PROFITABILITY AS A MEASURE OF ORGANIZATIONAL PERFORMANCE (A CASE STUDY OF UNION BANK OF AFRICA PLC, ILORIN)

CHAPTER ONE

1.1      BACKGROUND OF THE STUDY

The extent of which corporate objective are achieved depends on the quantum and quality of resources as its disposal.  We all know that resources are not only scare relative to the demand for them but also waiting assets.  For example, plants become absolute, land loses it fertility, money get spends and executives (men) get old.  The scenario implies that resources must be constantly aquired used efficiency and replaced” (Asien, 2000).

The fact that activities mentioned above cost money implies that the survival of the firm depends on the profit realized by it.  Profit can therefore be defined as the excess of income over expenditure.

The definition of profit depends on the information needs of the company.  If the underlying profitability of the business the objective review a company’s, result, then it is an operating profit. i.e gross profit less expenses.

According to Ellis (1993) says that “Financial reporting of profit provides a key measure of the performance outcome, associate with performance outcome associated with an organization strategy”.  This means that before the performance of a business can be evaluated a proper profit measure approach must be operated by the organization.  Therefore, the function of financial manager is to include profit planning.

The term profit planning refers to the operating decision in the area of pricing, costs, volumes of out pout and the firms selection of product brings.  Profit planning is therefore a pre-requisite for optimizing investment and financing decisions (Mao and James 1969).     

The major aim of establishing a business is to make profit unless adequate (net profit) are generated and used for the replacement of resources, the firm will eventually be run down.,  profit analysis in business have the following advantages:-

i.)          It helps to increase the equity control of shareholders through retained earning.

ii.)        It also helps to raise the loss absorptive capacity of the organization.

iii.)      The ability of the companies to pay its dividends depends on the size of its profits.

A company should earn profits to survive and grow other a long period of time.  Profits are essential, but it would be wrong to assume that every action initiated by management of company should be earned at maximizing profits, irrespective of social consequences.  Although, profits is the ultimate output of a company, and it will have no future say if it fails to make sufficient for a firm and the reporting of its in the financial statement is not just sufficient but to show the weak and strength of a real accounting system that is in the usefulness of its application rather than information or data gathering processing aspect (Paul et al, 1972).

In this view, the financial manager, should, continuously evaluate the efficient of its company as to achieve its targeted goal i.e profits.  Financial statement of companies are tools which produces a means through which this evaluation can be carried out.  Meaning that financial statement should be used to examine the statement of success of the business over the period.  Also willsmore (1971). Confirm this statement that management use financial statements as working tools with which to obtain the most effective results in the control of business affairs so as to ensure the adequacy of the over all result, in the profitability and financial strength of the business as whole “financial ratio are therefore employed as means of paper evaluation for the business.

1.2      STATEMENT OF THE PROBLEM

Organization is expected to keep records of their transaction over the year.  Adequate and proper records should be kept in order to measure financial performance of the business.

Over the years, it has been realized that financial statement i.e the profit and loss account and balance sheet are not well prepared which as a result of liability of most organization to meet their financial obligation.

This may be as result of the following reason:

i.)     Poor Management or managerial control over the business affair.     

ii.)    Lack of proper and adequate recording and keeping of books account.

iii.)   Inefficient use of the firm’s financial assets over the years

iv.)   Window dressing at top management level of the organization.

v.)    Change in according policies operated by the company.

vi.)   Changes in the general price level and increase economic fluctuation over the years.  

The problem of this study is to determine how financial statement=s can serve as a better tool for measuring the performance of a business over the years, so that night decision can easily be taken by the users.  It financial statements help in knowing how profitable business has been by various interested parties.  For example shareholders, creditors, bank and customers.  

1.3      OBJECTIVES OF THE STUDY

Companies are required to publish this annual account which is made up of the balance sheet, profit and loss account as users of financial statement are interested in the information’s provided in three types of information.  Information about past performance (used in assessing the success of the business and effectiveness of management), information about the present before investing find in the business and also information about the future in order to know which their wealth will be maximized.

The basis objectives of companies in line with the users are to ensure that the profitability of the company is increase given the competitive factors and also to ensure the sustenance of it impressive profitability.

Based in this fact the objectives of measuring the profitability of the bank include.

i.)     To indicate the effectiveness with the management has employed both total assets and the net assets a recorded on the balance sheets.

ii.)    To indicate the bank performance and relation to the owners equity.

iii.)   To indicate the risk and opportunities for the company under review.

iv.)   To reflect the efficiency with which management provides each level of their source or product.

v.     To indicate management efficiency in administration and selling of the services or products of the bank.

1.4      RESEARCH QUESTION

   The research questions that were asked are:-

i.            How profitable is the company

ii.          Is the profitability

iii.        Are the profitability ratio of the company increasing or decreasing over time.

1.5      SIGNIFICANCE OF THE STUDY

Considering the extent of reliance on the accuracy of financial statement and profitability of the company by potential investors, management, shareholder, debenture holder and inland revenue.  The relevance of this study cannot be over emphasized as this research will serve as a tool in assessing the profitability.

1.6      SCOPE AND LIMITATION OF THE STUDY

This study has examined the United Bank for Africa Plc, Summary of the financial statement for 2001, 2000m and 1999.

Based on this fact, the research work that was conducted was restricted to the summary of the last three years financial statements of the Banks.

The research was also affected or limited to the information made available to me by the bank.  Therefore, information that was made available for this research is limited to what was given to me by the management of the bank.

1.7      RESEARCH METHODOLOGY

The research instruments used to gathered information have to two divisions.

i.)     The primary source of data: Research instruments like personal interview with finance exports of the bank was made use of.

ii.)    Secondary data: This includes the consultation of relevant textbooks, journal and published animal reports of the banks. Analysis of data collected was based on the consumption of all relevant profitability ratios.

iii.)   Profitability in relation to sale

iv.)   Profitability in relation to investment.

After the consumption of all relevant profitability ratios for al the three years, the trend in its was studied so as to know whether is increasing or decreasing and at what rate is it changing. This analysis was done using a trend analysis technique of financial analysis.

1.8      DEFINITION OF TERM

i.            RATIO:- This is relationship between two or more

figure.

ii.          TREND ANALYSIS:- This indicate the direction of

change over a period of year.

iii.        BALANCE SHEET:- This is the statement of the

affairs of a company.

iv.         PROFIT AND LOSS ACCOUNTS:- This is an  

account containing the summary of profit and loss,  indicating the profits and losses that are made at the end of an accounting period.

v.     PUBLISHED ACCOUNT:- It is an account containing

the summary of the profit and loss account, cash flow statement value added statement and the balance sheet of a company.

vi.         REVENUE:- This is the total annual income

generated by a company.

vii.   EXPENSES:- There are company’s expenditure incurred in form of payment made.

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