How Stakeholders Use the Accounts (Cambridge International IGCSE Business)
Exam board Cambridge International · IGCSEUpdated 2025-06-12
Using financial accounts to make decisions
Spec point — "• Needs of different users of accounts and ratio analysis • How users of accounts and ratio results might use information to help make decisions, e.g. whether to lend to or invest in the business"
Using financial accounts to make decisions
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The financial accounts of a limited liability business need to be submitted to Companies House each year
- Public Limited Companies need to have their accounts audited before they publish them
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Different stakeholders use the business accounts for different purposes
Stakeholder use of the financial accounts
| Stakeholder | How they use the statement of financial position | How they use the income statement |
|---|---|---|
| Investors and shareholders | - Used to identify the asset structure of the business and how their investment has been put to use - Used to calculate the working capital of the business and determine its solvency - Used to determine the rough value of a business, which helps make a judgement on whether their investment is growing | - Interested in revenues, costs and profits earned, business growth and dividend payments - Shareholders may use ratio analysis tools to identify profit margins and returns on investment |
| Management | - Used to identify the financial position of the business at a given point in time - It is useful to assess the working capital position of the business and determine if there are enough liquid assets to pay its bills - Provides information on the **capital structure **of the business which helps guide decisions on whether to raise further funds through borrowing or via other means (e.g. share issue) | - Interested in key performance data such as an improvement in sales revenue and net profit - This data can aid in business decision-making - Financial data can provide evidence to support the payment of bonuses |
| Lenders and creditors | - Look at the balance sheet to evaluate the company's solvency ** - They are interested in the company's ability to pay back its debts | - Consider profit generated, as this could indicate the stability of the business and level of risk it presents |
| Suppliers | - Businesses with low levels of working capital may find it difficult to pay short-term debts and so suppliers may offer trade credit, but with stricter terms | - Interested in the continued success of the company - This information is also used by suppliers to determine the level of trade credit offered to businesses |
| Employees | - Used to answer questions such as: - Is the business financially stable or are jobs at risk? - Has the businesses performance improved or worsened? - What is the business spending its money on? - How much are senior executives paid? - How much tax is the business paying? | - Interested in profits earned, the potential for wage increases, and job stability - Employees may look at notes to the accounts that detail levels of executive pay |
| Regulatory bodies and tax authorities | - Regulatory bodies use financial statements to ensure a business is complying with accounting standards and regulations | - Tax authorities use financial statements to check the accuracy of tax returns and assess how much tax a business is liable to pay - The Income Statement can provide an insight into whether the business will** continue to provide employment**, place orders with other businesses and supply goods and services to the public sector |
| Local community | - Interested in the** stability of the business and what this may mean for jobs in the community | - Another interest is to see if the firm is generating enough profit to perhaps approach them for local sponsorship |
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