ABSTRACT
“The role of Financial Statement in Investment
Decision Making”. Financial statement is a formal and comprehensive statement
describing financial activities of a business organization such as the
financial institutions and also to decision making pertaining to cost planning,
investment planning, expected returns and performance evaluation. For such a
business entity, financial statement is a statement that reports all relevant
financial information, presented in a structured manner and in a form easy to
understand for managerial use for taking prompt and informed decision making
related to investment. It is thus set out to achieve objectives among which are
to; (i) Determine how a set of analytical tools will aid prospective investors
in assessing the financial position of the corporate organization.; (ii)
Evaluate the performance of a company for investment decision making; (iii) and
Appraise the fundamental use of financial statement information for investment
decision making. The primary source of data was employed and the instrument of
data collection was the questionnaire. The major findings of this research
includes Internal control system ensure proper use of organization fund and
asset, there is appropriate of credit assessment process used by Jigawa State
Investment and Property, Development Inadequate feasibility study affects loan repayment
in the banking industry, financial statement helps users to know the state
of affairs of the companies. It is therefore we recommend that all financial
institutions should publish their financial statement every year, as it helps
shareholders to know the financial position of the companies and change at any
point in time, in order to know whether to continue holding, dispose or buy
more shares in the companies; Every company should ensure that all material
fact is reflected in their financial statement; There should be prompt
provision of the financial statement at the end of each financial year; Every
company should adhere to the demand of subjecting their financial statements to
statutory audit as a way of authenticating their contents
TABLE OF CONTENTS
Title page ........................................................................................................................... i
Approval page ..................................................................................................................... ii
Declaration ………………………………………………………………………………… iii
Dedication.............................................................................................................................. iv
Acknowledgement ................................................................................................................ v
Abstract…….......................................................................................................................... vi
Table of Contents ………………………………………………………………………… vii
CHAPTER ONE
1.0 Introduction
………………………………………….……………………………… 1
1.1
Background of the Study -............................................................................................. 1
1.2
Statement of the Problem -........................................................................................... 2
1.3
Objectives of the Study ................................................................................................ 3
1.4 Statement of Research of Hypothesis …........................................................................
3
1.5 Scope and Limitation of the
Study ................................................................................ 3
1.6 Significance of the Study.............................................................................................. 4
1.7
Definition of key Terms ............................................................................................. 4
CHAPTER
TWO
LITERATURE
REVIEW
2.1
Introduction………………………………………………,,,……………...………… 6
2.2
Conceptual Review………………………………...……………………….………… 6
2.2.1 Definitions of Financial Statements
……………………....…………………….… 6
2.2.2 Problems of Published Financial Statement
................................................................ 7
2.2.3 Types of Financial
Statements…….….……….………………………..………..… 9
2.2.4 Use and Users of Financial Statement…...………………........................................... 10
2.2.5 Attributes of an ideal Financial Statement
…............................................................... 11
2.2.6 Qualification on the Usefulness of
Financial Statements…………..……….……… 13
2.3
Empirical Framework………………………………………………………..……….. 13
CHAPTER THREE
METHODOLOGY
3.1 Introduction ………………………………………………………………………….... 15
3.2 Research Design ……………………………………………………………...……… 15
3.3 Population of the Study ………………………………………………………..……… 15
3.4
Sample Size and Sampling Techniques ……………………………………………… .15
3.6 Methods and Sources of Data Collection ………………………………………..……. 15
3.7
Method of Data Analysis………………………..…………………...………..……..… 16
CHAPTER
FOUR
DATA
PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction................................................................................................................. 17
4.2 Data Presentation and Interpretation............................................................................... 17
4.3 Discursion of Major Findings.......................................................................................... 23
CHAPTER
FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1.1 Summary of Research ............................................................................................ 25
5.1.2
Summary of Major Findings……….……………………………………………………… 25
5.2 Conclusion .................................................................................................................. 26
5.3 Recommendation…...................................................................................................... 27
Reference……….................................................................................................................. 29
Appendix………................................................................................................................... 32
CHAPTER
ONE
INTRODUCTION
1.1 Background of the Study
A
financial statement refers to a summary explaining or providing a picture of
the financial position/business performance (Atrill & Mclaney 2015) or
activities of a business during a certain period. Corporate organizations is
obligated to fully disclose matters concerning their operations and financial
state, to aid investors in making investment decisions. Both large and small
organizations in addition to satisfying the legislating requirement tend to
retain existing investors and to attract potential ones through the publication
of their financial statements where the capital stock of a corporation is
widely held and its affairs are of interest to general public relations. The
discussions and illustrations of the study is centered on the financial
statement presented to shareholders and also available for potential investors,
bond holders and trade creditors as a tool of information for investment
decision. Financial statement based on result for the past activities was
analyzed and interpreted as a basis for predicting future rate of returns and
assessment of risk, according to Institute of Chartered Accountant of Nigeria
(ICAN, 2013).
Financial
statement is a formal and comprehensive statement describing financial
activities of a business organization such as the financial institutions. For
such a business entity, financial statement is a statement that reports all
relevant financial information, presented in a structured manner and in a form
easy to understand for managerial use for taking prompt and informed decision
making related to investment (IASB, 2007a) and also to decision making
pertaining to cost planning, investment planning, expected returns and
performance evaluation. The financial statement comprises of statement of
financial position, statement of financial performances, statement of equity
changes, and cash flow statements (reports on a company’s cash flow activities,
particularly its operating, investing and financing activities). Although,
these statements are often complex and may include an extensive set of notes to
the financial statement and explanation of financial policies and management
discussion and analysis, International Accounting Standard Board (IASB, 2007).
The notes typically describe each item on the statement of financial statement,
income statement and cash flow statement in further detail. Notes to financial
statement are considered as an integral part of the financial statements.
However, the approaches that the notes and financial statement are presented
and reported are critically for investment decision making by existing and
prospective investors in order to earn optimal returns on their investments.
This
indicates that financial statement methods in terms of information disclosure
pattern, transparency, auditing, reporting standards, regulatory control and
flexibility, corporate governance, and financial scandals have influence on
investment decision making in any organization, especially in financial
institutions with extensive range of investment activities that requires
comprehensive financial facts that can be obtained from a financial statement.
Financial statement provides important information for a wide variety of
decision, investors draw information from the statement of the firm in whose
security they contemplate investing. Decision makers who contemplate acquiring
total or partial ownership of an enterprise expect to secure returns on their
investment such as dividends and increase in the value of their investment
[capital gain].
Both
dividends and increase in the value of shares of company depends on the future
profitability of the enterprise. So investors are interested in future
profitability. Past income dividend data are used to forecast returns from
dividend and increase in share prices.
1.2 Statement of the Problem
It
was observed that the role of financial statements in investment decision
making in Nigeria has been a problem to both investors and managers of business
organizations, who are ignorant of the importance of interdependence
relationship that exist between investors and business organizations. Such
problems include;
i.
How analytical tools are set to aid prospective investors in accessing the
financial position of the corporate organization.
ii.
Evaluation of company performance in investment decision making.
iii.
How to determine the profitability of a company?
iv.
How to appraise the fundamental use of financial
statement information.
The
problems analyzed tend to scare away both existing and potential investors. The
reason of this study is to adequately look into the above problems and suggest
possible solution to any of them. Nevertheless, this research will find
possible key factors to solving these problems because financial statement in
investment decision making in Nigeria is crucial to every organization
especially investment industries to the potential investor.
1.3 Objective of the Study
The
general objective of the study is to ascertain the role of financial statement
in investment decision making. The specific objective is to;
i.
Determine how a set of analytical tools will aid prospective investors in
assessing the financial position of the corporate organization.
ii.
Evaluate the performance of a company for investment decision making.
iii.
Appraise the fundamental use of
financial statement information for investment decision making.
1.4 Statement of Research
Hypotheses
The
following research hypotheses were developed for the study
H0:
Financial statements do not determine how a set of analytical tools will aid
prospective investors in assessing the financial position of the corporate
organization.
H1:
Financial Statements do determine how a set of analytical tools will aid
prospective investors in assessing the financial position of the corporate
organization.
H0:
Financial Statements are not useful for predicting company’s performance.
H2:
Financial Statements are useful for predicting company’s performance.
H0:
Financial Statement does not determine the profitability of a company.
H3:
Financial statements determines the profitability of a company
H0:
The fundamental use of financial statement information is insignificant for
investment decision making.
H4: The fundamental use of financial statement
information is significant for investment decision making
1.5 Scope and Limitation of the
Study
This
study cover “the role of financial statement in investment decision making” and
specifically Jigawa State Investment and Property Development.
There
are some limitations encountered in the process of this research which limited
the scope to only Jigawa State Investment and Property Development, some of the
limitations are as follows:
Uncooperative
attitudes of the respondents; the researcher could not get some necessary
information from the respondents because of their negative attitude in their
response to the oral interview with the bank officials and the questionnaires.
Time
constraints; despite the time provided, it was not still enough for the
researcher to go all the relevant places like banks and company etc to get
relevant information and due to the combination of project and academics work.
Financial
constraints; financial constraints are also another factor that limited the
researcher to go to many branches of first bank and even other banks and
organizations. As a researcher, due to the distance of my case of study the
financial aspect for transportation was insufficient, electronic library etc.
Limited
literature; There are limited literature sources to explain all is needed in
regard to the role of financial statements in investments decision making in
the context Jigawa State Investment and Property Development.
1.6 Significance of the Study
Banks:
This study will be immense benefit to banks by improving the banking
performance financial analyst, investors, companies and financial organization.
Stockholders:
The study intends to help these stockholders in decision making.
Students:
It serves as a reference to students in the noble institutions who may interest
to embark on a future research.
Investors:
Financial statement is a significant or document because investors and
regulators rely on accounting information to make managerial
decisions.
Organizations:
it makes the organization to appreciate the importance of sound financial
statement in the provision of information necessary for decision making.
1.7 Definition of key Terms
Accounting
Principles: are the rules and
guidelines that companies must follow when reporting financial data. The common
set of U.S. accounting principles is the
generally accepted accounting principles
(GAAP).
Analysis: A systematic
examination and evaluation of data or information, by breaking it into its
component parts to uncover them inter relationships. An examination of data and
facts to uncover and understand cause-effect relationships, thus providing
basis for problem solving and decision making.
Bank: A bank is a financial institution that accepts
deposits from the public and creates credit. Lending activities can be performed either directly or indirectly
through capital
markets.
Bond: A bond, also known as a fixed-income security, is a debt
instrument created for the purpose of raising capital. They are essentially
loan agreements between the bond issuer and an investor, in which the bond
issuer is obligated to pay a specified amount of money at specified future
dates.
Cost Planning: Cost planning is a management process that seeks to control
design development in line with the client's budget.
Expected
Returns: Expected return is the profit or loss an investor
anticipates on an investment that has known or expected rates of return. It is
calculated by multiplying potential outcomes by the chances of them occurring
and then summing these results.
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