Cambridge IGCSE Accounting · 0452
Chapter 6: Analysis and Interpretation — Part 4
Section 6.4 · Interested Parties
Various stakeholders require accounting information to make informed decisions regarding their relationship with the business.
Decision Matrix: All Syllabus Interested Parties
Link each party to the information they use and the decision they make. Cambridge 0452 requires all ten groups below.
| Interested Party | Information Used | Decision Made |
|---|---|---|
| Owners | Profit for the Year, ROCE, trend in capital | Whether to continue, expand, or close the business; whether to invest more capital |
| Managers | Budget comparisons, expense analysis, liquidity and efficiency ratios | Identify weaknesses, control costs, and plan future budgets and staffing |
| Employees | Profit trends, liquidity, continued trading indicators | Assess job security and likelihood of wage increases or redundancies |
| Banks | Statement of Financial Position, current ratio, profit trends, existing loans | Whether to grant or renew a loan or overdraft and whether interest can be met |
| Investors and lenders | ROCE, profit margin, dividend history, equity structure | Whether to buy, hold, or sell shares; whether lending carries acceptable risk |
| Suppliers | Liquidity ratios, trade payables turnover, payment history | Whether to offer credit terms or demand cash on delivery |
| Customers | Going concern indicators, liquidity, profit trends | Whether the business can continue supplying goods, honouring warranties, or fulfilling long-term contracts |
| Governments / tax authorities | Income Statement, supporting ledgers, Profit for the Year | Verify correct tax is paid and compile economic statistics |
| Club members | Accumulated Fund, Surplus/Deficit, Income and Expenditure Account | Whether subscriptions are used for members’ benefit and whether fees should rise |
| Other parties (public, environmental bodies) | Published accounts, sustainability disclosures, local economic impact | Assess social and environmental responsibility; decide whether to support or protest business activities |
Worked Example 1: Bank Loan Decision
Scenario: A sole trader applies for a $30,000 bank loan. Accounts show Profit for the Year $22,000 (up from $15,000), current ratio 1.1:1, and an existing loan of $25,000.
Bank’s analysis: Rising profit supports repayment capacity. However, current ratio 1.1:1 indicates tight liquidity, and existing debt is significant. The bank may approve the loan with security (e.g. charge over non-current assets) or require faster repayment terms rather than refusing outright.
Worked Example 2: Supplier Credit Terms
Scenario: A supplier reviews a retailer’s accounts before agreeing to $50,000 of credit stock. Current ratio is 0.8:1; trade payables turnover is 75 days (industry average 40 days).
Supplier’s decision: Weak liquidity and slow payment history suggest high risk. The supplier may refuse credit and insist on cash on delivery, or offer credit only with a shorter payment period and lower credit limit.
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