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Basic Question 2 of 5
Which of the following groups of financial statement users is likely to use accounting information as a decision-making tool to evaluate the performance of senior management?
B. Existing shareholders
C. Suppliers
A. Lenders and other creditors
B. Existing shareholders
C. Suppliers
User Contributed Comments 10
| User | Comment |
|---|---|
| examinee | Why not A? |
| Done | The reason why not A is because lenders and creditors don't care about management. They care about their own utility, their ability to get their money back with interest which is affected by the health, not management, of the company. |
| sarath | Only shareholders are more interested in the management of the company... |
| Farina | Sarath is true, to a certain extent, depending on the tenor of the credit being offered by the lenders. If you're buying a 30y bond from company X, current management aren't likely to be around for the majority of the term. Similarly, with short-term / commercial paper creditors, who are principly concerned with internal liquidity. However, buyers of medium term debt (e.g., 1y-5y bonds) will likely by very interested in current management as their decisions can bring company X closer to violating the covenants of the bonds. This is why so many med. + long-term bonds have final, or voting rights on issues such as, company X buying/selling assets, selling new debt, purchasing leases or issuing stock etc. All things that can have a significant impact on cashflows. |
| childpsych1 | Shareholders elect the board of directors at the annual general meeting AGM and therefore they are responsible for the checking the performance of senior management |
| BunnyBaby | You're over thinking the question. |
| cfairs | I think "Evaluate" is the key term here. It refers to evaluation in performance evaluation.. Lenders, Creditors, and Suppliers will be interested in the performance of the management but they are not responsible for evaluating the management performance |
| MRSLETS | A is not correct bcoz lenders are interested in the firms solvency and liquidity not performance of management. |
| kahh | If i were to lend a firm my money, i would be very interested in evaluating the credibility of the management to deliver the firm's goal which is directly related to their solvency and liquidity. If management did mess up then the firm may have to file for bankruptcy which would then jeopardize my lending business with them. |
| vatsal92 | Cfairs has a very valid point. |
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Learning Outcome Statements
describe the roles of financial statement analysis
CFA® 2024 Level I Curriculum, Volume 2, Module 1.