TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
1.2 Statement of Problems
1.3 Purpose of Study
1.4 Significance of the Study
1.5 Scope and Limitation of the Study
1.6 Research Questions
1.7 Research Hypothesis
1.8 Data Analysis Techniques
1.9 Definition of Terms
References
CHAPTER TWO
LITERATURE
REVIEW
2.1
Introduction
2.2
The
Nature of Financial Accounting Convention
2.3 Accounting Concepts and Conventions
2.4
Development of Generally Accepted
Accounting Principles
2.5
A Review of Working Capital Meaning of Working
Capital
2.6
The Contents
of The Financial Statements and Balance
Sheet:
2.7
The Auditors Report on Financial Statements
Assurance of the Financial Statements
2.8
The Statement of Source and Application of
Fund
2.9
Cash Budgets
2.10 Financial Analysis What is Financial Analysis
2.11 Financial Rations Nature of Ratio Analysis
2.12 Empirical
Studies on Ratios as Predictors of Business Failure
2.13 Leverage in Business
2.14
Historical Background of Nestle Nigeria Plc
References
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3
Restatements of the Research Questions
3.4 Restatements of the Research Hypotheses
3.5
Population of the Study
3.6
Sampling Design and Procedure
3.7
Data Collection Instrument
3.8
Administration of Data Collection
Instrument
3.9
Procedure for Processing and Analyzing
Data
3.10
Limitation to the Methodology
Reference
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND
INTERPRETATION
4.1
Introduction
4.2 Presentation of Individual Bio-Data
Responses
4.3 Presentation
of Cardinal Item in the Questionnaire
4.4 Test of
Hypothesis and Discussion of Findings
4.5 Discussions
of Findings
CHAPTER
FIVE
SUMMARY,
CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary
5.2
Conclusion
5.3 Recommendation
5.4 Suggestions for Further Studies
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
Financial Statement is the
reflection of a company’s wealth, assets and liabilities. It show the financial
strength of an organization.
Both the Management of
such organization and the Investors act based on the information generated in
the company’s financial statement. Therefore Financial Statement stands as tool
for evaluating and decision making by the users.
Recent researchers have been
shown that one of the main causes of indigenous business failure in this
country is failure to maintain proper financial records. Many business have been operated with merely
a single entry memorandum record of transactions and others with no records
whatever, except possible cheque stubs.
As a result, business decisions are based on quests and instruction. Ola
(1985).
In today’s economy information and accountability
have assumed a larger role in our society.
This is why it is Statutory Company and Allied Matter decree (1990), for
all registered companies in the country to prepare and present financial
statements in accordance to the relevant accounting regulations.
Business organizations have to analyze their
financial statements or accounts by way of interpretation, simplification and
transaction of facts and data contained in the financial statement.
The essence of this is to draw relevant conclusions,
make inference as to the business operations financial positions and future
prospects of the organizations.
In the assessment of the performance of an
organization, an important area of management control is post factor assessment
of financial results of the organization as a whole that is the examination in
retrospect of the financial effects of earlier decisions to invest. Management
must regularly commit resources for both long term and short term purposes and
because the commitment will always involve risk, or carful assessment of the
anticipated results of any project on the financial position should be made
before a decision is taken, and before resources are irrevocably committed.
A periodic evaluation is needed, after resources
have been invested, to report what has been achieved, to examine amount of the
profit, or the extent of the loss, and to consider the effect of implementing
the plans on the financial statement of the business, in particular to note
whether financial stability has been maintained or alternatively the extent to
which it has been impaired. Information
on all these aspect of the finances of the business is needed to permit
management to assist the quality of past decisions at strategic level and the
effectiveness with which they have been implemented. Also to compare the performance of previous
related accounting period performance with the present one. Finally, it is
important that informed base of financial knowledge should be developed from
which future activities can be planned.
An important purpose of the appraisal of results is
to confirm whether or not the project has produced the expected cash flow.
The main function of the financial account of a
business however is to measure the results in terms of profitability and it is
on the basis of success or failure measured in these terms that management will
be judged.
In carrying out an analysis of accounts, a number of
issues must be considered and conclusion formed thereon.
These includes:
1.
Profitability of
the business operation, particularly in relation to the capital employed.
2.
Solvency of the
firm: the ability of the business to pay
its creditors, the adequacy of its working capital and the current liabilities.
3.
The business
trend: the analysis of the point term of
business over a time to determine whether profit are rising or falling and the
implication for future performance.
4.
The financial
stability of the business, particular attention being paid to the firm’s limit
of borrowing power, available resources to finance expansion and the volume of
earnings.
5.
The gearing and
the cover which is an assessment of the adequacy of profit to meet up with
interest payments, pay dividends to share holders and provide sufficient safety
to share holders investment.
1.2 STATEMENT
OF PROBLEMS
In Nigeria today most business are
facing hard times which is a reflection of the bad shape of the economy. Government on its own has been making
different efforts aimed at reviving the economy. Among the government efforts are the
encouragement of the growth of small and medium term industries and also for
people to invest in some of the public enterprises that have been stated for
either full or partial privatization or commercialization.
Unfortunately, business cannot grow reasonably under
a crude business practice as most business men and investors in our society are
yet to understand the need for financial statements probably, this is one of
the reasons why some businesses are operating without even a book-keeper not to
talk of an accountant. Decisions are
taken based on intuition dereferences made only to their cash –box perhaps they
feel that this is a way of safe wording their business secret.
Secondly is the problem of loan securing. Most businesses operate with a very poor
capital. This makes growth difficult, if
not impossible. Instead of growing they
are declining as the result of their poor capital base & so as there is
non-existent of financial statements, they are not qualified for bank loan.
Thirdly is the some investors and business operators
can not understand the interpretation technique of the financial statements,
because of this problem, they try to do without it, as if it its not important.
Fourthly is the problem of high cost of consultancy
services. Since most businesses are
small or medium term in size, it becomes hard for them, judging their capital
base to rely on the services of the consultancy firms for their financial
statements need. The implication of this
is that business decisions are bound on luck even in some cases, people resort
to Native sectors to help make their businesses grow.
And finally, a fake or default information included
in the financial statement on the side of the organization simply to mislead
the users of such Accounting Statement. This is affected by both Government and
public members of the society
1.3 PURPOSE
OF STUDY
The purpose of this study
includes the following:
1.
To examine the
ways the financial statements evaluation performance in a company.
2.
To examine how
the financial statement investment decision are being process.
3.
To analyse how
the financial statements are used for performance evaluation.
4.
To examine the
importance of the financial statements for investment purposes.
5.
To examine the
level of reliance placed on the financial statements by investors.
1.4 SIGNIFICANCE
OF THE STUDY
This study is very essential to
various classes of people in the area of business.
Firstly, the study will go a long way in helping
both the existing and potential entrepreneurs and management of business
organization towards the undertaking and the knowledge of the uses of the
financial statements for the expansion of their businesses.
Secondly, this will be an opportunity to the
creditors financials and suppliers, to study the usage of the financial
statements in estimating the risk of entering into bad debts in their
transactions with business organization.
Thirdly, in a free economy oriented society like
Nigeria, this study will help investors to know the basic factors in the
financial statements that will help them to decide on whether to invest or not.
Fourthly, is the corporate lawyer and Bankers. By this study they can understand more about
the statement of affairs of business entities.
Finally, the students both the undergraduate and the
post graduate students of Business Administration are in better position to
benefit not just per academic exercise, but at least, to be able to understand
the interpretation of the financial statement.
1.5 SCOPE AND
LIMITATION OF THE STUDY
This study is restricted to only
the financial statement in performance of companies and investment decision. This research work would have been given a
wider converge if not for some constraints imposed on the researcher by the
availability of the time and fund.
1.6 RESEARCH QUESTIONS
The research
questions would be based mainly on the objective of the study and the
short-coming highlighted above.
(a) Does an improper financial statement evaluate performance of a company growth?
(b) Does financial statement used in investment decision?
(c) Is financial
statements used for performance evaluation?
(d) Does the level of reliance placed on the financial statements
by investors?
(e) What is the importance of financial statements for
investment purposes
1.7 RESEARCH
HYPOTHESIS
The
research is based on the following hypotheses.
Ho: There is no proper financial statement evaluate performance of a
company growth
Hi: There is
proper financial statements evaluate
performance of a company growth
Ho:
Financial Statements can not use
for performance evaluation
Hi:
Financial Statements can be used
for performance evaluation
Ho: There is no reliance
placed on the financial statements by investors.
Hi: There is reliance
placed on the financial statements by investors.
1.8 DATA
ANALYSIS TECHNIQUES
Data
will be analyzed using descriptive and chi-square statistics for test of
hypotheses. The five point likert scale
will be used to analyze the data for the study.
The
research questions will be analyzed using the percentage analysis. For hypotheses testing, chi-square statistics
will be used to test the individual hypothesis formulated.
1.9 DEFINITION OF TERMS
Net Liquid Funds: Cash at bank and in hand and cash equivalent (example, other borrowings
or investment held as current assets) less bank overdraft and other borrowings
repayable within one year of the accounting data.
Liabilities: Existing financial obligations which the firm
intends to meet at some time in future.
Such obligation arise from legal or managerial consideration and impose restriction
on the use of assets by the firm for its own purposes.
Provision
for Liabilities and Charges: This is defined by the Companies Act as an amount retained a reasonably
necessary for the purpose of providing for any liability or loss which is either
likely to be incurred, but uncertain as to the amount or as to the date on
which it will arise.
Contingency:
A condition which exist at the balance sheet data,
the outcome of which will be confirmed only be the occurrence or non-occurrence
of one or more future events.
Depreciation: The measure of wearing out, consumption or other cost of value of a fixed
asset, whether arising from use, of flue of time or obsolesce through
technology and market changes.
Replacement
Cost: The cost at which an identical asset could be
purchased or manufactured.
Liquidating
Profit: Any profit paid out of the retained profit or
earning is called liquidating profit or return of capital to shareholders.
Fictitious
or Nominal Assets: They are
non-true assets or debt balances resulting from expenditure of an exceptional
or extra ordinary nature which is not represented by present value and have not
been written off.
Fixed
Assets: These are assets acquired for retention in the
business and not for conversion into cash or resale. Their life span usually extend over some
years and are portioned in a consistent and systematic manner over accounting
period of their life span.
Depleting
Assets: There are assets meant for earning revenue gradually
depleted or exhausted or consumed in the process. Example, mine; coal, gold etc.
Current
Assets: These are assets acquired for resale and consist of
assets in their various stages of conversion, hence they are called gloating or
circulating assets.
Liquidation:
It is the winding up and settlement of the affairs
of a company by a person called the liquidator who collects all asset and
discharges the liabilities.
Debenture:
This is a certificate of indeptedness given by a
company which usually forms a fixed charge on time or on being drawn for
redemption or notice.
Appropriation
Account: It is an account into which the net profit of a
company are carried, and which shows him the profits are disposed of.
Financial
Leverage or Trading on Equity: It is the used of the fixed charges sources of funds, such as debt and
preference capital along with the owners equity in the capital structure.
Net
Book Value: It is the amount whether historical cost or
valuation at which an asset is carried in the box less the related accumulation
depreciation.
Fare
value: This is the amount for which an could be exchanged
between a knowledgeable willing buyer and a knowledgeable willing seller in an
arms length transaction.
Useful-life: The useful- life of an asset is the shorter of.
i. The predetermined physical life.
ii. The economic life, during which it could be
profitably employed in the operation of the enterprise.
SUMMARY
The essence of this is to draw a accurate and relevant
conclusions, make inference as to the business operations financial positions
and future prospects of the organizations.
In the assessment of the performance of an
organization, an important area of management control is post factor assessment
of financial results of the organization as a whole that is the examination in
retrospect of the financial effects of earlier decisions to invest.
Also the decision of any organization is based on
the effect of its Financial Statement.
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