External users of financial ratios for decision-making

Steps:

• Distinguish external parties as those outside the business, like stakeholders not involved in daily operations.
• Recall accounting ratios analyze profitability, liquidity, and efficiency from financial statements.
• Identify parties needing this info for investment or oversight, excluding internal managers.
• Match choices to external interests: investors evaluate performance for funding decisions.

Why B is correct:

• Investors use ratios like ROE (Return on Equity = Net Income / Shareholders' Equity) to assess profitability and risk before buying shares.

Why the others are wrong:

• A. Government monitors regulations and economic trends, not detailed ratios for business health.
• C. Managers are internal users who generate and use ratios for operational control.
• D. Tax authorities focus on income figures for calculations, not ratios for performance analysis.

Final answer: B