CAIE A-Level Business 10.4.1 Accounting Data for Strategic Decisions

4(b)

Indicative content

Responses may include:

AO1 Knowledge and understanding

Limited knowledge K will be demonstrated through knowledge of the role of shareholders or annual reports or why shareholders may sell or keep shares.

Developed knowledge K+K+ will be demonstrated through knowledge of the role of shareholders and why shareholders may sell or keep shares.

- Explanation of contents and purpose of annual report - legal requirement, sets out company objectives, policies, plans, contains annual accounts and details regarding directors.

- Content of income statement.

- Content of statement of financial position.

- Possible meaning and implications of these two statements.

- Understanding of shareholders' role and possible purposes of holding shares - capital gain or dividend income.

AO2 Application

Limited application, ${ }^{\triangle \mathrm{APP}}$ applies knowledge to CP once.

Developed application, ${ }^{\text {APP }}+{ }^{\text {APP }}$ applies knowledge to CP twice.

Max one APP for application for the first usefulness of the annual report to shareholders and max one APP for application for the second usefulness of the annual report to shareholders.

- CP is a paint manufacturing plc.

- Nanopaints and finance needed, new production line and its cost.

- Static market share and increasing competition in country Q.

- Possible international marketing.

- Use made of information in Table 1.2 including any calculations undertaken.

Calculations might include for 2024 and 2023:

- Operating profit margins: 0.47\% in 2023 and 0.26\% forecast for 2024

- ROCE is forecast to decrease by 0.57% points

- Forecast decrease in operating profit of $\$ 0.18 \mathrm{~m}$

- Forecast decrease in profit for the year of $\$ 0.8 \mathrm{~m}(80 \%)$

- Forecast decrease in dividends payable of $\$ 0.15 \mathrm{~m}(75 \%)$

- Increase in gearing ratio

4(b)

AO3 Analysis

Limited analysis AN - candidate shows one link in the chain of analysis.

Developed analysis L2IAN - candidate shows two or more links in the chain of analysis OR offers a two-sided analysis.

- Development of knowledge and application points in terms of the impact of the annual report on shareholders decision to keep or sell shares.

- Optimistic written section of annual report will encourage shareholders to keep shares, hoping for higher returns in the future to make their investment worthwhile. AN

- CP seems a company with a good future, investing in new products, new production line, considering expansion internationally, so this should lead to higher future sales revenue AN and profits, leading to higher dividends. L2 AN

- Forecasted financial information is not optimistic, which may encourage 'short termist' shareholders to sell shares, due to low expected returns. AN This could drive down the market value of CP. L2/AN

- Analysis of accounting data for two years linked to shareholder decision AN and L2AN if impact on shareholders is developed.

AO4 Evaluation

Limited evaluation ${ }^{\text {Evat }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}{ }^{\text {Eval }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{[\text {L3 }] \mid \text { val } \mid}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Shareholders hold shares for different reasons: capital gain, income, interest in the company, commitment as owners. Reason will be a factor in decision.

- More information needed to finalise a decision including share price (difficult to forecast), and previous years information to see any trends.

- Objectives of shareholders vital component in decision to sell or not - short-term income seekers more likely to sell, capital seekers less likely as costs in the next year are likely to generate future revenues, committed owners, maybe founders, less likely to sell unless want to realise financial gain.

- Very important factor is timescale - short term sees a deteriorating financial position due to investment that will generate longer term improved figures.

- Key factor is how shareholders perceive the accuracy of the forecast information.

- Longer term forecasts would be extremely useful in making the decision.

- Are shareholders capable of interpreting the report information accurately?

Accept all valid responses.