Users of a Statement of Financial Position

Question 1

BANK MANAGERS

Answer 1

They lend money to businesses

The bank manager wants to decide if the business can repay new or existing loans by selling the assets should the business fail. I.e. would the cash from selling the assets exceed the amount owing to the bank – if it does then the bank will continue to finance the business.

Question 2

EMPLOYEES

Answer 2

They are interested in job security and pay rises

The employee is interested in the Business’s financial stability to decide if it able to continue into the future to ensure their job will continue.

Question 3

INLAND REVENUE DEPARTMENT (IRD)

Answer 3

They are concerned that all businesses pay the right amount of taxes and on time.

The IRD is interested in making sure the business has enough liquid assets to pay its tax on time.

Question 4

COMPETITORS

Answer 4

They are concerned to see if their business is performing better or worse that yours.

The Competitor is interested in the business financial stability to see if it is higher or lower than theirs. They will want to compare assets and liabilities of the business to theirs to decide if they can make improvements to their business performance. E.g. increase their liquid assets, decrease the amount of debt they owe the bank.

Question 5

Potential Owners (not investors)

Answer 5

A potential owner is interested in the quality and quantity of the assets of the business to see if it is worth paying the market price asked for them by the owner selling the business. He may decide to offer a lower price if he thinks their quality is poor.

Question 6

The Owner

Answer 6

The owner is interested in the profit of the business to decide

• Whether the business is worth keeping or selling
• To expand the business by buying more assets
• Can he borrow more money and pay the loan installments off
• Can he take the family away on a holiday
• Should he try to boost sales or lower expenses to increase profit