TABLE OF CONTENTS
Title page i
Table of contents v
of the study
of the study
of the problem
of the study
aims and objectives
of financial statement
and loss account
and sampling techniques.
of data collection
analysis and scoring
of data evaluation and interpretation of result
verification and conclusion
Findings and Recommendations
particular chapter is an introduction to the topic “financial reporting as a tool
for management decision in an economy” and taking management decision in an
economy” and taking reynold construction plc, Ibadan as a case study.
make rational, decision towards achieving the objectives of the firm, the
financial managers needs to have certain analytical tools, one of such tools is
financial data. Every business firm Prepare financial statement that must at
least include the balance sheets and the profit and loss account. The balance
sheet the profit and loss account. The balance sheet shows the result of
operations over a particular period. Financial reporting makes use of financial
data in the balance sheet and profit and loss accounts to enable users of
financial statements gain insight into better understanding of the financial
statements can be defined as the total financial information come day to day
and periodic transacton of an organization the financial statement of a company
represent its certificate of health which share the company’s annual rate of
affair by giving the number of the company is engaged and proposed creditor and
other third party with whom the company is engaged in transactions, the
opportunity of knowing the true position of the company
the petty cash book, stock inventory, Bank\cash book, income and outgoing
cheques registrers, trial balance debtors, schechile profit and loss account
and balance sheet etc.
the financial statement is always in summary form, the above are some of the
source of data or books through which the sourced of data or book through which
the financial information are gathered.
said earlier, the financial statements of a company represent its certificate
of health, the past, the present, the future of the company could appraise. In
other words, the financial statement mirrors the performance of any
the olden days the nerchant handles
their money themselves when entrepreneurship was still the order of business,
only few out of many that has many business use to put a trust worthy member of
his family in charge of their business to manage for them. The case today has
taken a different direction entirely. Business owner in most case are not
participating in the running of business while some prefer employment other to
take good and proper control of their business for them. Reynold construction
company plc, Ibadan
is one of those company owned by participating and non-participating
individual companies’ government value accountable and financial statements are
just at that. Among the first set of companies set up by the Nigeria
government in 1951 is a public accounting committee to see how the wealth
created by the nation could be generated and managed.
the importance of financial statement s cannot be over emphasized. We can
equally say that if there were no financial statements there wouldn’t be any
need of calling of any general meeting.
statements include the following:-
1 Statement of accounting policies
2 The balance sheet\statement of assets and
3 A profit and loss or income and
4 Note of the account
5 The auditor’s reports
6 Cash flow statement
7 Value added statement
8 The director’s report
9 Five years financial summary
income statement and balance sheet in case holding company.
11 Audit committee reports.
statement of accounting policies should comply with the statement of accounting
polices (SAP) and provision will contain the method of vahing stock (i.e
whether FIFO, LIFO, averagerate, market value or replacement value)
of charging depreciation (i.e whether straight line, Diminishing balancing or
revaluation method) the percentage of ratio used for depreciation/. The balance
sheet wil show the assets. Liabilities and owner interest. It must also show
the true and fair view of its state of affairs. The profit and loss account or
in the case of a company not traching profit and income and expenditure account
of a company for the years
the notes of the account is explanation necessary for any reader to able to
understand the ways in which some item were treated. It shall contain
additional information, which could not ordinarily be included in the balance
sheet as profit and loss account. The auditor being an outsider and independent
is expected to express his opinion on the financial statement and this opinion
will make it more credible to the users.
cash flow statements the income sources and on what were spent during the year.
The value added statement reports the wealth created by the company during the
year and its distribution among various interest group such as the employer,
the government, creditors, proprietors and the company. It can thus be said
that the value added is the difference between input value and output value,
which equals factor payment.
five year financial summary is for comparison of performance by the
organization and can be used as yardstick for future prediction.
of financial statement include the following:
vi. The creditors
vii. The public
viii. Potential investor etc.
Financial statement can also be
interpreted with the use of ratio, for example, taking return on capital
Net profit/ capital x 100/1
It will enable a potential investor
have an idea of what to expect from whether to invests.
These are some other financial ratios
1. Profitability ratio
2. Gearing ratio
3. Interest lower ratio
4. Earning per share
5. Ratio of gross profit to sale
6. Ratio of expense to sale
7. Ratio of net profit to sale etc.
OF THE STUDY
company, Reynold construction company plc, Ibadan was incorporated as a private limited
company in 1970. It was converted to public limited liability company in 1977
and share is quoted on the Nigeria
The principal activities of the
company cover planning, design and construction of civil engineering and
The board of directors comprises of Mr
Brig and (Dr) M.O. Johnson (Rtd) as the Chairman Mr. L. Haussmann the former
managing director restored 1997 and was replaced by Mr. F.K AbdulRazak. The
other director of the company include Chief (Mrs) L.A. Lastina-ALU, Alhaji
Modupe Sheriff, Mr H.W. Hmamm the vice chairman, Mrs. G. Marks (German), Mr.
J.N Kum, HRH Igwe, P.N Anugwu, J.P among others.
The companies employed both able and
disabled and given equal opportunities to develop their experience and
OF THE STUDY
specific of objectives of the company will be to show the relevance of the
ratio analysis as an index of measuring organization performance and with which
will be of interest management, shareholders, creditors and employees for this
project, the interest of the above mentioned actors re-stated as follows.
These are concerned with internal control profitability of company and
efficiency in the management of asset. They are interested in all aspect of
financial ratio that all outside investors used in evaluating the firm to
bargain effectively for more funds.
Both the existing and potential investors would be able to determine the
earning, versatility of the organization, its profitability potential for
growth and dividend policy and this decide where to place their funds.
(long term and short term): They are the ability of the business to pay
interest and repay the principal on a due date while the short term creditors
such as suppliers, banks and other financial institution o short term financial
obligation. The long term solvency and stability for the company. They would
also form this opinion on the capacity of the company to withstand the long
term financial pressure.
These are interested in the long term stability of the company which their
job depend on the company’s ability to meet wages demand.
OF THE PROBLEM
Some bothering questions such as the
following will be addressed and solution found to take each problem.
1. How could an organization measure its long
term and short term financial pressure?
2. Does the company have too heavy investment
and account reversible.
3. Are inventories adequate to support the
projected level of sales?
4. How could overall effectiveness of
management of a firm be measured.
5. How could e management measure how
effectively the firm’s resources have been utilized.
6. How effective is the company’s credit
(a) What does financial ratio contains?
(b) What are the reasons for preparing ratios?
(c) Who are users of financial statement?
(d) How can financial ratio be used?
What effect will ratio have to performance evaluation of an organization?
OF THE STUDY
The study is most appropriate
particularly in an environment where the political, economically, social,
cultural factors and international environment are not stable.
use of ratio will also enable the management of an organization to determine
the ability to met the long term and short term solvence, as well as the
effectivenees and efficience of an organization without going through a complex
procedure which maybe subjective and unreliable.
Ratio itself it a simple analytical
tool, which is more reliable if the accounting data are accurate.
1.6 DEFINITION OF TERM
RATIO: these are tools of financial analysis it
is a quotient of two mathematical expressions. It is a mean of expression one
figure in relation hip to another.
this means return on capital employment, it shows the overall profit of
LIQUIDITY RATIO: this is the ability of an
organization to meet its current obligations.
ACID TEST RATIO: this ratio expressed the
inactive amount of cash and other asset that can easily be converted to cash
and that able to meet current liability
PROFITABILITY RATIO THE ratio deal with
profitability and efficency of resource utilization in an organization.
MANAGEMENT : this can be define as social
process entailing responsibility for the effective and economical planning and
regulating of the operation of an enterprise infulfillment of a giving purpose
of task (EFL brech )
SHEREHOLDERS RATIO: these ratio one of interest
to the investor in the stock exchangeas they use them to compare alternative
PROFIT AND LOSS ACCOUNT: this is otherwise
knows income statement reflecting the earning capacity of the firm.
The indicate the financial or the state of affairs of a business at a
RATIO: This ratio measures the degree of the company to the financial risk
attaching to fixed interest security.
RATIO: This shows the degree to which unscured shareholders are protecting
against loss in the event of liquidation.
12 FIFO: These mean first in first out, here issues
are applied at the price paid for the materials first taken into the stores
from which the material to be priced would have been drawn.
13 LIFO: These means last in first out, is for
materials taken into the stock from the material to be which could have been