A stakeholder is defined as any individual or organization with an interest in a company or project.  In other words, stakeholders are any people, association, or institution that has the ability to influence and be influenced by a business due to a vested interest in it. A stakeholder is defined as any individual, group of individuals, or corporation that is in some way tied to the business.

However, a stakeholder is not the same as a corporate shareholder. Shareholders are a class of stakeholders who possess shares in a corporation. However, not all stakeholders are shareholders.

Types of Stakeholders

Users of financial reporting can be split into two groups:

  • Internal users
  • External users
Internal Users:

An internal stakeholder has personal experience with a company, which stimulates their interest in it. They are immediately affected by the acts or choices of a firm. This includes the following:

  1. Management: Management uses financial reports for performance analyses over a specified period of time and to compare the company’s performance with that of similar companies. This analysis assists the management in strategizing and planning for the future, as well as implementing appropriate measures to enhance the company’s performance.
  2. Employees: Employees are anxious for the financial well-being of the company and their prospective monetary benefits, along with their employment stability relying upon the profitability of the company. Take advantage of these reports for evaluating the profitability of the company.
  3. Shareholders/Owners: Investors in the company anticipate protection for their investment. Due to their dispersion and lack of involvement in the company’s regular operations, shareholders rely on such financial reports to evaluate the achievability and profitability of their investment funds.
 External Users:

An external stakeholder does not cooperate with a company in any manner. However, a firm’s activities and decisions have an indirect effect on them. This includes:

  1. Creditors: Creditors are categorized into two types of lenders, i.e., short-term and long-term lenders. Short-term creditors are those that offer the credit to the company for fulfilling the requirement of basic raw materials, goods, etc. Long-term creditors are those who lend loans to the firms. Both of them are required to assess the financial health of the company to conclude whether the sum owing to them will be paid on time or not. So, they analyze the financial statistics to determine whether to grant or restrict loans.
  2. Investors: Prospective investors, along with existing investors, require information about the profit-making ability and financial standing of the firm prior to allocating their resources. They want to be confident that their investment is safe; therefore, they rely on these reports before making any decisions.
  3. Taxation Authorities: Tax authorities require financial information to evaluate the tax liabilities of an entity and to authenticate information delivered by the company while submitting returns.
  4. Competitors: Companies battling against one another need financial statements from their rivals so that they can review their performance and economic conditions. It helps them absorb information about the competitive tactics and choose appropriately.
  5. Regulatory Authorities: Regulatory bodies, such as SEBI, use these financial reports to ensure that the firm is releasing information in accordance with the norms and regulations.
  6. Government: Governments use these financial statements to assemble statistics related to the industry’s earning potential, calculate national income, organize national accounts, assess industrial growth, determine tax rates, and formulate policies regarding the allocation of limited resources.
  7. Stock Exchanges: Financial data is used by stock exchanges in relation to securities listing and other stock exchange-related activities.
  1. Foreign Investors: Global integration has contributed to the free flow of investment among nations. International investments are providing support. Therefore, international business players often inquire about the profitability and financial status of specific organizations in various countries prior to selecting investment options. They rely on financial records to gather this information.
Questions to Understand your ability

Q1.) Who exactly counts as an internal stakeholder in a company?

a) Tax authorities

b) Creditors

c) Employees

d) Stock Exchanges

Q2.) What’s the main reason creditors look at financial reports?

a) To check if the company is following environmental rules

b) To see if the company’s paying its taxes right

c) To figure out if they should approve or deny loans based on financial health

d) To learn about how the company plans to expand globally

Q3.) What are investors hunting for in financial reports?

a) Employee happiness

b) The company’s profit potential and financial stability

c) A list of top management’s goals

d) Details on customer service

Q4.) What do regulatory authorities do with financial reports?

a) They check how effective the company’s marketing is

b) They make sure the company is following the legal rules and regulations

c) They set the management team’s salary

d) They look at how happy the employees are 

Q5.) Why does the government care about a company’s financial statements?

a) To check out the company’s marketing campaign results

b) To gather data on how much the industry is earning and plan policies

c) To evaluate customer service quality

d) To examine how well the company handles HR

Conclusion

In conclusion, financial reports are essential for both internal and external stakeholders. Internal users, like management, employees, and shareholders, rely on these reports for decision-making, performance analysis, and evaluating investment potential. External users, such as creditors, investors, tax authorities, competitors, and governments, use financial statements to assess financial health, make investment decisions, determine taxes, and regulate business activities. These stakeholders depend on accurate financial data to guide their actions and policies.

FAQ's

Stakeholders are anyone with skin in the game—individuals or groups who care about the company’s success or failure. They can influence the business, or the business can impact them.

A shareholder owns a piece of the company—shares. A stakeholder, however, is anyone who’s invested in the business’s outcome, not just those holding stock.

Management uses these reports to figure out how the company’s performing. They compare it to others, spot problems, and tweak strategies to do better in the future.

Employees need to know if the company is profitable. Why? Because their paycheck and job security are tied to how well the company’s doing.

Creditors, whether short-term or long-term, check the company’s finances to decide if they’ll get paid back. If the company’s shaky, they might pull back on lending.

Investors check the financials to see if the company’s worth their money. They want to be sure it’s profitable enough to give them a return before they jump in.

Regulators like SEBI use these reports to make sure companies aren’t playing dirty. They ensure that all the financial info is legit and in line with the law.

Governments crunch financial data to figure out how industries are doing, set tax rates, and create policies that’ll guide the country’s economic future.