Interested Parties (Copy)

What Are Interested Parties?

• Individuals or organisations who use accounting information to make financial decisions or evaluate performance.
• Also known as stakeholders.

Owners (Sole Traders, Partners)

• Use financial statements to:
  • Assess profitability (e.g. Net Profit, ROCE)
  • Monitor return on investment
  • Decide whether to expand, invest more, or close down
• Interested in:
  • Income Statement
  • Statement of Financial Position

Example:
If net profit has dropped by 40%, the owner may reconsider hiring new staff.

Managers

• Use information to:
  • Plan and control operations
  • Set budgets
  • Monitor costs, efficiency, and targets
  • Take corrective actions where needed
• Review:
  • Sales trends
  • Expense breakdown
  • Working capital ratios

Example:
A manager notices increasing expenses and plans to cut overheads by renegotiating rent.

Trade Payables (Suppliers)

• Want to know if the business:
  • Can pay on time
  • Is financially stable
• Look at:
  • Current ratio
  • Liquidity ratio
  • Statement of Financial Position

Example:
If current liabilities are high and liquid assets are low, suppliers may reduce credit terms.

Banks

• Evaluate financial health before giving:
  • Loans
  • Overdrafts
• Require assurance that the business can repay debts.
• Examine:
  • Profitability ratios
  • Liquidity position
  • Existing liabilities

Example:
A bank may deny a loan if debt-to-equity is already very high or liquidity is poor.

Investors (Potential Shareholders or Partners)

• Interested in:
  • Return on investment
  • Stability and growth potential
• Use:
  • Profitability ratios (e.g. ROCE, Net Profit Margin)
  • Trends in capital and retained earnings

Example:
If ROCE is 5% while industry average is 15%, an investor may avoid buying shares.

Club Members (for Non-Profit Organisations)

• Use statements to:
  • Track subscription income
  • Monitor how funds are being spent
  • Evaluate the club’s financial stability
• Examine:
  • Receipts and Payments Account
  • Income and Expenditure Account
  • Statement of Financial Position

Example:
Members may vote against purchasing new equipment if annual surplus has fallen.

Other Interested Parties

Example:
If profits rise significantly, tax authorities may audit the business to check for underreported income.