Who are stakeholders? Define who they are and what particular interest each of t
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Who are stakeholders? Define who they are and 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? Who are stakeholders? Define who they are and 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?Explanation / Answer
Primarily, stakeholders of a corporation are persons or organization who has stake in the corporation. They are the users of accounting information, wherein they use the information as input for decision making purposes. Stake holders are divided into two catagories : Internal Stakeholders (Primary) and External Stakeholders (Secondary)
Internal Stakeholders
1. Management : They are the stakeholders who works within a corporation and have interest in the financial statements to evaluate the financial status as well as the future prospects of the enterprise. They also make assessment for dividend distribution. Overall, they are responsible for analyzing financial statements and take appropriate measures to achieve the objectives.
2.Employees : They are also the stake holders who works within a corporation and have interest in the financial statements to assess company's health. They need to know whether about their job security as well as expected future remuneration in terms of salary increments or bonus. They are also interested in the expansion plans of the company, if any so as to assess their career prospects.
3. Owners /Investors : Owners or Investors will be obviously interested in the financial statements since they want to assess the growth and profitability of their investment and to make decisions whether to continue their investment or not.
External Users
1.Creditors : They are interested in the financial statements to assess the credit worthiness and to assess whether their payments will be made when due. They are primarily concerned with Cash Flows so as to measure liquidity and the ability to meet short term obligations.
2. Customers : They are interested in the financial statements to assess the stability of the company and service it might provide in the future. It is mainly required when the corporationg is one of the major or the only source of supplier to the customer.
3. Government : They are interested in the financial statements so as to assess that the corporation is reporting and disclosing its financial information as required by regulations in order to protect the interest of external shareholders or other investors who rely on them. Tax authorities also analyzes the financial statements to ascertain the correctness of tax return filed .
4. Others : There are other stakeholders like general public who might undertake the financial statements of the company as a part of project research , vendors who would want to assess the ability of the corporation to pay them may be competitors who would want to analyze the financial statement to assess and compare their own performance.
How do we analyze if a company is healthy or not?
The health of the company is primarily analyzed by the following measures:
1. Financial ratios : The firm's liquidity , profitabilty and operating abilities can be measured and compared with similar firms or industry average.
2. Non-Current Assets and Liabilities : They are those assets or liabilities with lives expected to extend beyond the next year.Long-term liabilities might be related to obligations under property, plant and equipment leasing contracts, along with other borrowings
3. Book Value : This is the accounting value of the shareholder's stake in the company. It is made up of capital contrbutions, profit earned by the company and the amount not distributed as dividends.
4. P/E Ratio : The P/E Ratio can be calculated as Market price per shares/ Earning per share . Higher the p/e ratio, the higher value company has in the market.
5. Capital and financial structure : These structures assess the firm's capitalization and level of leverage i which the firm operates.
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