Stakeholders and Financial Ratios
Therefore, it is important for a company to know and understand how to manage each one of its stakeholders, even those who do not work directly under the company. When doing business with a company, it is also essential to have an insight into the company’s stakeholders and how they influence the company’s financial operations and positions. Types of Stakeholders for any Company Stakeholders of a company can be categorized into internal or external. External stakeholders of a company are those whose interest in the company arises from direct investment, ownership, or employment by the company. As such, types of internal stakeholders of a company include investors, donors, board members, managers, and employees (Lawrence & Weber, 2014). Being the third largest retailer in the world by income, the Tesco enjoys a significantly large portion of the global groceries market.
For instance, in the United Kingdom alone, Tesco has a market share of about 30%. This is a large percentage compared to its major competitor, Asda, which has approximately 16% share of the market (Bather & Tucker, 2011). With such a comparatively large market share, the company’s decisions influence many people in the U. K. According to Lawrence and Weber (2014), employees, including volunteers, are the most important resource that a company can have. How a company’s employees are treated and how they value the company has an impact on how the company performs. Therefore, employees are important stakeholders. Being the largest retailer in the United Kingdom, Tesco employs hundreds of thousands of people in the United Kingdom. It also has employees in different parts of the world including Japan and the United States.
The success of a groceries business in the locality has a significant influence on the general health of the local communities. Other than paying taxes, the local communities also expect Tesco to operate ethically and with environmental responsibility. Furthermore, the local communities also like it when Tesco engages in events and local charitable giving. Therefore, it is important for Tesco to maintain a good relationship with the local officials and anticipate community developments that may affect it (Bather & Tucker, 2011). The local communities are interested in Tesco’s financial statements to determine the effects of the company on the economy, environment, and the local community. As such, other than maximizing their economic performances to increase the wealth of shareholders, companies also integrate aspects of social responsibility with the aim of benefiting the society as a whole (Young and Thyil, 2009).
Environmental, social, and economic concerns are forcing enterprises to integrate strategies and systems that take into account the observance of the law all aspects, and also emphasize on the common good for stakeholders in particular and society in general. Through the general assemblies, shareholders exercise their role in demanding social change initiatives and ethical attitudes and behavior at the corporate level (Young and Thyil, 2009). In this way, the stakeholders exercise a strong influence on the formulation and integration of positive social change initiatives by the companies’ board of directors. Stakeholders require efficacy, efficiency, and transparency on the part of managers, to attain economic benefits; hence, ensuring the continuity of the company on long-term basis. The local communities are interested in these environmental and social review reports because they present a perspective of how the company treats the environment in which the community members live.
In accounting for its environmental impact through reporting, Tesco seeks to gain, maintain, and restore the perception of legitimacy in the local communities. The communities get to approve the company’s operations and accord it a better reception and support. Other than discharging accountability to the contemporary societies, the environmental and social review reports also help Tesco in accounting for the wellbeing of the future generations. This is because of the pollution of the environment, and the use of resources can affect future generations. Question 2 Analysis of the Financial Position of Benedict Co. Ratio analysis is a quantitative analysis of information presented in a company’s financial statements. The company’s stakeholders can use the ration analysis to evaluate various aspects of the company’s financial and operating performance such as solvency, profitability, liquidity, and efficiency.
The stakeholders can use the analysis in various ways. First, they can use it to examine the current financial performance of the company in comparison to past periods. i. Quick ratio Also known as the “acid test,” quick ratio compares a company’s most liquid assets to its current liabilities. It tests the ability of the business to meet its obligations even in severe circumstances. The formula for calculating quick ration is: Quick Ratio = (Total Current Assets – Total Inventory) ÷ Total Current Liabilities. In the case of Benedict Co. These ratios are relevant because they help investors in making investment decisions. They are also useful to loan officers and banks because they indicate the viability and financial health of the company. Some examples of the solvency ratios include the interest coverage ratio, the debt-assets ratio, and the debt-equity ratio.
For instance, in calculating the debt-to-equity ratio of Benedict Co. , the appropriate formula to use is: Debt-to-equity ratio = Total liabilities ÷ Total equity Debt-to-equity ratio for the year 20X0 is = 13,100 ÷ 25,900 = 0. For instance, in the case of Benedict Co. , the inventory turnover ratio can be determined using the formula: Inventory Turnover Ratio = Cost of Goods Sold ÷ Total Inventory Inventory Turnover Ratio for the year 20X0 is = 14,500 ÷ 2,600 = 5. 58 Inventory Turnover Ratio for the year 20X1 is = 16,000 ÷ 5,200 = 3. 08 Compared to the year 20X0, Benedict Co. had low inventory turnover ratio in the year 20X1. The drop raises concerns over the Benedict Co. ’s financial stability. Although the debt-to-equity ratio still remained less than one, the drop shows that the company is slow at paying its outstanding loans, which is a bad trend.
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