AN EVALUATION OF RATIO ANALYSIS AS A TOOLS FOR PERFORMANCE APPRAISAL IN FINANCIAL MARKET
|BANKING AND FINANCE|
No of pages
|MS Word & PDF|
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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 impending 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 comparison 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 comprise 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.
1.4 OBJECTIVE OF THE STUDY
The study into financial ratio analysis as a tool for appraising performance is to assist the use of financial information make decision predict the future and monitor possible irregularities in managerial behaviors in business.
Thus the main objective of study are:-
1. To determine the strength, weakness and opportunities based on the firms financial statement or performance and the threats to the continued existence of the organization.
2. To assess the extent to which ratio analysis serves as techniques aid in decision making by management.
To find out the extent, which the management.
To find out the extent, which the management of the company has been able to run and control effectively and efficiently, the assets and owners equity between the period under review.
3. To find out the extent to which the trends indicated ratio are useful for prediction of the future last to make recommendation to the company.