examines the "Impact of financial ratio analysis on investment decision in
a multinational organization "A case study of Guinness Nigeria plc, Ikeja
Lagos In today's growing business environment of Nigerian economy, many
organizations in the business related industry have been noted for facing
challenges on how to survive owing to the fact that there has been a drastic
reduction in the investment plans of investors and other key interested parties
in the industry. The reason for the above development is not far-fetched
because those interested parties concerned with investment in companies were
not provided with adequate information that will guide and assist them in
choosing an appropriate investment decision. Management however are saddle with
the responsibility of making available a company's financial data and details
open to the general public in order to access them on their performance of the
administrative of the company over the years, and to attract more investment
opportunities that the company requires for growth and development. To this
end, outsider not within the company will be able to carry out a thorough
investigation on a company profitability level provided they are presented with
an Annual report that will depict the financial statement of the company in
detail. To develop a programme that will attract an investment desire among
people towards companies in Nigeria which is an important factor for companies
growth and development; effort should be directed by management in the helms of
affair by ensuring that a proper financial ratio analysis is conducted to
enable users of financial statement gain a better insight of the company and to
help them in choosing a profitable investment option. Data generated from the
sixty (60) respondents were analyzed through the use of percentage distribution
and correctional chi-square analysis was adopted as the statistical technique
CHAPTER ONE: INTRODUCTION
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose of the study
1.4 Research questions
1.5 Research hypothesis
1.6 Significance of the study
1.7 Scope and limitations of the study
1.8 Plan of the study
1.9 Operational definition of terms
CHAPTER TWO: LITERATURE REVIEW
2.2 Theoretical framework of ratio analysis
2.3 An overview of financial statement
2.4 The users of financial statement
2.5 Comparison of ratio
2.6 Types of ratios
2 .7 Analysis of the various types of ratios.
2.8 Significance of ratio
2.9 Objective of financial ratios
of ratio analysis
2.11 Coping with problem encountered in the financial
between inflation, financial ratios and the financial statement.
of literature review
THREE: RESEARCH METHODOLOGY
of the research questions
of data analysis
FOUR: ANALYSIS AND PRESENTATION OF DATA
of respondent’s bio data
4.3 Analysis of respondent’s respondents
4.4 Testing of hypothesis
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary of findings
1.1 BACKGROUND OF
Business enterprises are in operation basically to provide
goods and services which will satisfy the needs and desires of customers at a
lower cost and in return will maximize their profit effectively on the services
rendered by them. It is the responsibility of the management of a business
enterprise to make sure that the activities being carried out by their
enterprises are properly and documented.
The recording of the business operation should be prepared
in monetary term in a manner that the various interested party to the company's
financial statement will have the opportunities to determine whether the
business is performing well in its functions or otherwise. The management is
totally responsible for the" planning, organizing, coordinating as well as
controlling and making corrective decision that seeks to the progress and
advancement of the business organization.
Decision making is a managerial function. It requires the assessment
or analytical study of past, present operation future prospects and the
probable outcome of decision which could be made. One important instrument
which has helped business over the years in this area is the financial ratio
Financial statement in order to gain insight into the
financial position and performance of a business enterprise. It is the
relationship between financial data in the financial statement to aid in the
evaluation of the business strength and weaknesses. It also provide us with
information that is useful for investment decisions such as "should we
acquire ABC corporation or otherwise? It encompasses a variety of accounting
ratios that reflect on a particular events, results or existing conditions.
The financial statement is an accounting statement showing
the profit and loss account of a business firm for a particular year, also the
balance sheet, showing the financial position of the company. Various users
include specific interest and needs.
The users include the following bodies such as; the
management, shareholders, creditors, government employees, customers, financial
analysts and advisers as well as competitors. It is from this statement drawn
their conclusion the company's performance, its managerial ability and
competence as well as the future prospect of the business under consideration.
Investment decision is the allocation of a firms capital
finds to investment proposal to yield future benefit that will meet up the
expectation of all investors in a company.
This research work therefore, intends to find out the
impact of financial ratio analysis on investment decision in a multinational organization,
using GUINNESS NIGERIA PIc located in Ikeja as a case study.
1.2 STATEMENT OF THE PROBLEM
Investment decision is one of the most critical and
crucial decision of an organization. It is a very important decision for the
growth and survival of most organization in Nigeria.
The problem of this research study shall centers on the
reason why business fail to prosper in the function. (i.e. achieving their
objective of profit making) enterprises fails to achieve their targeted goals
due to wrong choice of investment decision taken which may result from the
Inadequate fact data
or information about the project being under taken.
The wrongly analysis
of the technique use for company's evaluation and performance.
availability of investment analyst and expert that can give "advice on
what, where and how to invest one's resources.
to decide on a proper basis for comparison because organization ratio have
meaning only when they are compared with some standards.
5. There is inherent assumption that the historical data used for
ratio analysis are inviolate fixed and applicable under all situations, however
the dynamic of political and economic factors may prove such data as out of
1.3 PURPOSE OF THE STUDY
The general purpose of this study is to examine and
analysis the impact of financial ratio analysis on investment decision in a
multinational organization (GUINNESS NIGERIA PLC). These are:
To examine the
commitment of resources with the expectation of realizing future benefit over a
reasonable long period in the future.
To determine how
matters relating to dividend policy affect the organization stability.
To examine how
Investment decision affect the future profitability either by way of increase
in revenue or cause an increase in efficiency and reduction in cost.
examine" the factors that determines the growth and survival of the organization
5. To make recommendation to the management, shareholders and
investors on how to execute their investment plans.
The research question
covers all aspects of the study and shall be used to drawn
valuable information on the impact of financial ratio analysis on investment
The questions will include: -
How will the
commitment of present resources be able to realize the future benefit in a
reasonable long period?
How will matters
relating to divided policy in your organization affect its stability?
How will Investment
decision affect the future profitability by way of increase in revenue or
increase in efficiency and cost reduction?
How will the factors
that determine the growth and survival of your organization over a time can be
How will the
Investment plans In relation to management, shareholder and investors
recommendation can be executed?
Ho: Commitment of
resources does not lead to realization of company's objectives.
Hi: Commitment of resources lead to realization of
Ho: Investment decision does not affect the future
profitability and cost reduction.
Hi: Investment decision affects the future
profitability level, efficiency and cost reduction
1.6 SIGNIFICANCE OF
The research study is being conducted with the primary aim
to provide useful information to the GUINNESS NIGERIA PLC under study in
particular and to other company on matters relating to investment.
The study also attempt to provide valuable information to
management concerning their internal control, profitability and efficient of
management of assets. It also aims to provide sufficient information to
shareholder on a company's profitability's stability and potential for growth.
The study attempt to provide good information to creditors
on the ability of a firm to pay interest and repay the principal sum on a due
It will also benefit the government by supplying them
information on a business profit made by a company in order to assess tax
liabilities and other information concerning a business enterprise.
1.7 SCOPE AND
LIMITATIONS OF THE STUDY
This work endeavour to examine critically what exactly is
meant' by any financial ratio analysis, its implication and how it can be used
by the management on Investment decisions. It shall also make an insight on the
accounting ratios in the interpretation of financial statements and reports to
social statements and report to see how it would be useful to the useful to the
users. It also centers on GUINNESS NIGERIA PLC.
However, time constraint to and financial impediment on
this research work has led to inability of covering numbers of organization.
1.8 PLAN OF THE STUDY
The study is made up of five chapters.
Chapter one is the General introduction of the study,
while chapter Two is the Literature review. Chapter three is made up of
Research methodology while Chapter four is Data Analysis and interpretation.
Lastly, Chapter five is the summary of findings, conclusion and
1.9 OPERATIONAL DEFINITION OF TERMS
Ratio: These are ratio that reflects
the ability of a firm to meet its short-term obligation using assets that are
most readily converted into cash.
ii. Long Term Solvency and Stability Ration: These are ratios concerned with the ability of a company
to meet its long-term obligation.
iii. Profitability and Efficiency Ratio: These are ratios concerned with relative profitability and
efficiency of utilization of resources of a business.
iv. Investor I Stock Market Ratio: These are ratio used in the stock exchange to enable them compare