FINANCIAL RATIOS AND COMPANY PERFORMANCES

ABSTRACT

The purpose of this study is to determine the role of financial ratio in analyzing the company performance using DN Meyer Plc as a case study. Data were collected from the company’s annual report from the period of 2001 to 2010. The following are the major findings from the research.

The ability of the DN Meyer Plc to meet its maturing obligation was study using liquidity ratio. The current ratio is the only ratio used under this category. This shows that in 2001, the firm recorded 26.3:1, indicating that for every N1 spent as current liability is met with N26.30 in 2005, while it recorded 2.5:1 in 2009, and in 2010, it was 2.6. This clearly shows the performance of the company in the period of study was satisfactory.

The Debt to equity ratio is an example of the leverage ratio used to determine the long term stability and financial strength of the firm and it shows the relationship between fixed interest capital and ordinary shareholders. In 2006, the company recorded 0.6:1 which meant that for every N1 of shareholders equity accounted for, it had borrowed from long-term source, N0.60. In 2010, the ratio was 0.2:1. This indicates that from 2006 to 2010, DN Meyers ha successfully reduced its long term debt which is beneficial to the shareholders.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Financial information is an essential ingredient for decision making within and outside the organization. Hence every organization (profit and non-profit) that source and utilize funds must of a necessity prepare a statement of account showing detail analysis of movement of funds within the organization during a particular period of time. This information is usually contained in the firm’s financial statements (profit/loss account and balance sheet) shows the true position of the firm as at a particular date and this will assist all relevant stakeholders to gain insight into the operation and performance of the firm. One important goal of the accountant is to report financial information to the user in a form useful for decision making. Most of the language of financial management is rooted in the financial statements.

The financial statements of a firm consist of three main accounts. The balance sheet, the profit and loss account, and the cash flow statements. The balance sheet shows the financial position and accounting value of a firm at a particular date. As a snapshot of the firm, it is a convenient means of organization and summarizing what a firm owns (its assets), what a firm owes (its liabilities), and he difference between the two (the firm’s equity) at a given point in time. The profit and loss account shows the results of operation of this firm over a particular accounting period. The cash flow statement provides information about cash inflows and outflows during an accounting period and separate cash flows into operating activities, investing activities and financing activities. This statement is usually included in a financial statement just to provide additional information that will helps stakeholders in gaining insight into the financial statements. The main components of financial that constitute our analysis and interpretation of financial information of any business organization are the balance sheet and profit and loss account.