Page 65 - Cambridge IGCSE Business Studies

5: Business objectives and stakeholder objectives

profitability of a business. If profits rise then the market value of the shares is likely

to rise. Shareholders in public limited companies may gain from selling their shares
for a higher price than they paid for them.

Managers
Managers are responsible for the performance of a business. If the business does
well, for example achieves its objectives, then the managers may receive bonuses, or

a salary increase. They may also gain promotion.

Employees
Employees are also interested in the performance of the business. If the business

is profitable, it can mean better job security and the chance of pay rises. Some
businesses have profit-sharing schemes for employees. Profitable businesses might

Profit-sharing schemes: see

use some of their profits to expand. This can provide employees with more job

Chapter 6, page 82.
security and perhaps opportunities for promotion.
External stakeholders
Like internal stakeholders, external stakeholders also have an interest in the
decisions and activities of a business.

Lenders
Lenders such as banks will want to know if they will be paid the interest on any

loans given to the business. They will also want to check that the business can repay 63
the amount borrowed.
Existing lenders will want to know that the business is making enough profi t
and has enough cash to make these payments.
Potential lenders will want to know about the long-term profi tability of
the business as well as the amount of borrowing the business has already.

They may also want to know the value of any non-current assets that can be

used as collateral (security) against any lending. This information will be
used by the lender when deciding on whether or not to make loans to the
business.

Suppliers
Suppliers have an interest in the activities of a business for two main reasons.
First, they want to know if they will get paid on time for any goods they have

supplied to the business on credit. They will want to know that the business has
enough cash to pay its short-term debts.
Second, the success of suppliers depends a lot on the success of the
businesses they supply. If a business is expanding then this means it
will be producing more goods and will need more inventories. Th is will

increase the sales and potential profits of the supplier. However, a possible
disadvantage for suppliers is that as a business expands and buys greater
quantities of inventories from its suppliers, then it may expect to pay
lower prices. This can reduce the profit margins of suppliers.