When assessing debt, which group would typically analyze financial ratios?

When assessing debt, creditors typically analyze financial ratios to evaluate a borrower’s ability to repay loans. Financial ratios provide critical insights into an organization’s financial health, including liquidity, profitability, and solvency. Creditors rely on this analysis to determine the risk of lending money and to set appropriate terms for credit.

For example, ratios such as the debt-to-equity ratio help creditors gauge the extent to which an organization is leveraging debt to finance its operations. Additionally, the current ratio and quick ratio measure short-term liquidity, providing creditors with essential data on whether the organization can meet its short-term obligations.

While other groups like investors, management, and board members may also consider financial ratios for different purposes, creditors specifically focus on these metrics to assess risk related to lending and establish lending terms. Their decisions are primarily based on the reliability of financial ratios to indicate the potential for repayment, making this group the most relevant for analyzing financial ratios in the context of debt assessment.