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.This is a 4-page solution to the question above. Below is part of the essayFinancial Ratios and AnalysisBusinesses exist with the purpose of making profits. In an effort to ensure smooth operation, these businesses keep financial records. Some of these financial statements include the cash flow, the balance sheet, and the income statement. Financial statements are prepared to provide a true and a fair view of the firms’ performances (DeFond, Lennox, & Zhang, 2018).  To understand the financial performances of these companies, carrying out financial ratios and financial analysis is fundamental. Stakeholders who apply financial ratio and carry out financial analysis to understand the financial performances of businesses include short-term lenders, long-term lenders, and stockholders. This paper will talk about the purposes and importance of financial ratios and financial analysis. In continuation, the paper will discuss the limitations of financial ratio analysis. Lastly, the paper will investigate the users of financial ratios applied by companies. Purpose and importance of financial ratios and financial analysisPurpose and importance of financial ratiosA financial ratio is useful and critical in quantifying many aspects of a business (Neuendorf, 2016). In continuation, the financial ratio is an important component of financial statement analysis. The importance of financial ratio is evident with the understanding of vital financial statement data of assets and liabilities. The financial ratio is useful in the determination of the liquidity of a company. The knowledge of liquidity to a firm is paramount since it indicates the ability of a business to settle its short-term debts. One example of a financial ratio, which is critical in the provision of the liquidity of a company, is the current ratio. The arrival of this liquidity ratio is by dividing the current asset of a company by its current liability. In continuation, the financial ratios are important in measuring the efficiency of a business. Financial ratios indicate how best a firm is utilizing its assets. Some of the ratios, which are useful in the provision of this information, include the Sales and Asset ratios. Additionally, financial ratios are significant in providing data about the financing and debts of a business. The ratio indicates the capital structure of a company. Lastly, financial ratios are vital in the provision of data on the profitability of a company. The financial ratio indicates how the firms utilize their assets to generate profits. [Show Less]