CHAPTER ONE:
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Any successive management is constantly estimating the performance of her comparing it with the company's historical figures, with its industry editors. And even with successful business from other industries. To complete a thorough' examination of company is effectiveness, however, one need to look at more than just easily attainable numbers like sales, Profits and total assets. One must be able to read between the lines of financial statements and make the seemingly inconsequential numbers accessible and comprehensible. This massive data overload could seem staggering. Likely, there are many well-tested ratios out there that make the task a bit less daunting. Comparative analysis and evaluation helps us to identify and quantify company's strengths and weakness, evaluate its financial position, and understand the risks one may be taking. As with any other form of analysis, comparative evaluation techniques aren't definite and their results shouldn't be viewed as gospel. Many of the balance-sheet factors can play a role in the success or failure of a company. But, when in concert with various other business evaluation processes comparative management and performance are invaluable. Mathematically, the word ratio implies the relationship of one Item to another otherwise; it can be defined as the relationships that exist between two or more variables whether dependent or independent.
The coefficient that is obtained by using one variable to divide the other variables precisely tells us the positional situation Analysis therefore, is the systematic productions from both internal and external financial reports so as to summarize key relationships and results in order to appraise financial performance. Analysis and the evaluation as a practical means of monitoring and informing performance is greatly enhanced when (a) Analysis and evaluation are prepared regularly arid on a consistent basis so that trends can be highlighted and the charges investigated. (b) The analysis prepared for an individual firm can .be compared with other firm in the same industry. This process is greatly facilitated when the firm has ready access to comparative ratios prepared in a standardized manner. (c) It prepared showing the inter-locking and inter-dependent nature of factors, which contribute to financial success. (Terry, 2003). Analysis in accounting is an important predictive tool of business performance and to be able to apply the model to any business concern. Answers should be provided to the following question which contribute the problems that the researcher attempts to solve. So as to reduce to the barest minimum, the variability in investment risk become the more certain and uncertain the growth and profitability of an organization are, the less risky is an investment in such organization.
1.2 STATEMENT OF PROBLEM
This research work examines the use of ratios as a predictive tool for management and performance in order to measure the growth and profitability if the company. But there is some dissatisfaction associated with the use of certain techniques. These include: (1) Analysis and evaluation of management used in financial statement can be misleading to user such Information if not carefully interpreted.
(2) Financial information Analysis normally uses are adjusted for changes in the level of general prices, which can distort the analysis and interpretation. (3) It was historical (initial data) and the question arises as to whether such data can provide for a relevant basis for making predictions. (4) The act of analysis IS firstly, in selection of those ratios must appreciate under circumstance and subsequently in the Interpretation of the position which they reveal.
1.3 PURPOSE OF STUDY
The major purpose of this study is to analyses extensively the various financial statement with regards to telling the direction of growth of an organization when a negative growth is noticed, adequate strategies are then formulated to put the organization on success path. It is also the objective of the researcher to help any reader of this study in the following ways.
(a) The general and specific knowledge about analysis of evaluation and the computation.
(b) That through a careful study and monitoring of the analysis of an organization, one can predict the direction of growth and thereafter take decision to suit individual situation.
(c) The research put the reader on the trial on logical reasoning, which leads to curiosity to know more about the topic and as much leading to further research which increase the total volume of human knowledge.
1.4 RESEARCH QUESTIONS
1. To what extent is comparison of performance between companies is difficult to accounting policies adopted
2. Does financial statement calculated from accounting data subjected to different interpretation and manipulation adopted.
3. Does financial statements comply with all statutory requirements and other regulations relevant to the constitution and activities of the enterprise
4. Does adequate disclosure of all appropriate matter and the information contains in the financial statement is properly classified and presented.
1.5 RESEARCH HYPOTHESES
Ho: Comparison of performance between company’s management is not difficult because of different accounting policies adopted
Hi: Comparison of performance between company’s management is difficult because of different accounting policies adopted. Ho: That financial evaluation calculated from accounting data are not subjected to different interpretation and manipulation
Hi: That financial analysis calculated from accounting data are subjected to different interpretation and manipulation.
1.6 SIGNIFICANCE OF THE STUDY
The aim of the study is to arouse interest in the use of ratio analysis as an effective instrument to measure business performance and to juxtapose the performance of each case of studies because ratios are to measure the achievement and failure of a business. It is also an effective instrument for prudent management of financial resource and for the growth of the business. This study is also help in highlighting areas where organizations may have problem in area of financial management and encourage such organizations to adopt the rise of ratios to see its rises and efforts. Finally it will help students, researchers and the companies choose a case of study in their course of study and go a long way in showing the financial problem to shareholders, financial analyst, Governments, Potential investors, Employees aid management as well.
1.7 SCOPE OF THE STUDY
This study shall cover analysis of management and performance of financial institution using Cadbury Nigeria Plc and Nestle Food Nigeria Plc as case Study.
1.8 LIMITATIONS OF STUDY
Many things shall be considered in the study and the desirability of the project is not in doubt because of the inherent benefits, however, the accuracy of the work cannot be hundred percent because of the following limitation which would in one way or the other affect the conclusions drawn upon which decision are based. So if the promise of a decision is faulty, that decision may be misleading. These limitations therefore are:
(a) Limited Resource: Because of limited resources at the researcher's disposal (human and financial) so far, in fact, it is a matter of convenience. The longer the sample of a research the more the accurate the result.
(b) Limited Time: Just like the resource put a limitation on the study so also the limited time
(c) Cost time and Cost: This research is going to cost the researcher in term of time, energy and money.
(d) Willingness to give out information: The information used in the study is limited only to those required to be published to companies according to relevant statute such as Company and Allied Matter Decree 1990 (CAMD '90). The policies regarding disclosure of some information regarded as classified vary from company to company. The researcher therefore crowns his conclusion from data made available and this has constitute a limited on the accuracy of the findings.
1.9 DEFINITION OF TERMS
1. CURRENT RATIO: Compares total current assets to total current liabilities and it intended to indicate whether there are sufficient short-term to meet the short-term liabilities
2. QUICK OR ACID TEST RATIO: The only different between this and current ratio is that quick or Acid test ratio does not include stock.
3. GEARING RATIO: This indicates the degree of vulnerability, of earning available for ordinary shareholders.
4. STOCK TURNOVER: This ratio measures the number of times stock is replaced during the period.
1. DIVIDEND YIELD: Measures the real rate of return by comparing the dividend paid to the market price of a share.
2. EARNING PER SHARE (EPS): This indicates how much of a company's profit can be attributed to each ordinary share in the company.
3. DIVIDEND COVER: Compares the amount of profit earned per ordinary share with the amount of dividend paid.
1. PRICE EARNING (PIE) RATIO: This relates the earnings per share to the market price of the share it is a useful indicator of how the stock market assesses the company.
2. NET PROFIT MARGIN: This measures the efficiency with which the company controls its overheads.
3. RETURNS ON CAPITAL EMPLOYED: The ration indicate the total profitability of the business (Ogijo, 2000).
