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Ratio Analysis As A Tools For Performance Appraisal In Nigeria Financial Market
[A case study of First Bank of Nigeria Plc, Ilorin Branch]
CHAPTER ONE -- [Total Page(s) 3]
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The
concept of business entity in accounting practices which defines
business as a separate entity from the owner brings forth stewardship
reporting and accountability in any organization. Mores, the going
concern concept anticipates a continuous life a firm within a
foreseeable future. That is why the ultimate determined of the remain
perpetually.
Moreover, the aim or objective of financial manager is
to provide meaningful financial information about business enterprises
to the outside world and for internal control and management in decision
making. These financial information are presented in financial
statement. They are means of conveying to the management interested
outside a concise picture of the profitability and financial position of
a business. They constitute a report of managerial performance
attesting to the managerial success or failure and flashing warning
signal of inpending difficulties. (Meigs and meigs 1979), so financial
statement obviously important to enable the user that have a clear
picture of the position of organization. It reports the liquidity and
solvency of the company and the claim of these resources i.e debt owned,
the equity of the owner and presents cash present cash position of the
company.
It comprises comparative balance sheet, profit and loss
account, income statement, cash flow statement, auditors report and some
other necessary information base on year’s assessment.
Despite the
fixation of financial statement, many user often fail to comprehend
fully the information it intended to pass across, thus their desire one
not met. This is due to the ambiguity of the financial statement where
by the where by the volume of the data and figure mislead the users. In
this sense, the analysis and interpretation of the statement are
imperative.
Financial statement can be converted and interpreted using three techniques.
1.
Vertical or Static Analysis:- It examines relationship within a
statement. It deals with the relative percentage value of the
statement.
2. Horizontal or Dynamic Analysis:- This involves
comparison of financial statement in respect of two more years. A
weakness of this analysis is that comparism with the past does not
afford any basis for evaluation in absolute terms.
3. Ratio
analysis: Is a commonly used technique in analyzing financial statement
and it involves these of two difference economic units to ascertain
performance.
It is obviously paramount since it practically evaluate
performance that is check how strong or weak a company is. Therefore
its interpretations are easily understand by the users.
1.2 STATEMENT OF THE PROBLEM
Financial Ratio Analysis is a widely used took assessing the performance of an enterprises.
Financially
statement is prepared in terms of historical costs. They do not fully
reflect economic resources and managerial, hence poor decision may be
made. The users of financial information are carried away by the
figures displayed in the financial statement observing the trends of the
financial investment while over – looking the performance of management
as assess whether their resources have out to effective use. The
analytical comparism of a large information is a problem to the users
(The management of the company and the external users. Investors,
analyst, creditor government and public.
1.3 JUSTIFICATION FOR THE STUDY
Ratio
analysis being what it is are the production of relations for internal
and external financial reports are important to summarize key
relationship and results in order to appraise financial performance.
In
this assessment this research will be of immense value in recent
knowledge of at the enterprises and managerial achievement. This
research is very useful to user of account and financial information.
It is also to supplement the existing of the user of financial ratio as
guide towards deterring company’s achievement as well as to show how
financial ratio analysis can identity the strength and weakness of a
company.
The research work can also serve as a material for students
who are interested in the study of financial rations as a tools for
performance appraise.
CHAPTER ONE -- [Total Page(s) 3]
Page 1 of 3
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