Who are the stakeholders?
Stakeholders of an enterprise or firm are individuals that have an interest in the entity. They may not have ownership interest but other interests. Stakeholders can include debtors, creditors, owners, customers, suppliers etc.
Even though corporations are profit-making organisations, but due to increasing bent towards corporate social responsibilities, the organizations are contributing to a non-profit or social cause. On this basis, it has been contested stakeholders should consist of wider elements from the business environment, including nature, societies, communities and so on.
In the making of a business, there are several people involved directly or indirectly, and every person is a stakeholder. Stakeholders help the organisation in some ways and are impacted by the decisions undertaken by the firm.
Some examples of Internal and External stakeholders of a company
Source: Kalkine Media
External vs Internal Stakeholders
Internal stakeholders are those people who have a direct interest in the company and are impacted directly by the decisions of the firm. The decision of the company indirectly impacts external stakeholders.
Investors, Suppliers, and employees are the internal stakeholders of the business. If a business is operating successfully, it would be beneficial for the investors and employees of the company.
Communities, creditors, and tax authorities are external stakeholders of the business. For example, a change announced by the Government in the accounting system of manufacturing units would affect the business operations of an entity.
Shareholders vs Stakeholders
Shareholders are the owners of the business and have a part in the losses and profits of the business. They also have a right to vote on the crucial decisions of the firm like the appointment of Board directors or CEO. They have a financial interest in the company. Shareholders are part of a bigger bracket called Stakeholders.
Stakeholders don’t usually have ownership in the firm but have a vested interest in the company. They would not have the right to vote on the decisions of the company. For example, a supplier of the firm has an interest in the firm.
Types of Stakeholders
A customer is a stakeholder because they use the products and services of the company. Any change to the products and services would impact the customers. For example, if a company is not performing good, the vendors in its supply chain may feel the heat as production may be reduced and the company may also no longer uses its service.
They are one of the most important external stakeholders of the company. Communities are impacted by economic activity, job creation and infrastructure development by the firm. Some companies attempt to give back to communities through charities and donations.
Governments are also important stakeholders for the business. Companies pay taxes to Governments, and tax could be direct or indirect. Companies are a source of revenue for Governments and help Governments to improve economic conditions.
Employees are internal stakeholders of the company and contribute towards the growth of the company. The company pays the wages in return for the services provided to the company. Any change in the company policies or performance directly flows to the employees.
Investors or owners of the business are internal stakeholders of the company. They have voting rights on the decisions of the company and have a share of profits or losses generated by the firm. Investors look for the return on the capital invested in the business.
What is Data Analytics? Data Analytics involves a set of quantitative and qualitative approaches and processes that can be used to determine useful information for business decision-making. The process involves various patterns and techniques, including: extracting a raw database, and categorising it to identify and analyse the behaviour, relation and connection of the results. The ultimate goal is to acquire valuable information in order to make decisions for businesses’ benefit and productivity. In today's competitive times, most companies chalk out their business plan with the help of data analytics. With organisations becoming customer-service oriented, data analytics has become a critical tool to reach the target audience in an effective manner while understanding their requirements. Once data is collected, it is analysed and stored according to organisations’ requirements. The data analysis process has multiple layers involved, and its diverse modules are not just used in businesses but also in science and social science fields. Rather than making decisions based on just available information, one can utilise data analytics in examining the data in standard ways and churning out the results from it. It has been observed that companies generally make decisions based on past references and future outcomes. Data analytics appears advantageous in providing useful information towards this end. Why do Businesses Need to Use Data Analytics? Many data analytics’ tools and softwares are readily available these days. These systems use resources, such as machine learning algorithms and automation. Data scientists and analysts are counted amongst the leading career options as well. These professionals use data analytics techniques while researching and presenting useful information for businesses to increase productivity and gain. The process helps companies understand their target audience and determine effective ways to cater to their needs. Data analytics can further be used to design strategies in marketing campaigns and promotions and also evaluate its results. Data analytics is primarily used in business-to-consumer (B2C) processes to boost business performance and improve the bottom line. There are data collection firms which gather consumer information and provide it to the businesses so that the companies can effectively influence the market. The collected data is not only used to understand and impact consumer behaviour but also determine market economics and its practical implementation. The data used in the process can be either be data collected in the past or newly updated data. There are various methods to manage consumer and market information. It may come directly from the customers or potential customers or can be purchased from the data collection vendors. The data primarily includes audience demographics, behavioural patterns and expense threshold. How Can Data Analytics be Effectively Used in Business Processes? Data analytics is an ever-evolving technique. Earlier, the data was collected manually, but with the rise of internet and technology, data is now collected online with the help of search engines and social media platforms. Subsequently, the information is analysed through available software. Here is a list of some key steps businesses can follow to leverage the benefits of data analytics: Set up crucial metrics: This step reduces the guesswork and provide data-based insights to the businesses. Before embarking on the data analytics process, it is vital to determine the goal for your business. Analysing customer data helps in understanding conversion rate, consumer spending ability, demographics etc. The results of the analysis can support the businesses while making decisions in launching an advertising or marketing campaign. Similarly, the unwanted data can be erased from the database so that the brands can focus on their right target audience. The relevant metrics will change the course of the company and push it in the right direction. Moreover, once your key metrics are set, even when the market conditions change in the future, you can adjust the metrics according to the requirement and achieve the results. Set a clear module: It is important to examine the data correctly by avoiding common mistakes. An ambiguous path can produce confusing insights while wasting time and energy of businesses. Therefore, it is recommended to draw a clear goal in order to achieve actionable insights. The data, when collected from different sources, need to be merged accurately in the analytics model. Businesses can modulate their data analytics systems either manually or through automation. There are various data modelling practices available in the market. The best use of these techniques can simplify the process of modelling complex data. Data visualisation: Once the relevant data is collected, and the modules are set to analysis, visualisation of that data will assist in understanding the information correctly. When the businesses have an acute knowledge of what their target audience wants, they can then focus on strategising advertisement and content, which matches the consumers' interest. It is the critical step in the data analytics process to distinguish insights from information. Not everyone is comfortable dealing with numbers. Hence, ensuring that key stakeholders understand essential points and information can be displayed in a visually appealing format seem crucial to capitalise on data effectively. Right tools to implement insights:Having access to data and insights can get overwhelming. However, the information is worthless if the businesses are unable to implement it successfully. While it is important to collect the data and set critical metrics and modules to analyse it, it is also imperative to translate the data into practical actions. The eventual goal is to improve sales or grow profits. It is ultimately in the marketers' hands to transform the gained insights into a successful implementation. The consumers' insights should be incorporated while establishing a marketing plan and at all decision-making steps.
An earnings announcement is a public statement of a company’s earnings, usually done on a periodic basis. These official announcements are released quarterly or yearly to inform the investors and the market about a company’s financial performance. Companies announce their financial reports through press releases on their websites and list them on the stock exchanges website. After the information is released through a conference call, there is a question-and-answer round with the senior management in which analysts, media, and investors can participate. On the basis of the report, analysts then incorporate earning measures such as EPS (Earning Per Share). These reports help investors in making sound investment decisions. Earnings results are announced during the earnings season on a date chosen by the company. Stock prices of the companies take a swing before and after the company releases its earnings report. Equity analysts also predict earnings estimates through their analysis which drives stock prices movement due to speculations. Stock prices even move after the earning results are declared, up or down, depending on how the results have turned out. Source: Copyright © 2021 Kalkine Media Pty Ltd. When are earning announcements made? It is mandatory for every listed company to report its quarterly financial results in the US but not in Australia. In Australia, companies release their financial report on a semi-annual basis. Having said that, many Australian companies also update their shareholders quarterly, but these are not considered official earnings. These quarterly reports are released to satisfy the market demand for information and to disclose the company’s guidance on its performance. The financial calendar varies from country to country and therefore, the earnings season changes as well. In the US, the earnings season starts after the final month of the financial quarter. Usually, American companies start posting their earnings reports in January, April, July, and October. In Australia, companies report twice a year, usually around February and August, or May and October. It depends upon the company’s financial cycle. However, whether quarterly in the US or semi-annually in Australia, these earnings results are required as agreed while listing the company with the stock exchanges. Source: Copyright © 2021 Kalkine Media Pty Ltd. Why are earnings announcements necessary? Financial results help investors, media, and other stakeholders of the company to have a greater understanding of the company’s financial footing. Companies not just provide sales, operating profit, net profits, but also offer guidance and outlook for coming months. Additionally, these reports also have senior management statements directed at the market. Therefore, earning announcements act as an informative document for the investors and analysts to study and gauge a company’s performance. Analysts can provide earnings estimates, and investors can then take wise investment decisions. These documents are also vital for companies when it comes to seeking funding for the business. Financial institutions can also judge a company’s financial health by evaluating earnings reports. The management offers insights on growth drivers, risk factors, etc that impacted the earnings during that particular period. Analysts also assess the earnings results, taking into account the external factors that drove the growth or impacted the firm negatively. These factors could be mergers and acquisitions, bankruptcies, economic discrepancies, policy changes, etc. For investors, earnings reports are essential because these announcements swing the price up or down. Traders keep a keen eye on these reports as it can be a time when they can confirm positions. However, some investors also avoid earnings seasons because of the involvement of various human factors.
The earnings call is typically a conference call which the management of a company conduct with stakeholders of the company such as analysts, investors, media to discuss the financial performance during a given reporting period.
What is a Balance Sheet? A balance sheet is a financial statement of an enterprise. It is one of the three primary financial statements used in analysing a business or modelling forecast for a business. Other two include the income statement and cash flow statement. It shows the financial positions of business in a given period and includes critical information like the value of assets, liabilities, cash and shareholders’ equity. In this way, a balance sheet enables the information seeker to evaluate the net worth of an enterprise. Good read: Evaluating Financial Statements The balance sheet is a source of information for a number of stakeholders, including investors, creditors, bankers. It helps stakeholders to make efficient decisions and provide transparency. Enterprises are primarily judged on the financial position, which is based on the income statement, balance sheet and cash flow statement. The balance sheet is also referred to as Statement of Financial Position and is applied, along with other financial information, in deriving financial ratios, financial modelling, stress testing, credit appraisal, credit rating etc. It reflects the position of an enterprise during a given period, which could be quarterly, semi-annual, and annual. Corporations are required to publish financial information regarding the business under different laws across jurisdictions. Why does the balance sheet balance? Balance sheet is balanced because of the double entry bookkeeping system, which necessitates the effect of transaction on two accounts. For instance, an entrepreneur starting a business with $5000 cash will increase cash (Assets) and capital (Shareholder’s Equity). The below equation is the result of double entry bookkeeping system. Assets In the assets section, balance sheet represents the value of a business which can be converted to cash and is owned by the enterprise. Assets represent the ownership of an enterprise. Companies derive assets through transactions, investments, acquisitions, internal developments etc. Assets are generally recorded at a cost which was paid at the time of transaction. But conservative accounting principle necessitates companies to record assets at current costs, and the difference between actual cost and current cost is charged to profit and loss account. The balance sheet does not include internally generated assets like Domino’s Pizza Logo, McDonald’s logo that are valuable for business. However, such intangible assets are recorded in the balance sheet when an enterprise purchases intangible assets or acquire by way of business combinations. Companies are required to report assets less than costs at times like anticipated losses from a receivable are charged to the income statement, and receivable are reduced by same amount in the balance sheet. Depreciation and amortisation is the process charging expenses of long-term assets to the income statement and reducing the same amount from the balance sheet value of long term assets. There are two types of assets: current assets and non-current assets Current Assets: Current assets are those assets that could be realised in cash in one year. These assets include cash, cash equivalents, inventory, trade receivables, financial assets, prepaid assets, financial assets etc. Current assets also indicate the expected amount of cash a business can potentially convert over one year period. It also includes assets held for sale purpose. Current Assets are used to calculate working capital and other financial ratios. Non-current Assets: Non-current assets are those assets that would not be converted into cash easily. These are long term assets of the business and expected to generate long term benefits for the business. Non-current assets include property, plant, machinery, lease assets, intangible assets, financial assets, deferred tax assets, investments, advance, long-term receivables etc. Liabilities Liabilities represent the obligations of an enterprise. It can be the source of assets and also represent a claim on assets of an enterprise. A liability is recorded as a result of past event or transaction, and settlement of liability is expected to result in an outflow of funds, resource or economic benefits. There are three types of current liabilities: current liabilities, non-current liabilities and contingent liabilities. Current liabilities: Current liabilities are short term commitments of an enterprise that are needed to be settled within one year. It reflects the amount of funds that would be required by an enterprise to pay-off its short-term obligations. Current liabilities include trade payables, borrowing, current tax payable, lease liabilities, financial liabilities, provisions, accrued expenses. Information seekers use current liabilities to evaluate the liquidity of an enterprise and various other ratios. Non-current liabilities: Non-current liabilities are also known as long term liabilities of an enterprise because these are due after one year. A company with a loan maturing in ten years’ time will be required to report principal amount under non-current liabilities. Non-current liabilities include long-term borrowings/debt, deferred tax liabilities, lease liabilities, financial liabilities, provisions, capital leases, etc. Contingent liabilities: Contingent liabilities are the obligations of a firm that could become due to the outcome of a future event. Moreover, these are potential obligations of a firm. A common example of contingent liabilities could be litigation against the company, which may force it to pay money upon judgement. Shareholder’s Equity It is the amount of capital the owners or shareholders of an enterprise have provided to the business. Shareholder’s equity also includes the amount of cash generated by the business after repaying all necessary obligations in a given period. Shareholder equity includes equity share capital, preferred share capital, paid-up capital, retained earnings, accumulated losses. Negative shareholder equity would mean that the liabilities of the company exceed assets of the company. A positive shareholder’s equity indicates that the company has surplus assets over liabilities.