Users of the Statement of Financial Position Flashcards
Why is the Bank Manager Interested in the Statement of Financial Position?
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.
Why are Employees interested in the Statement of Financial Position?
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.
Why are the (IRD) Inland Revenue Department interested in the Statement of Financial Position?
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.
Why are the Competitors interested in the Statement of Financial Position?
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.
Why are the Potential Owners (not investors) interested in the Statement of Financial Position?
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.
Why are the Owners interested in the Statement of Financial Position?
- 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
