Valuing People in Financial Statements - Essay Example

This is because their respective annual financial reports do not reflect the financial position of the customers to their business. This paper will discuss whether companies should have a financial value for their employees with reference to Mark Spencer’s annual report. Most businesses consider their customer base to be their most valuable asset. This is a myopic consideration since behind every satisfied customer there is a hard working staff who contributed to their satisfaction. This indicates that employees should be beyond the customers of the company since they are responsible for successful products and satisfied customers (Hart, 1995, p. 56). Therefore, the value of employees can be measured from the quality of the products that they are responsible for and, the level of customer’s satisfaction resulting from their efforts.

Being of financial significance indicates that workers are assets to the company and the company has the responsibility to account for them. Companies consider their workers as expenses due to the salaries that they receive at the end of the month or the end of a given trading period. In this case, workers would appear in the right hand side of their balance sheet. However, this is not a valid reasoning since salaries or wages is a return or compensation for labor (Vygotsky, 1978). Labor has economic value to a business.

This indicates that workers or the source of the labor also has economic value to the business. Indeed, workers are assets of a company due to the economic value of their efforts to the company. However, shareholders and other stakeholders of a company fail to consider the financial value of workers when evaluating a company. This evaluation does not give the actual position of the company since workers too have a financial significance to a company. According to Paul Herman the CEO of HIP investments, most companies fail to consider their workers as their assets.

Layoffs are the main reason that qualifies workers to be expenses of a company. A company can increase its profit through various ways. The main method that companies use to increase their profit is reducing their cost of operation. Cost of operation includes fixed costs and expenses. In this case, fixed costs are costs that are incurred during the production process, and are invariable. On the other hand, expenses are cost incurred by the company due to factors that facilitate production or distribution of finished products.

Layoff is considered as a method of increasing profits since it enable companies to cut down their expenses and hence their cost of operation. Laying-off workers has positive returns in the short term since economic downturns are not permanent (Kalb, 1993, p. 198). Economic downturns are followed by economic recoveries that force the companies to hire more employees to compensate for laid-off workers. In this process, the company spend money in hiring and training of new workers to compensate for the laid off workers.

Hiring new workers is critical to a company’s success. The abilities of a company to outsource for the best workers in a particular field determine the competence of its products in a given market (Ellen, 2009). This process has financial significance to the company since it is a form of investment. In addition, the company needs to train its employees in order to achieve