THE CONSEQUENCES OF RATIO ANALYSIS ON MANAGEMENT DECISION MAKING IN AN ORGANISATION
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1.1 BACKGROUND OF THE STUDY
In every organizing irrespective of its size, ownership, structure, impact of ration analysis on management decision making occupy a crucial position.
However, given this centrality, it can be said that behind every successful organization, the process in which the management arrive at decision making is very important as far as financial management is concerned in the private sector of the economy and especially in a banking institution like ZENITH BANK.
In a nutshell, the impact of ration analysis on management decision making which is the most preoccupation of this research work is referred to the manner through which the management of organization takes decision suitable for profit as possible, future planning, controlling current performance and future development through liquidity analysis, leverage analysis and activity analysis.
Significance change has taken place in recent years in the size and complexity of both private organization and public organization because of this management is faced with evaluation in technical, social political and economic forces. As a result, the methods of arriving at the decision as become more difficult to management especially in accounting activity of the organization.
This research is devoted to examination of some major impact of ratio analysis in financial institution (ZENITH BANK OF AFRICAN).
Zenith Bank was established in May, 1990. It became a Public Limited Company in July, 2004, and had an initial public offering on the Nigerian Stock Exchange (NSE) on October, 21 of that year. Also in 2004, credit rating agency fetch ratings identified its credit as AA on their long-term scale. The Bank has been in a series of controversies regarding its labour practices. The bank developed a penchant for mass terminations of staff employment without regard to due process. A series of court cases instigated against the bank by ex-employees adds credence to this view. In 2010, the Bank was defrauded of about N7.5Billion by a staff and was made to make provisions for it by Nigeria’s Reserve Bank.
Jim Ovia is the company’s pioneer Chief Executive Officer, Pter Amangbo is the Managing Director, Adaora Umeoji, Ebenezer Onyeagwu and Sola Oladipo are Executive Directors. Jim Ovia is Chairman of the Board. The company has a total of 3,911 employees in January, 2010 the Board of Directors of the Bank announced a change. The Board of Zenith Bank Plc announced the appointment of Peter Amangbo as Managing Director/Chief Executive Officer designate of the Zenith Bank.
2007: African Bank of the Year (Awarded by African Investor Magazine)
2007: Quoted Company of the Year (Awarded by Nigerian Stock Exchange)
2007: Socially Responsible Bank of the Year (Awarded by African Banker Magazine)
2005: Most Respected Bank in Nigeria (Awarded by Price water house Coopers)
2005: African Bank of the Year (Awarded by the Banker Magazine)
1.2 STATEMENT OF THE PROBLEM
The part of ratio analysis as a tool for decision making have the following area of concern. 75 ratio analysis useful in investment appraisal?
- Whether management relies on ration analysis for decision making?
- Do ration analysis really determine the wealth maximization of shareholder? Or
- It ratio analysis or management tool or technique use in determining the liquidity, stability profitability and efficiency of the organization?
- Whether ratio analysis can be used to ascertain the strength, weakness, opportunity and treat of the organization.
- Whether ration analysis can be used to determine the trend of development and performance of the organization over time.
At the time of chooses this topic the above was what the researcher have in mind and therefore pushes to fine out what is the need for ratio analysis in banking institution like ZENITH BANK PLC
1.3 OBJECTIVE OF THE STUDY
The primary objective of this researcher is to fine out how efficient and effectively does the management evaluate its financial position. Also the performance of the institution with regards to the financial analysis or ration analysis in making a quantitative judgment about the institution financial position and its achievement which include. It is further generalized as the following:
- The effective implementation of the traditional function of banking acceptance of deposit to find lending.
- Efficient financial resource mobilization without inflationary money supply expansion for economic development especially when external borrowing is viewed as a last resort.
- increasing sense of; commitment and identification with the institutional and it’s good by institution a design and activities of people and adopting a participating or democratic style of management
- Maintaining accountability of assets.
1.4 RESEARCH QUESTION
For the purpose of this study, the following question is raised to enable the researcher find possible solution to the identified problem if properly answered.
- How is the application of ratio analysis useful when it comes to decision making in the organization?
- In what way is the application of ratio analysis useful in evaluating the financial performance of the organization?
- How do interested parties in ZENITH BANK PLC apply and use ratio analysis in evaluating the bank before taking their decision?
- How is ratio analysis of importance when it comes to granting of loan and advances to customer?
- To what extent does ratio analysis help the chief executive of the back in decision making?
- How is ratio analysis of importance to the balance sheet of the bank
1.5 SIGNIFICANCE OF THE STUDY
The significance of impact of ratio analysis in financial institution cannot be over emphasized. It is therefore expected that, this research work is bound to be beneficial to the following;
- Management; most management decision are based on information from ratio analysis. Management planning is also supported by vital information from ratio analysis.
- Shareholders; for shareholders to deter mine their wealth maximization, they rely on information from ratio analysis such as stability ratio and leverage ratio.
- Potential investors; for potential investors to embark on investment in an organization, the need to know how reliable the organization is and for them to know or ascertain the viability of the organization is based on vital information from ration analysis.
- Employees; the interest of employees in the organization is on how their welfare can be improved. They are able to obtain information for the agitation for improvement on their welfare through ratio analysis such as profitability ratio.
- Students; it is expected that students mostly undergraduates stand to benefit from this research work because it will serve as a source of ratio analysis.
- Government; government also rely on information from ratio analysis in the assessment of the organization for tax purpose such as profitability and liquidity ratios