Financial AccountingThe interest of shareholders is paramount when dealing with accounting and financial statements. The essence of preparing any documents dealing with accounts and/or finance is to arrive at the ultimate outcome of either profit or loss at any accounting period (Avis 98). The financial statement for a particular period would provide the basis upon which decisions would be made. It is on this premise that the directors of a company should endeavour to achieve profitable margins in order to realize growth in their entity. Every business enterprise is formed with the sole purpose of making profits and it is this profits that will cater for the welfare of the shareholders at large.
However, recent trends dictate that apart from the shareholders interests being paramount it would also be prudent to include other performance indicators to cater for social, ethical and environmental factors. Therefore, this article will strive to bring out the line of agreement with the above enunciation. Interest of Shareholders and essence of Profit Maximization in BusinessBusiness entities are formed for venturing into profit making. The shareholders are keen on the profits (Leggatte 85).
This has been the practice since time immemorial. According to Milan in dealing with corporate governance, one of the fundamental aspects is to adopt an approach that is integral such that the interest of the shareholders is made known (p. 87). Those at the managerial positions are keen in aspects such as “growth, working capital requirements and internal cash flows, investment opportunities, the record of competitive companies, comfortable industrial relations, market confidence, the company’s public image, environmental issues and other matters beside” (Leggatte 13).
When the non-shareholders are brought to light as to benefit from some act, it must be appreciated that the undertaking emanates from the shareholders themselves and so their interest is paramount (McDonnell 66). Therefore, even on matters concerning hostile takeover, what is taken into consideration above all is the ultimate interest of the shareholders in obtaining the highest bid for the shares they hold to the detriment of other parties such as employees (McDonnell 43). Indeed, it is from the high profit margins that the company can resort to increment of wages as well as personal income in form of shares.
The increase in profit can be distributed in “stock-related remuneration including stock bonuses, stock options, profit-sharing schemes, dividends and capital gains” (Leggatte 73). Therefore those involved in managerial capacities should in as much strive to facilitate the increase in their remuneration, it would be prudent that the same eagerness should be transformed to reflect the interest of shareholders as enunciated above. In as much the interest of shareholders is seen to be an absolute in practice, some have argued that putting it at the helm of managing a company can pose some challenges in terms of economic tendencies and legal aspects (Hunt 34).
Normally apart from the initial capital contribution made to the company, the shareholder economic contribution to the growth repeatedly becomes minimal. According to Hunt shareholders play passive role in that the driving force of the economic growth of the company (p. 103). The practice used in maintaining and spurring growth in any company is by utilizing the profit gained and reinvested the same. Because of this, the economic contribution of the shareholders at this stage becomes minimal save for the initial capital contribution.
On the other hand, the entity called a company operates as an artificial legal person and independent from the shareholders therefore enabling it to own property and attain the legal capacity of being able to sue or be sued (Avis 153). These aspects push the role of shareholders to merely of enjoying certain prescribed rights which is normally in the form of voting rights (Hunt 110). With the same token the rights are said to be passive (Hunt 16) in the sense that the actual property belong to a distinct entity.
From conceptual point of view in dealing with ownership of companies, it is evidently clear that the ownership ascribed to the shareholders is weaker one. This can be attributed to the pooling together of the vast amount contributed by each individual shareholder (Hunt 104).