3 The interests and information requirements of company stakeholders
So far, this course has only discussed shareholders and directors as parties with an interest in the company. However, there are other stakeholders who will have an interest in a company and its financial accounting information.
A stakeholder is anyone who is, or has the potential to be, influenced by the operations of a company. Companies often try to manage different stakeholder interests to their advantage.
The following activity encourages you to think of company stakeholders and their interests.
Activity 8 Stakeholder interests and information needs
The purpose of this activity is:
- to become familiar with different stakeholders in a company
- to understand the different stakeholders’ interests and information needs.
Looking at the list of stakeholders below, can you think what their interests and information needs are? Fill in the column on the right hand side.
| Stakeholders | Stakeholder interests and information needs |
|---|---|
| Shareholders in private limited companies | |
| Current and potential shareholders in public limited companies | |
| Loan creditors | |
| Suppliers and trade creditors | |
| Customers (current and potential) | |
| Employees | |
| Competitors | |
| The general public, including tax payers, community and special interest groups (including those arguing on behalf of future generations and nature) |
|
| The government, including regulators, tax authorities, local authorities, departments and agencies involved in the development of economic policies |
Feedback
| Stakeholders | Stakeholder interests and information needs |
|---|---|
| Shareholders in private limited companies | They will be interested in profitability, liquidity and cash flow, which will determine the dividends they receive. If they are not the managers of the company, they will also be interested in how well the managers have discharged their stewardship responsibilities. |
| Current and potential shareholders in public limited companies | Investors make decisions to hold shares, buy shares or sell shares. They will be interested in the security of their investment, and also the return on their investment. The financial strength and solvency of the company is shown in the balance sheet. Past profits may also be a guide to how well the company will perform in the future, so this information will also be of interest to potential or future investors. |
| Loan creditors | Lenders need to know that loans made will be repaid, and that interest due on loans will be paid when it falls due. They also want to see if there is a healthy equity cushion. If assets have been used as security for loans, then they will also look to ensure that assets are retained. |
| Suppliers and trade creditors | They need to know that they will be paid. So they will be interested in a business’s financial health, especially in terms of its solvency. They like to see healthy amounts of cash, and that there are not overdrafts or large loans. |
| Customers (current and potential) | Customers need to know whether a business will be able to continue supplying them with goods/services in the future, especially if they deal with a business regularly or significant sums of money are involved. Customers might, however, be concerned that goods sold to them have been overpriced if they perceive that profit levels are very high. |
| Employees | Employees (and also trade unions) will wish to know about the security of their jobs, pay rises, pension issues, and potential redundancies, so will be interested in the long term survival of a business. They will also be interested in directors’ salaries and benefits. |
| Competitors | Competitors will wish to compare their own performance with that of their rivals, and will carry out various detailed analyses to evaluate strategic advantages, and so on. |
The general public, including tax payers, community and special interest groups (including those arguing on behalf of future generations and nature) |
The general public and special interest groups will wish to assess the effect of a business on the economy, the environment and communities, at local, national and international levels, as well as future generations. |
The government, including regulators, tax authorities, local authorities, departments and agencies involved in the development of economic policies |
HM Revenue & Customs will use the profit shown by income statements as a starting point to assess how much tax is payable. Government departments may be interested in collecting data about certain aspects for statistical analysis, or in numbers of jobs created or lost. |