TABLE OF CONTENT
Table of Content x
1.1 Introduction 1
1.2 Historical of the Organisation 2
1.3 Statement of the Problems 3
1.4 Purpose of the Study 4
1.5 Scope and Limitation of Study 4
1.6 Significance of the Study 5
1.7 Definition of Major Terms 6
2.0 Literature Review 8
2.1 Nature of Ratio Analysis 10
2.2 Standard of Comparison 11
2.3 Users of Accounting Ratio 12
2.4 Critical Review of the type of Ratio 15
2.5 Financial Norms 23
2.6 Significant Accounting Policies 24
2.7 Balance Sheets (Analysis of Financial
2.8 Profit and Loss Account 28
2.9 Cash Flow Statement 29
3.0 Research Methodology 30
3.1 Introduction 30
3.2 Study Population 31
3.3 Sampling 31
3.4 Data Collection 32
3.5 Source of Data 32
3.6 Description of Questionnaire 33
3.7 Method of Data Analysis 33
4.0 Data Analysis 34
4.1 Presentation of Data 34
4.2 Test of Hypothesis 44
4.3 Steps in Hypothesis Testing 45
5.1 Summary of Findings 57
5.2 Conclusion 58
5.3 Recommendation 59
The Term “Ratio Analysis” could be described as the
analysis of financial statement in order to judge the performance of the
COMPANY or group of companies.
The “Investment Decision” Means the allocation of funds
to invest proposal whose benefits are to be realized in the future.
The combination of the two terms described above or the
relationship between them is basically the purpose of this work. That is the
impact of ratio analysis as a tool for investment Decision. The three
fundamental statement requires are the income statement, the balance sheet, and
the statement of changes in financial position. The analysis of these statement
combined with the preparation and analysis of related financial statement are
required to as financial statement analysis.
To make rational decision in keeping with the objective
of a firm, the financial management his certain analytical tools. The company
itself and suppliers of capital, creditor and investor all undertake financial
analysis. The form’s purpose is not only internal control but also better
understanding of what capital supplier seek in financial condition and
performance from it. To evaluate, the financial analyst needs certain
Yardsticks frequently used in ratio or index relating two pieces of financial
data each other. For instance, the relationship between gross profit and sales
is expressed by the accounting ratio know as gross profit % or gross margin,
which is computed as follows.
GROSS PROFIT % = Cross
profit x 100
1.2 HISTORY OF THE ORGANIZATION
company was incorporated in Nigeria as P.B. Nicholas and Company Limited on 04
December 1948 with an authorized share capital of å40.000
divided into 40,000 ordinary share of å1 each. The name of the company was
changed to Alagbon Industries Limited in 1953 and to Associated Industries
Limited in 1960. The company became a public limited liability company and had
its shares subdivided into ordinary share of 50 kobo each on 19 July 1972,
following which its shares quoted on the Exchange in the same year. The
company’s current name was adopted on 22 November 1990 as Paterson Zochonic
principal activities of the group are the manufacturing and sales of wide range
of consume products and home appliance. Their products include detergent soap,
pharmaceuticals cosmetics, confectionaries, refrigerators, freezen, Air
conditioners, plastic container and components. The activities which claims
about 85 – 90% of Merchandising.
1.3 STATEMENT OF THE PROBLEMS
Businesses all over the World have met with unit health due to investment
decision. This has been situation more serious in recent time in Nigeria due to
the following reason.
economic depression in the country.
and general instability in the political climate.
of second-tier foreign exchange market.
computed from financial statement can base don historical figures which will
need further analysis especially during the period of rising prices.
much emphasis can be place on one ratio where as ratio are interdependent and
has to be treated as such.
of professional knowledge to interpret the computed ratio.
activities of business will effect ratio analysis.
the basic solution to over come this problems (investment decision) is how to
make the right decision at the right time through the proper use of ratio
analysis in the interpretation of financial statement, investment decision will
be made easy.
analysis and interpretation of various ratio should force experience, skilled
analyst a better understanding of financial condition and performance of the
firm they would obtain from analysis of financial data alone.
1.4 PURPOSE OF THE STUDY
highlight the problems faced in the use of ratio analysis for investment
decision in real business life.
enable users of financial business statement understand the techniques of
analyzing final account
analyse and interpret the trends and ratio of a company.
suggest other investment in practical terms.
determine companies contribution to social development
1.5 SCOPE AND LIMITATION OF STUDY
The scope of the study will cover the uses of
ratio analysis with particular reference to the accounting system in the
PZ Nigeria LTD will be thoroughly examined as
a case study. the study shall be limited to the financial accounting segement
of accounting. There are others areas of accounting and such as management
accounting, financial accounting and auditing.
However, the focus in thus study will be in
financial accounting as this the area in which ratio analysis is most
significant. Some of the factor that contributes to the limited of ratio
problem of currency and adequacy. Balance sheet items are historical and
duration of usefulness is limited.
of determining proper and acceptable basis of comparison.
in price level render interpretation of ratio invalid.
ratio calculated suffer set back from short changes.
comparison made between different company’s ratio are in accurate because of
different in their policies operation and situation.
1.6 SIGNIFICANCE OF THE STUDY
use to determine the financial strength and weakness of a company, this
allowing for necessary corrective action.
analysis are used in interpreting the function prospect of the company.
be used to determine liquidity position of the company.
used in determining management efficiency in the use of available company
analysis are used in determining availability and adequacy of company’s
used in making positive comparison between past and present operational
situation of the company and obvious projection to the future.
assist interested investor in their investment decision. In that it will
correctly analyse the gearing solvency and growth potential of the company.
viii. It will help the management in evaluating the
performance through the comparison of different ratio with the company’s
previous accounting result (trend analysis)
1.7 DEFINITION OF MAJOR TERMS
The following are the major term uses:
RATIO ANALYSIS: The term ratio analysis could be described
as the analysis of financial in order to judge the performance of the company
or group of companies.
INVESTMENT DECISION: The investment means the allocation of fund
to investment proposals whose benefits are to be realized in the future.
FINANCIAL ANALYSIS: Financial analysis is an act of evaluation
and assessing the financial and operational strength and weakness of a business
firm in order to adequately determine its efficiency, portability, liquidity