How do financial ratios aid stakeholders?

Financial ratios are crucial tools for stakeholders as they allow for the evaluation of a company's financial performance in relation to competitors. By analyzing these ratios, stakeholders can assess aspects such as profitability, liquidity, efficiency, and leverage. This comparative analysis can help stakeholders, including investors, creditors, and management, determine how well a company is positioned within its industry or against its peers.

For example, if a company has a higher return on equity ratio compared to its competitors, it indicates better management and utilization of resources, which can attract investors. Similarly, comparing the current ratio with competitors can help stakeholders understand liquidity strengths and weaknesses. This insight into industry standing allows stakeholders to make informed decisions regarding investments, credit, and strategic planning.

The other options do not align with the primary function of financial ratios. While internal processes and marketing strategies are important aspects of business operations, they are typically evaluated through other means, such as operational metrics or market research, rather than through financial ratios. Additionally, customer loyalty programs pertain more to marketing and customer relationship management strategies than to the financial assessment of a company’s performance.