A5 Analysis and Interpretation of End-of-Year Financial Statements
Stakeholders are individual or groups that have a vested interest in the activities of an organisation. This is because they will be impacted by business actions and performance. Each stakeholder group will have an interest in end of year accounts for different reasons.
Shareholders hold shares of the company's stock. This means they are an owner of a percentage of the company. The value of an individual share rises and falls in line with the overall business. Shareholders receive a share of profits that are distributed through dividends. Shareholders will interested in final accounts to measure profitability and growth. This is to ensure they will be receiving a return on their investments through dividends and the increase in value of their shares. They may decide to buy, sell or hold shares based on the financial performance of a company.
Customers (debtors) have been provided with goods or services by a company but have not yet paid. They will have been issued an invoice with payment terms usually between 30 and 90 days. During this period, they are referred to as debtors until they settle their debt. Customers may be interested in the long-term survival of a business if they are considering goods and services that require a relationship or after-sales care. They may also be interested in the ethics of an organisation which can to some extent be judged from final accounts.
Suppliers (creditors) are entities that have provided a company with goods or services and are awaiting payment. They will have issued the company with an invoice with payment terms usually between 30 and 90 days. During this period, they are referred to as creditors while they wait for the company to settle their debt. A key objective of a supplier is for customers to pay their invoices in full and on time. Late or non-paying customers can have a negative impact on the liquidity of suppliers. Suppliers may check financial statements to assess the ability of their customers to meet their short-term liabilities. More high-risk customers may be asked to pay cash or be given shorter credit terms.
Employees are people who work at a company. The company rewards them for their labour with wages, salaries and other forms of remuneration such as medical cover and bonuses. A key objective for an employee is job security. Therefore employees may be interested in final accounts to assess the stability of the company they work for. They may also use final accounts for salary negotiation if the company is performing well or to support a decision to seek more secure employment if the company is struggling financially..
Directors are members of the senior leadership in a company. They are responsible for the strategic decision-making of the company. They are required to ensure all legal requirements are met in the production of the financial statements. Directors will use final accounts to assess the financial health of the company to inform decision-making and to set budgets for departmental spending for the upcoming period.
Managers are responsible for leading groups of staff in an organisation. This is usually a specific department. Managers are responsible for problem-solving within their area and all required tasks are completed. This may mean training, coordinating and supporting staff in their area as well as performance reviews. Managers are responsible for setting targets and monitoring progress against them. Final accounts are helpful documents to track performance.
Potential investors are individuals or groups who are seeking opportunities to invest their money. They will be interested in viewing the final accounts from a range of different companies to make a judgement on which investment will give them the best return.
Governments are the institutions that make decisions on behalf of a whole country. They collect taxes from individuals and spend them on the public sector. Governments make and enforce laws to improve standards of living. Governments will check the accounts of companies to ensure they have paid the correct amount of tax. They may also use the final accounts of multiple companies to judge the performance of the overall economy.
Lenders are financial institutions that have given an amount of money to a company on the agreement that it is paid back with interest. A key objective of a lender is to receive their money back on time, in full and with interest. A lender may be interested in final accounts to make judgements on whether a company is likely to meet these requirements before lending any money.
Public groups such as local communities, pressure groups and environmental organizations will be interested in the external impact of company's on the environments in which they operate. Public groups may be interested in final accounts to make judgements on a company’s ability to be more environmentally friendly, provide better working conditions and pay more tax to contribute more to society.
