ABSTRACT
This
study aimed to examining the role of accounting ratio in evaluating the
companies’ performance through the use of financial analysis methods in
evaluating the performance of UAC Nigeria Plc. The analytical approach, which
is based on the analysis of the financial statements for ten years was adopted
in this study and the Analysis of the balance sheets, the income statements and
Financial Ratios, which were the most recent between 2003-20012, were applied.
The analysis of the liquidity ratios clarifies that these companies have the
ability to meet its commitment on time, cover its liabilities but it should be
known the extent of the company’s preservation of the amount of the current
assets especially the cash to face its commitments and the increase of cash in
the company may lead to the risk of not utilizing the current assets. And the
current assets ratios should be the double of the current liabilities so as the
company can meet its commitments on time. More so Market ratios of the
companies fluctuated which is considered as a negative indication that leads to
a decrease in the number of investors in the company and the opportunities in
the company as well. Hence, the companies have to increase their profits so as
to increase the share’s profit and so there will be an increase in the return
distribution ratios , and this gives a positive image of the three companies to
the investors which increase the company’s investments , its profits and its
sales. The study concluded by analyzing the financial statements of the
companies under study lead to identify and explain the deviations and the
undesired extreme results. And through training the employees, it is possible
to use other methods to analyze the deviations that help in evaluating the
company through identifying the causes for these deviations. I recommended
establishing an
independent
department for the management accounting in the company to evaluate its
performance through analyzing the deviations and treat them and to provide
qualified employees; scientifically and practically to do the work of the
company.
TABLE OF CONTENTS
Title Page Page
Declaration i
Certification ii
Dedication iii
Acknowledgement iii
Abstract
iv
Table
of content vii
CHAPTER
ONE: INTRODUCTION
1.1 Background of the Study…………………………………………………1
1.2 Statement of the Problem……………………………………………..…..2
1.3 Purpose of the Study………………….…………………………..……....3
1.4 Research Questions………..………….………………………………......4
1.5 Statement of Hypotheses…….….………………………………….…..…4
1.6 Significance of Study……………..………………………………………..5
1.7 Scope of the Study……………..………………………………...……..…5
CHAPTER
TWO: LITERATURE REVIEW
2.1
Introduction……………………………………………………………..….6
2.2 Nature of Sales
Promotion….…………………………………………..…8
2.3 Steps in Sales
Promotion………………………………………………….10
2.4 Sales Promotion
Objective………………………………………………...13
2.5 Types of Sales
Promotion…………………………………………………17
2.6 Element of Sales
Promotion……………………………………………….19
2.7 Factors Encouraging The Use of Sales
Promotion……………………….22
2.8 Consumer Behaviour………………………………………………………23
2.9 Factors Affecting Consumers Behaviour………………………………….23
2.10 Consumer Decision Making Process…………………………………….25
2.11 Historical Background of UAC Nigeria Plc……………………………..30
CHAPTER
THREE: METHODOLOGY
3.1
Preamble……………………………………………………….…….……..34
3.2 Research
Design……………………………………………………………34
3.3 Population of Study……………………………………………………......34
3.4 Sample Size and Sampling
Techniques……………………………………35
3.5 Research
Instrument………………………………………………………..35
3.6 Data collection
Method…………………………………………………….35
3.7 Data Analysis Method
………………………………….……….…………36
3.8
Limitation of the Study…………………………………….…….…………37
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1
Introduction……………………………………..…………………………….38
4.2 Response Rate
……………………………………..…………………………38
4.3 Test of
Hypotheses.…………………………………..……………………….51
CHAPTER FIVE: SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings………………………………..………………………56
5.2 Conclusion ……………...…………………………………………………..58
5.3 Recommendations …………………………………………………………..58
5.4 Suggestion for Further
Studies………………………………………...……...59
BIBLIOGRAPHY
APPENDIX
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The impact of financial ratios on the performance of a
business organization is becoming more apparent to users of financial
statement.
Business’s performance can be monitored with tools called financial ratios which help to interpret financial
information about the company. According to Ofoegbu (2003), the more you know about how your
business is performing, the easier it will be for you to make informed
decisions about how to manage and grow your business.
Accounting
ratios are widely used for modeling purposes both by practitioners and
researchers. The firm involves many interested parties, like the owners,
management, personnel, customers, suppliers, competitors, regulatory agencies,
and academics, each having their views in applying financial statement analysis
in their evaluations. Practitioners use financial ratios, for instance, to
forecast the future success of companies, while the researchers' main interest has
been to develop models exploiting these ratios.
In
the past decade of economic tendency, Nigeria as one of the developing
countries in the world has confronted various changes and enlargement.
Achievements of Nigeria industries deeply affect the economic status of Nigeria.
“The movement of foreign exchange has increased rapidly as investors began to
be involved more and more in it”(Aborode, 2006).
Meanwhile,
investors will want to invest majorly in good conduct industries because they want
to earn revenue in the short time period. However, investors need to analyze
the performance of the companies properly before invest.
By
doing the accounting ratios analysis, it will help them
to understand the performance of any company. The analysis of financial
ratios is a study of establishing meaningful relationship
between various financial facts and figures given in financial statement. The
basic financial statement included balance sheet and income statement which is
the indicating device of profitability and financial soundness of business
concern. Thus, analysis of accounting ratio is the procedure of establishing
and identifying the financial weakness and strengths of the company.
Accounting
ratios analysis has been view as a
primary technique of the analysis of financial statement from various aspects
of business. (Brigham & Houston, 2004) state” Ratio Analysis involves
comparisons. A company’s ratios are compared with those of other firms in the
same industry, that is, to industry average figures.” Ratio refers to the
relationship expressed in mathematical term among a set of numeral and two
individual links with each other in logical way. It is based on the assumptions
that single figure may not tell any useful information but when expressed relative
to another figure, it will definitely give some meaningful information. Since
ratio is a mathematical relationship between two or above accounting figures,
it can be expressed in as a pure ratio, as a rate of times or as a percentage.
The relationship between two and above accounting figures or group is called
financial ratio. Financial ratios may be calculated in different ways, using
different figures (Gibson and Cassar, 2005). Financial ratios help to outline a large volume of financial data into a
concise form so it is easy to interpret and conclude the performance and
position of a firm.
Accounting
ratios is a useful tool for management to making decision. By
using ratio analysis, it helps management to evaluate the firm performance such
as financial health, profitability and operational efficiency over a period of
time by comparing the present ratios with the past ratios and comparing with
other companies also so as to see where the company stands in the industry. In
another way, by setting a trend with the help of ratio, management can know
whether the firm financial position is improving, falling or constant over the
years. Through the direction of the trend of strategic ratio, it is helpful for
management in the function of planning, forecasting and controlling.
1.2 Statement of the Problem
While
financial ratio is referred to as a basic tool and a general yardstick for
evaluating organization’s performance, there are so many factors which basically
militate against the usage of financial ratio and hence reduce its potency in
the determination of an organization’s actual performance. Some of these
factors are:
i. Manipulation
of accounting figures in order to suite potential investors giving rise to
misleading financial report.
ii. Many
organizations fail to appreciate the impact of financial ratio analysis on
investment decision in such organization
iii. Many
organizations disclose information in the financial statements that is inadequate
to support good decision making
iv. Many companies do not
comply strictly with the principles that govern analysis of financial ratio
All
these are factors which may mar the usage of financial ratio in the evaluation
of an organization’s performance. Having highlighted the factors and other
investors in ensuring and assuring maximum returns from investment decision?
How do management and other users go about calculating these ratios with the
aim of deriving the most suitable answer that will enable them to make the best
investment decision with their limited resources? These are the questions this
research shall endeavour to answer.
1.3 Aim and Objectives of the Study
The purpose of the
study is to assess the impact of financial ratio on the organization
performance with particular emphasis on UAC Nigeria plc. Other objectives of
the study include:
i.
Examining how accounting figure are handled and haw that affects
the financial reports of the three company under review.
ii.
Examining how accounting ratios has influenced investment decision in
these organizations
iii.
To ascertain the profitability trend of the organization given
its level of investment and turnover using accounting ratios.
iv.
To assess the performance measurement policy of the company
under review.
1.4 Relevant Research
Questions
i.
How is accounting figure handled and how does that affect the
financial reports of the company under review?
ii.
How has
financial ratio influenced investment decision in these organizations?
iii.
What is the profitability trend of this
organization given their level of investment and turnover using accounting
ratios
iv.
What is the performance measurement policy of the company under
review?
1.5 Statements of hypotheses
For the purpose of this
study, the following hypothesis will be tested using
spearman’s rank correlation
Hypothesis I:
H0: There is no significant relationship
between accounting ratio analysis and
measurement of organization’s performance
H1: There is significant relationship between
accounting ratio analysis and measurement of organization’s performance
1.6 Significance of the Study
The
importance of using the accounting ratios methods in the UAC
Nigeria plc is represented by providing the appropriate and accurate
information to know the reasons of the deviations and then to evaluate the
company’s performance .
This study gives
insight into the various ways that financial ratio analysis can help improve
organizations performance and how the financial performance of organizations in
Nigeria can be properly assessed in order to attract investors. The study will
also go a long way in showing the various accounting techniques that managers
can adopt in measuring financial performances, and its implications on the
financial position of the organizations.
The findings and recommendations of the researcher will help in building a
strong and better accounting practices that will help in the assessment of
organizations performance in Nigeria, if taken seriously by government and the
general public. It may serve as a reference to other researchers who may want
to research into the field.
1.7 Scope of the Study
The overall scope of the study is highly restricted to the assessment the
financial performances of UAC Nigeria plc for the periods 2003,
2004,
2005, 2006, 2007, 2008, 2009, 2010, 2011 and 2012. These
companies were chosen because it is near to the researcher hence gathering of
information would be easy. The above periods were also chosen because; the
researcher wants to assess the more recent financial performance of the company
under study.
1.8 Definition of Terms
Liquidity Ratios: This is measurement of how readily a company can meet its
obligations.
Profitability Ratios: This gives an indication of the earnings and
profitability
potential of a company.
Asset Management Ratios: This
gauge how
efficiently a company can
change assets
into sales.
Debt Management Ratios: This indicates how debt-leveraged a
company is, and how it can manage the debt in terms of assets and operating income.
Dividend/Market Value Ratios:
This measure how
well a company uses its assets to generate earnings.
Profitability Ratios: This indicates earnings and potential
profitability.
Gross
Profits/Net Sales:
measures the margin on sales the company is achieving. It can be an indication
of manufacturing efficiency, or marketing effectiveness.
Net
Income/Net Sales:
measures the overall profitability of the company, or how much is being brought
to the bottom line.
Net
Income/Total Assets:
indicates how effectively the company is deploying its assets.
Net
Income/Owners' Equity:
indicates how well the company is utilizing its equity investment.
Dividends
/Stock Price Change/Stock Price Paid: from the investor's point of view, this calculation of ROI measures the gain (or loss)
achieved by placing an investment over time.
Net
Income/Number of Shares Outstanding: states a corporation's profits on a per share basis. It can
be helpful in further comparison to the market price of the stock.
Net
Sales/Total Assets:
measures a company's ability to use assets to generate sales.
Total
Sales/Number of Employees:
can provide a measure of productivity, though a high figure can indicate either
good personnel management or good equipment.
Current
Assets/Current
Liabilities: measures the ability of an entity to pay its near-term obligations.
Quick
Assets /Current Liabilities:
provides a stricter definition of the company's ability to make payments on
current obligations.
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