THE ACCOUNTING RATIO AS A MEASURE OF MANAGEMENT EFFICIENCY AND PERFORMANCE (A CASE STUDY OF COCA – COLA PLC)
TABLE OF CONTENTS
Table of contents
1.1 Purpose of the study
1.2 The scope and limitation of the study
1.3 Problem analysis
1.4 Significant of the study
1.5 definition of terms
1.6 organization of the study
2.0 Literature review
2.1 Current literature base on variable of the theories
2.2 Uses of accounting ratio
3.0 research methodology
3.1 historical background of cocal-cola plc
3.2 organization chart
3.3 method of data collection
3.4 the sources of data collection
4.0 Presentation and data analysis
4.1 Profitability ratios
4.2 Liquidity ratios
4.3 Leverage ratios
RATIO analysis is a powerful tool of financial analysis. According to Kennedy and Macmillan, RATION is defied as the indicated quotient of two mathematical expressions” and as the relationship between two or more thing” in financial analysis a ration is used as an index or yardstick for evaluating the financial position and performance of a firm.
The compilation of trading, profit and of loss account and balance sheet represent the end product of a series transaction which have taken place over a particular period of time in order to make use of the information presented in all final account and the balance sheet, the user needs to analyze and interpret the meaning before making any conclusion. The accountant normally comments on final account and balance sheet either prepared by him or by other and interpret their significance doing so, he may find out that the accepted form of accounts and balance sheet are not easily followed by the Lyman: therefore , he re- design the form so hat the figure becomes more intelligible to those with out expert knowledge in accounting. The first stage in the analysis is the development of a systematic review of the accounting data with the aid of accounting ratios, which shows the relationships of the result of the firm’s activities.
The interpretation of the final account and the balance sheet could there after be carried out using he accounting ratio so obtained from the result of the activities.
A ratio is meaningless unless interpreted against some standard. Two standard are used.
1. Trend analysis and
2. Comparative analysis
Trend analysis involves` the behaviours or ratio for a period of time, while comparative analysis requires the compassion of a ratio in a particular firm to another firm.
The ratio analysis involves comparism for a useful interpretation of the financial statement. A single ratio is itself does not indicate favorable on unfavourable condition. It should be compared with some standards.
Ratio calculated from past financial statement of the some firm.
Ratio of some selected firms specially the most progressive and successful at the point in time.
Ratio of the industry to which the firm belongs.
Ratio analysis in addition provide us the means by which we test the efficiency of various features of the business as presented by the financial account, it also or the performance of the organization between different. Years.
The performance of any organization can be measured form it income statement and balance sheet. Therefore, the accounting ratio uses the financial data from balance sheet and income statement to evaluate the company’s performances
Many question had been raised as to how to measure the managerial performance of a company from year to year, which is t he goal of financial manager to provide meaningful financial information about the business.
1.1 PURPSE OF THE STUDY
The basic aim of this project is to facilitate the ratio behind various decisions that are taken in the business organization, in a difference situation at a point in time. The purpose of the study also is to find out how coca-cola plc, fared in the past two or three year in term of profitability, efficiency and effectiveness.
The study will also attempt a practical application of what the theory postulates in terms of performance evaluation.
This particular research aims at studying the use of accounting ratio as a measure of organization. It will also stress reasons why various business activities embark on by business organization have been uncreative for the continues existence of business.
1.2 THE SCOPE AND LIMITATION OF THE STUDY
This project will limit itself to an exhaustive analysis of the financial statement of coca-cola plc for a period of two to three years, using accounting ratios at tools from analysis.
This project will also show important business decisions a re taken because of adequate business information that is available.
Furthermore, this project will be limited to ratio analysis and the ratio that will be studied includes to following.
1. profitability ratios
2. liquidity ratios
3. leverage ratios
4. activity ratios
Accounting ratios through an efficient tool in measuring management performance and efficiency have some setback which would limit the extent to which users that is management can rely on it for weighing their performance limitation includes:
a. It is difficult to decide on the proper basis for comparison, because of differences in situation of two companies, or rendered difficult.
b. Price level hanger makes interpretation of ratio invalide.
c. Ratio calculated at a point in time may be less informative and defective as hey suffer from short term changes.
d. Definition of items in balance sheet and income statement differ, hence interpretation of ratio becomes difficult.
e. Ratio is generally calculated from post financial statement and this are no indication of the future.
1.3 STATEMENT OF THE PROBLEM
There are a lot problem faced in carrying out this research work out of which are :
1. Problem of transportation
i. TRANSPORTATION: The road that leads to coca-cola Ilorin plant is not all that motorable. You either wait for hours before you get a car, or trek.
ii. TIME: There is no enough time to go to other plant to obtain more is limited to Ilorin, plant only.
iii. FINANCE: Due to the problem of this country. There is no enough money to carry out this research work and to visit other plants, because money is the root and determination of every thing.
1.4 SIGNIFICANCE OF THE STUDY
The topic of the project “ the use of accounting ratio as a measure of management performance and efficiency is a kind of study that can be available by used of financial statement especially the management , investor’s creditor and others,
If affords them to get a better insight about financial strength and weakness of the firm.
The following are the significant of accounting ratio.
a. It enables interested parties to know how profitable a business is.
b. The extent to which a firm has used its long term solvency by borrowing found can be ascertained.
c. The ability of firm to meet its current obligation can be measured.
d. The efficiency at which a firm is utilizing its various assets I n generating sales revenue can be ascertained.
e. Communication is vital imparting knowledge with in and outside business organization. Ratio analysis plays a vital role informing the public of what has happened from one period to another.
1.5 DEFINITION OF TERMS
To facilitate proper assimilation of this research work, the following information terms are explained briefly:
a. ACCOUNTING: Deal with recording analysis describing and report the financial affairs of business corporations and other entity.
b. EFFICIENCY: In this study mean systems which consist of an action or process taken to gain certain aids or objectives.
c. MEASURE: In this study means a system which consist objectives.
d. MANAGEMENT PERFORMANCE: In this study means how a business organization ahs excelled or achieve its objectives.
e. ACCOUNTING RATION: A ratio is one number express inter s of another number to show the relationship between the two number.
1.6 ORGANIZATION AND PLAN OF THE STUDY
This study has been divided into five chapters, chapter one deals with the introduction of the project work. Chapter two covers the literature review of relevant materials on accounting ratio. Chapter three deals with research method of the study, Chapter four contain data analysis, result and discuss and lastly, chapter five is the summary, conclusion and recommendation.
2.0 LITERATURE REVIEW.
The main focus of literature review I this chapter is to examine the state of knowledge on the subject matter. “This uses of an application of financial accounting ratio as a measure of management performance and efficiency” that is an attempt to examining previous works and source of materials on the topic under focus to strengthen its position, finding and conclusion.
Many authors have written and expressed their view about accounting rations.
The following are some of the view of some scholars on accounting ratio and the types:
According to T. Lucey (1978), state hat financial accounting ratio is the study of specific relationship and forms the heat of statement in an attempt to find one about the status of a particular aspect of business.
Brigham and Fred (1978) state that “ Ratio analysis related balance sheet and income statement items to one another and permits the charting of a firms history and evaluation of its present position
frank wood ( 1984) state that , this respect financial accounting ration are relationship which bring together the result of activity which experience shows identify the key areas for success of the business.
Hermann Edward’s Salmon Son (1987): defines ration data to financial statement and other relevant data to obtain useful information.
I.M. Pandy (1979): Ratio analysis is the process of identifying the financial strengths and weakness of the firms, by properly establishment relationship between the items of the balance sheet and the profit and loss account :
Keen, Scott, martin and petty (1985) state that: Ratio and anticipated future financial condition. The objectives is to identify any weakness in the firm’s financial wealth that could head to future problems and to determine and
strength that they firm mighty capitalize upon”
Charles I Woelld ( 1980) : says “ the purpose of ratio analysis it to examine post and amount financial data so that a company’s performance can be evaluated and future risks and potential estimated .
Maud, D and K.S, Salty (1993): says “financial statement analysis involves a methodical compilation of data , comparison of the same to identify the strong and weak areas of business and to seek alternative solutions to such problems”
1. Paul, H.D. and Normal , E.D (1973) explains financial analysis as an art, and there are probably as many analysis various persons or groups will emphasize different relationships, depending upon their economic interest although techniques and data may vary considerably, the financial statement of the business firm provide the key to understanding the working of the firm,
2. Ishola (1094) stated: “ratio analysis involves comparing one figure against another to produce a ratio and assessing whether the ratio indicate a weakness or strength in the company’s affair.
Finally, the key to obtaining meaningful information from ratio analysis is comparison within the same business.
Ratios can be compared over times to establish whether things are improving or declining. Ratio can also be compared between similar business to see the company that is been analyzed is better or worse than average with its specific business sector..