Shareholders can be categorized in:
- Existing Shareholders who have already invested money in the shares of the company; and
- Potential Shareholders who are deciding whether to invest or not in the shares of the company.
Existing shareholders have made investment in the company thus, logically; they will be interested in the profits earned by the company. The more the profits will be, the more these shareholders will have return on their investment in the form of dividends. Besides the profitability, shareholders are the authority who appoints management of the company. Thus they are interested to know the effectiveness and efficiency of management. PROFITIABLITY AND ASSETS UTILIZATION being the prime interest of existing shareholders might be based on Profitability and efficiency ratios (as explained on later pages). On the other hand Potential Shareholders have to make crucial decision of whether to make investment in a particular company or not. They want to make invest in a company where they can earn maximum return for their investment as well as safeguard their investment. For potential shareholders, therefore, information about MARKET VALUE OF THE COMPANY becomes important as they have to know RETURN ON INVESTEMNT and FINANCIAL SOUNDNESS OF COMPANY. Market value ratios (as explained later) hence will be the topic attracting the attention of potential shareholders.
As explained earlier, lenders are interested in securing the principal amount and interest on it; payable by the company on money borrowed from lenders. Thus lenders are interested in OPERATING PROFITS of the company. For details please refer the page: Input Users.
TAX COLLECTION being the prime concern, profitability of companies might be checked by the government in order to determine the amount of tax payable by companies. Financial statements, as audited by the external auditors, are used by the tax authorities for this purpose. Besides Profitability ratios, tax authorities might be interested in Horizontal Analysis to track the profits history of the company and assess tax accordingly.
Society is normally interested in the ethical practices of the company. What is the form of business the company is taking? What are the human resource policies, the company is adopting? How the company is serving the community in which it is operating? And so on. Primary source for obtaining all such information is Financial Statements published by the company. However, other information besides financial statements is also used.