Fulfilling the role of a shareholder

The shareholder may never be in the class of the customer for a business – the customer is king, but they are very critical to the success of any enterprise.

To be sure, a shareholder makes a financial investment in a corporation. According to Investopedia, a shareholder is any person, company or other institution that owns at least one share of a company’s stock. In view of their position as company’s owners, the shareholders reap the benefits of the company’s successes in the form of increased stock valuation. They also share in the company’s loses if revenue declines.

On Tuesday, Deloitte Nigeria hosted the Independent Shareholders Association of Nigeria (ISAN) where they took time to highlight the major roles the shareholders play in ensuring business success.

ISAN, the foremost shareholder association in West Africa is a group that caters for mainly Nigerian investors with investment across different listed companies in Nigeria. The members hold majority of their investments in the Nigeria Stock Exchange (NSE).

“For us the capital market is our life and every other thing we know is the capital market,” Sunny Nwosu, founder of ISAN explains the group’s choice.

What then is the role of the shareholder in a business?

“As a shareholder you should have at least a fair knowledge of the various accounting standards,” said Joshua Ojo, partner at Deloitte.

Although they may not be involved in the day-to-day running of the company, the shareholders do have rights often defined in the corporation’s charter and bylaws. For instance, they have a right to inspect the company’s books and records or file a suit for misdeeds of the directors and officers.

Joshua Ojo highlights some of the points that should be present when perusing a company’s books and records. One of them is the financial statements. The financial statement refers to a formal record prepared by a company’s management to present the financial performance and position at a point in time.

Financial statements usually include income statements, balance sheets, statements of retained earnings and cash flows. Financial analysts can use data from it to analyse the performance of, and make predictions about, the future direction of a company’s stock price.

Most financial statements are done on a quarterly basis, hence the shareholders can study the data and challenge the company’s management were there are gray areas and the explanation given is not satisfactory.

The shareholder should also look out for the financial ratio analysis, says Ojo. The financial ratio helps to appraise the position of the business from different dimensions with the industry. An accurate financial ratio analysis can enable shareholders offer knowledge based solutions to a company to enhance performance.

Financial ratios are arrived at by comparing key financial information appearing in financial statements of a business, and analysing those to find out reasons behind the business’s current financial position and its recent performance, and develop expectation about its future outlook.

“Financial ratios help pin-point events and connections between related balances on the financial statements,” Ojo said.

Aside from checking the books, experts at Deloitte Nigeria also believe that issues like cyber security exposure are crucial flashpoints for shareholders to consider.

Funmi Odumuboni, manager in Deloitte notes that shareholders ought to know whether the corporations they invest in are cyber risk compliant.

“Companies should conduct regular cyber security audits by internal and third party experts,” she said.

FRANK ELEANYA