Question

Who are stakeholders? Define who they are and then please share what particular interest each of these stakeholders have in the information shared on the income statement, retained earnings statement, balance sheet and statement of cash flows. How do we analyze if a company is healthy or not?

Answer 1

Stakeholders are those persons or group of persons who have a interest in the company. The Interest that they have may be financial or non financial, such as an employee has a financial interest but customers have non-financial interest. Stakeholders are concerned about the working of a company. Stakeholders are of two types

1. Primary Stakeholders: These have a direct Connection with the company like Employees.
2. Secondary Stakeholders: The Company activities affects secondary stakeholders indirectly like society.

Various Types of Stakeholders are as follows:-

1. Customers,
2. Employees,
3. Government,
4. Stock Holders,
5.   Society,
6. Suppliers,
7. Creditors
8. Lenders / Investors Etc.

Different stakeholders have different interests in the company. Various Stakeholders and their Interests are given below.

1.Customers. Customers have a stake in the goods of the company. Customers need to know that company is making progress; it increases their confidence in using company’s products. All a Customer need is Good a quality product with future care. A customer can understand from Income statements of a company that whether companies do any research expenses to make their product better for consumption.

2. Employees. Employees wants to see what company pays to them as a compensation for their hard work. Companies Value added statements show the percentage of revenue distributed to employees of company. Employees are also concerned about their job security. A profit making company is suppose to give a satisfaction to employee that he has a good future in company.

3.Government. Government Collects takes which can be ascertained by reviewing Income statement. Moreover companies help government by providing employment to millions of people. Government has interest in knowing that companies prepare their financial statements truthfully and frauds like Enron are not done.

4. Stock Holders. Stock Holders are basically owners of a company, They take major decisions in working of a company. Results shown by income statements, Balance sheets and cash Flow Statements help them take future decisions with precision.

5. Society. Society is also concerned about the working of business organizations. They have a stake in Corporate Social Responsibility policies of a company. Whether company is taking necessary steps to minimize pollution of water, air, or total environment as a whole. The employment rate is another example of society’s stake in businesses.

6. Suppliers. Suppliers are Concerned about that cash position of company. The Current ratio of Company. They supply Inventory so they need to know whether company is able to pay their dues in time. Cash Flow statements show a supplier the position of cash of a company.

7. Creditors. Creditors are concerned about the payment of their dues.

8. Lenders. Lenders such as Bond Holders or Preference stock holders are concerned about the efficient of use of their money and the return on their money. No one wants to lend his money to a company which makes losses. Financial statements help lenders to see whether they had made the right decision.