RATIO ANALYSIS AS A TOOL FOR PERFORMANCE APPRAISAL IN NIGERIA FINANCIAL MARKET (A CASE STUDY OF FIRST BANK NIG PLC )
TABLE OF CONTENT
TABLE OF CONTENT
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Justification of the problem 4
1.4 Scope of the Study 5
1.5 Limitation of the Study 6
1.6 Research hypothesis 6
1.7 Plan of the Study 7
1.8 Definition of the Study 8
2.1 Literature Review 9
2.2Users of Financial Statement 11
2.3Management of an Organization13
2.4 Performance Evaluation 14
2.5 Management control System 15
2.6 Method of Performance Evaluation 16
2.7 Analysis and Interpretation of
Financial Statement 16
2.8 Definition and Relevance of Financial Ratio 17
2.9 Classification of Ratio Analysis 17
3.0 Research Methodology 23
3.1 Type of Data 23
3.2 Population and Sample Size 24
3.3 Method of Data Collection 24
3.4 Method of Data Analysis 24
DATA PRESENTATION AND ANALYSIS
4.0 Introduction 26
4.1 Socio-Dittographic Characteristic of Respondents 27
4.2 Presentation of Questionnaire Response 30
4.3 Testing of Hypothesis 33
4.4 Result and Analysis of Liquidity Ratios 36
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary 37
5.2 Recommendation 37
5.3 Conclusion 39
1.1 BACKGROUND OF THE STUDY
The amount of proportion of one figure compare to another makes financial statement to be obviously important to enable user have a clear picture of position of organization. It report the liquidity and solvency of the company and the claim of it resources i.e. debt owned, the equity of the owner and present cash position of the company.
It comprises comparative balance sheet, profit and loss account, income statement, cash – flow statement, auditors report and some officer necessary information base on your assessment.
Despite the functions of financial statement many users often fail to comprehend fully on the information it intending to pass across, thus there desire are not met. This is due to ambiguous of the financial statement where by the volume of data figure mislead the user. In this sense, the need for analysis and interpretation of statement are imperative. Financial statement can be converted and interpreted using three techniques.
1. Vertical or Static Analysis: It examine relationship within a statement, it deals with use of relative percentage value of the statement.
2. Horizontal or Dynamic Analysis: This involves comparison of financial statement in respect of the two or more years. The weakness of this analysis in that comparison with the past does not afford any basis for evaluation in absolute terms.
3. Ratio Analysis: Involve the use of two different economic units to ascertain performance. Ratio analysis commonly uses technique in analyzing financial statement. It is obviously paramount since it checks how strong or weak company is. Therefore, its interpretation is easily understood by the user.
1.2 STATEMENT OF THE PROBLEM
Financial ratio analysis it widely use to assess the performance of an enterprises. Financial statement is prepared in terms of historical costs. They do fully reflect economic resources and managerial, hence poor decision may be made. The users of financial information are carried away by the figures display in financial investment. Observing the trends of the financial investment as assess whether their resources have been put to effective use. The analytical comparison of large information is a problem to the user.
Financial ration analysis should be applied to provide meaningful and quantitative presentation of the company and external creditors. Also there is need for financial analyst to produce a small and understandable data for good decision.
1.3 JUSTIFICATION FOR THE STUDY
Ratio analysis been what it is, as the production of relation for internal and external financial reports are important to summarize key relationship and result in order to appraise financial performance.
In its assessment, this research will be of immense value in recent knowledge of enterprises and managerial achievement. This research is very useful to user to supplement the existing knowledge of the user of financial ratio as guide towards the determining company’ achievement as well as show how financial ratio analysis can identify the strength and weakness of a company.
The research work can also serve as material for student who are interested in the study of financial ratio as a tool for performance appraisal.
1.4 SCOPE OF THE STUDY
This study has limited to five year financial summary of the First Bank Nigeria Plc, profit and loss account, the balance sheet, value added statement, using ratio and adequate interpretation.
This study is carryout base on the fact that amount presents a true and fair view of the company’s affairs and not misleading.
More so, financial ratio will be compared with that of previous year using common size of statement trends analysis that is reaction of the economic unit over time of the firm horizontal analysis.
The period was choosing because of the availability of financial statement representing it operation within the period 1999 – 2002.
1.5 LIMITATION OF THE STUDY
In the case carrying out the research the following limitation are encountered.
The major limitation is the high cost of transportation and insufficient fund to other schools library subsequently to this problem is a combination of academic work with represent study. The refusal of asset to the unpublished information, which has been term confidential time factors “the time that was in the conduct of research constituted constrain of the study”
1.6 RESEARCH HYPOTHESIS
For the objective of the study the researcher would want to know the input of ratio analysis as a tool to measure managerial performance to ratio analysis can not serve as a tool for performance appraisal in Nigeria Financial Market.
Hi Ratio analysis can serve as a ratio for measuring profitability and efficiency of a firm while chi-square is used to rest the validity of hypothesis.
1.7 PLAN OF THE STUDY
The research is written to examine financial ratio analysis as a tool for performance appraisal.
The study begin with chapter one that deals with the background of the study, statement of problem, justification of the study and definition of terms. Chapter two deals with the Literature Review of the work of other author related to the research methodology: type of date population and sample size, method of date collection, method of data analysis and brief history of First Bank Nigeria Plc, Chapter four embraces the data presentation and analysis of liquidity ratio chapter five deals with summary, conclusion, recommendation, and bibliography.
1.8 DEFINITION OF TERMS
⦁ Performance: Is the ability to operate efficiently as well as an action or achievement consider in relation to it is Oxford Advance Dictionary.
⦁ Financial Statement: Are the instrument panel of business enterprises and constitute a report on managerial performance arresting to managerial failure or success and flushing warming signal of impending difficulties (Meigs and Meigs 1979)
⦁ Ratio: Is a simple mathematical expression of the relationship of one item to the other
⦁ Balance Sheet: A statement of financial position showing the nature and amount of company asset and liabilities and net worth of a particular company.
⦁ Working Capital: Is the excess of current asset over current liability of a business.
⦁ Trends: Movement in data revealed by statistical process..