INA Ltd is a company that deals in manufacturing of pharmaceutical products. Raman has recently been hired as an assistant to the accountant of INA Ltd. The accountant of the firm Mr. Rajat asks Raman to go for financial statement analysis of the firm to assess the financial position of the firm. To judge the knowledge and capabilities of Raman, Mr. Rajat asked him to analyze the financial statements from the viewpoint of various parties interested in the firm eg. the management, the lenders, the investors, labour unions, government, etc.

If Raman is to analyse the financial statements for the short-term lenders, what should he consider?

Short-term liquidity of the firm Long-term solvency of the firm To see that the resources of the firm are used most efficiently and that the firm's financial condition is sound None of the above

Short-term liquidity of the firm

Trade payables, through an analysis of financial statements, appraises not only the ability of the company to meet its short-term obligations, but also judges the probability of its continued ability to meet all its financial obligations in future. Trade payables are particularly interested in the firm’s ability to meet their claims over a very short period of time. Their analysis will, therefore, evaluate the firm’s liquidity position.