A stakeholder is a person or party interested in a company and can affect or be affected by the business. Primary stakeholders are basically in a typical corporation and are supported by its investors, customers, suppliers, and employees. An entity stakeholder can either be external or internal or be both to the organization. There are four components included when it comes to stakeholders that are, outstanding shares, additional paid-in capital, treasury stock, and retained earnings. Therefore, if a stakeholder’s equity is positive, the company will have enough assets to enable them to pay for their liabilities. At the same time, if it’s damaging, the company’s disadvantages will surpass the assets. Equity is a financial metric that will help investors evaluate the company’s worthiness and its long-term sustainability.
In the stockholder’s equity section, three central components include share capital, retained earnings, and net income and dividends.
Share capital: this is the amount received by the company that is reporting from transactions with the shareholders. The companies can issue some of their common shares or preferred shares, whereby common shares represent residual ownership within the company and the event liquidation. Ordinary shares are allowed to get their payments after preferred shareholders have been paid.
Retained earnings: these are profits that cannot be distributed as dividends to stockholders, but they will be allocated back for investments back in the business. These earnings are used for funding working capital debt servicing and fixed asset purchases.
The dividend payment that companies pay to their stakeholders is entirely discretionary. Companies do not have any obligations to pay any dividends until the board officially declares them.
Maia, Marcelo Verdini. “What does explain the relationship between financial leverage and the equity returns.” Business Management Dynamics 8.5 (2018): 6.
Yhip, Terence M., and Bijan MD Alagheband. “Financial Statement Analysis.” The Practice of Lending. Palgrave Macmillan, Cham, 2020. 47-94.