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management can decide what information is relevant for each level and hence filter the unnecessary flow of financial information. The questions arising by the management are: Is the company in the growing sector of the economy? What are its trends in terms of profitability, liquidity and investment? How does the board perceive the past performance of the company and how do they intend to change their strategy for the future? The profitability of a company is a major concern for the management as well as the stakeholders. The share holder’s major concern lies in the profitability of their company as well as the profit that they will earn upon investment in that company. The integrity of the financial information provided by the companies is also a vital concern of most external observers. In order to address the problem, certain laws have been created by governments and international organizations to prevent from “Window dressing” of a company’s performance.

Financial ratios can also be used to assess the risk factor involved for an investor and to predict the bankruptcy of a company. The liquidity and non-bank credit ratio are used for assessing the companies going through a hard time. The non bank ratio is used by a firm where the firm cannot afford to get more credit from banks. This ratio is assumed to be of greater risk as if the firm cannot pay back the loan to the bank, it will probably charge a higher interest. Interest payments are subject to the primary earnings of a firm (as regarded by some financial analysts), so the interest must be calculated as the percentage of sales of that firm or alternatively the total costs as the percentage of the previous year’s earnings. The analysis that an investor gets from these ratios affect the decision making of their investment into any firm associated.

Now let us talk about the hierarchical usage of ratios in the firms. The production manager in a firm is not required to have full information about the firm rather he is more concerned with the liquidity ratios such as repayment of debts, cost of raising long term debts or an alternative to equity. His main focus is to maximize the efficiency of the production of the firm in order to maintain profitability. If today for example: the management decides to sell 75% capacity of the production well he (Production Manager) would simply adjust the production accordingly.

The comptroller management is responsible to gather the reports of the current payments that the firm has made and the current income that the firm has received. It is different from overall management which is required to supervise the short term and the long term trends of the firm. Decisions on this level of management can project the equilibrium point between profitability and on the other hand can assess the risk involved in it. This same level of management will use financial data in order to project the income of the immediate future of the company. If this is over a large period of time such as payment of loans or taxes by the end of the fiscal year then the projection can be stretched over this large period of time and the management have to keep a high level of funds in the pool. Where as if the management can predict that it can increase significantly the income of the firm then the level of funds can be kept low in the pool. For example, a bank might give a company some leverage for returning the loan of