Question:
'Analysis of financial statements is useful and significant to different users.' Which of the following users is concerned with a firm's long-term solvency and survival?
'Analysis of financial statements is useful and significant to different users.' Which of the following users is concerned with a firm's long-term solvency and survival?
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Different users focus on different aspects:
- Short-term creditors (Trade payables) \(\Rightarrow\) Liquidity ratios
- Long-term creditors (Lenders) \(\Rightarrow\) Solvency ratios (Debt-Equity, Interest Coverage)
- Investors \(\Rightarrow\) Profitability and growth
- Management \(\Rightarrow\) All aspects for decision-making
- Labour unions \(\Rightarrow\) Profitability and wage-paying capacity
Updated On: Mar 9, 2026
- Labour unions
- Trade payables
- Finance manager
- Lenders
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Verified By Collegedunia
The Correct Option is D
Solution and Explanation
We need to identify which user of financial statements is primarily concerned with a firm's long-term solvency and survival.
Step 1: Understand the different users of financial statements and their interests.
Step 1: Understand the different users of financial statements and their interests.
- Labour unions: Interested in the firm's profitability and ability to pay wages, bonuses, and provide job security. They focus on short-term to medium-term viability rather than long-term solvency.
- Trade payables (Creditors): Interested in the firm's short-term liquidity and ability to pay amounts due in the near future (usually 30-90 days). They focus on current ratio, quick ratio, etc.
- Finance manager: Interested in overall financial health for decision-making, including profitability, efficiency, and both short-term and long-term aspects. However, their concern is internal management.
- Lenders (Long-term creditors): Lenders include banks, financial institutions, and debenture holders who have provided long-term loans. They are primarily concerned with the firm's long-term solvency and survival because:
- They need assurance that the firm will be able to pay interest regularly
- They need assurance that the principal amount will be repaid at maturity
- They analyze ratios like debt-equity ratio, interest coverage ratio, and profitability over the long term
- (A) Labour unions: Concerned with wages and job security, not primarily long-term solvency.
- (B) Trade payables: Concerned with short-term liquidity, not long-term solvency.
- (C) Finance manager: Concerned with overall management, not specifically as an external user.
- (D) Lenders: ✓ Correct. Lenders are most concerned with long-term solvency and survival.
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