity, it is not of primary concern compared to profitability and leverage.
In conclusion, shareholders are more concerned with profitability and leverage ratios as they indicate a company's ability to generate returns on their investments and manage financial risks.