Why stakeholders might be interested in the financial information of the organization
Private or public organisations, charities or government services have stakeholders to whom they are accountable. A stakeholder could be a customer, supplier, government agency, family of an employee or another entity interested in helping an organisation reach its objectives.
A stakeholder will require financial information to get an understanding of the performance of the organisation. This record shows the assets owned, amounts owed, amounts invested in the organisation and profitability to better manage the operations.
Changing Environment of the Organization
A stakeholder is interested in the equity of the organisation. The traditional objective of an organisation used to be maximising profits. Today's goals have widened because of the changing environment in which the organisation operates and includes earnings per share, total sales, employment numbers, management satisfaction, environmental protection and many other factors that have an impact on the equity of the business. For this reason, the stakeholder is interested in the financial information of the organisation.
Performance of the Organization
The organisation's performance can be assessed through an income statement, balance sheet and cash flow statement. The cash flow statement shows various activities of the organisation, how funds are being repaid and an analysis of the amount of cash required to meet operating costs. The income statement shows the net surplus or deficits in the last financial year so that the stakeholder can forecast the future performance of the company. The balance sheet shows the financing structure of the company and can predict the funds that will be required in the future.
External Consideration of Investing in the Organization
A stakeholder may be interested in investing in the organisation for a proportional share of the company's equity and profits. As a potential investor, the stakeholder will require financial statements to assess the strength of the organisation to make a decision regarding the investment. An existing investor uses financial statements to monitor the investments and evaluate their performance.
Internal Consideration of Investing in the Organization
An employee may be interested in participating as a stakeholder to help an organisation achieve its objectives. Before entering into a long-term commitment, he will require a financial statement to assess the strength of the organisation, recognising that a prospering organisation is likely to keep high-value employees. A manager may be a stakeholder with the responsibility of achieving the objectives of strategic plans of the organisation. Financial statements help him make informed decisions to modify strategies for opportunities. Other members of the board may want to review management's performance.