ABSTRACT
The use of financial statement in any business
organization cannot be over emphasized financial statements are needed by
variety of people for different purposes . for instance, the government
needs the financial books of a company for taxation purposes, the investors
want to know how profitable a company is and also the management of a company
will like to know the level of their performance: all these cannot be known without
the analysis of financial statements of the company or companies involved.
The research work therefore, studies the usefulness of financial statements in
assessing the performance of companies and in guiding investment decisions, in
order to provide investors, management, government and others what the company
is worth.
TABLE OF CONTENTS
CHAPTER ONE
1.0
Introduction
1.1
Statement of problem
1.2
objectives of study
1.3
significance of study
1.4
research questions
1.5
scope and limitations
1.6
formation of hypothesis
1.7
definition of terms
CHAPTER TWO
2.0
Review of related literature
2.1
Introduction
2.2
Basic concepts
2.3
Further assumptions and principles
2.4
Benefits of financial statement
CHAPTER THREE
3.0
Research design and methodology
3.1
Source of data
3.2
Questionnaire
3.3
Interview method
3.4
Sample design
3.5
Method of investigation
3.6
Statistical method for data analysis
CHAPTER FOUR
4.0
Presentation
4.1
Interpretation of data
4.2
Testing of hypothesis
CHAPTER FIVE
5.0
Summary, findings, conclusion
5.1
Recommendation
5.2
Bibliography
5.3
Appendix – Questionnaire
LIST OF TABLE
1.
Trading account
2.
cost of goods sold
3.
statement of changes in financial position of companies
4.
Profit and loss appropriation account schedule profit and loss account for the
year suded 31st Dec 1995 and 1996.
5.
analysis of result
6.
analysis of questionnaire respondents
7.
analysis of respondent department
8.
pie chart distribution of respondent department
9.
analysis of responses
10.
analysis of responses
11.
analysis of responses
12.
analysis of responses
13.
test of hypothesis
14.
test of hypothesis 11
15.
test of hypothesis 111
16.
Balance sheet as at 31st December, 199 and 1996.
CHAPTER ONE
INTRODUCTION
A financial statement is defined by accounting
standard committee (ASC) as a balance sheet, profit and loss accounts, and
statement of source and application of unds, notes and other statements, which
collectively are intended to give a true and fair view of the financial
position and profit or loss. Several companies incorporate fixed assets
valuations into their balance sheets, in which case the depreciation charge in
profit and loss is based on revalued amount. Some companies draw up their
financial statements on a current cost basis, but this is rare compared with
the use of historical cost or modified historical cost.
A financial statement is part of a company’s annual report, the purpose of
which is to communicate information about the company to those who have the
right to receive it for instance, the shareholders, in addition to investors,
potential investors and other users of financial statements.
It provides an indication of company’s trading performance and gives a snapshot
of aspects of its financial position at a particular date. At a minimum,
a financial statement consist is of accounting policy, balance sheet, profit
and loss portraying organizations and income and expenditure for non-trading
organizations, notes to the account, directors report, sources and application
of fund and value added statement. The analysis of financial statement or
an account is therefore the interpretation, amplification and translation of
facts and financial statements, the purpose is to draw relevant conclusions,
therefore, making of inferences as to business operations, financial positions
and future prospects.
The procedure involves.
a.
analysis of data contained in the financial statement into certain basic
component parts. For instance, in carrying out a profit analysis, the net
sales is a very important figure and other data in the account like cost of
goods sold, gross profit and cost of production are compared with this cove of
the income statements. Similarly, in balance sheet analysis, the cove
components are net assets which are usually compared with ones capital, loan
stock and working capital.
b.
Translation of those data into cheer and simple form. The translation
process may lead to extraction of ratios or percentages that establish
relationships between comparable data or even the presentation of graphs and
charts.
c.
Drawing relevant conclusions and making inferences concerning the company’s
financial position, stability, profitability and solvency.
d.
Presentation of information do obtained to management for decision
making. The information is used in the forward process for future
controls and policies. The application of this information will involve
the isolation of the factors responsible for the state of affairs which are
reveled by the analysis.
The analysis could be
horizontal or vertical internal or external horizontal analysis is a comparison
of data in financial statements of two or more consecutive accounting periods
to detect whether performance has improved or not. Example, the profit of
1994 of a company could be compared with that of 1995, 1996 with 1997 and after
which a trend may arise from the analysis. This analysis is internal as
it concerns financial data of one company alone. A vertical analysis as
external s it concerns financial data of one company and another. That
is, external when a comparative study of data between one company’s financial
statement and that of another over a given time.
It is wholly external
and involves a comparative analysis of data in financial statements with in a
single period.
By reference to a common
unit, data in the financial statements can be compared with one another to
determine efficiency of current performance for the purpose of the analysis,
certain figures in the accounts are expressed as a percentage of another
relevant figure. In carrying out an analysis of accounts, a number of
issues must be considered and conclusions formed therefore.
These include.
a.
profitability of the business operations, particularly in relation to capital
employed
b.
solvency of the company: the ability of the business to pay its creditors, the
adequacy of its working capital and the liquidity of its current assets viewed
side by side with the current liabilities.
c.
The business trends: the analysis of the pattern of business over time to
determine whether profit is rising or failing, and the implication for futon
performance.
d.
The financial stability of the company: paying particular attention to
company’s financial position, the limits of its borrowing powers, and available
resources to financial expansion and volume of earnings.
e.
The gearing and assessment of adequacy of profits to meet interest payments,
individual payments to shareholders and to provide sufficient safety to
shareholders investment.
1.1 STATEMENT
OF PROBLEM
This research work
intends to look into the extent to which investors to carryout, and rely on the
results of financial statements analysis before making their investment
decisions, and the employment by companies of financial statements analysis in
assessing their performance and that of their respective management.
1.2 OBJECTIVES
OF STUDY
a. To
find out whether investors carryout analysis of financial statements before
making investment decisions.
b.
To find out the extent to which investors rely on the result of their analysis
in selecting their investment options.
c.
To highlight the importance of financial statement, to the performance of
companies.
d.
To know the need for the preparation of financial statements by companies.
e.
To know the extent of usefulness of financial statements to investors.
1.3 SIGNIFICANCE
OF STUDY
It is know fact that he
who does not know where he is going will never know when he gets there.
Accounting is defined as the process of analysis, interpreting and communicating
of financial information to the users of financial statements. Thus, the
statement of affairs has to be interpreted vis-à-vis the financial statement
and analyzed to the cove to enable interested parties to understand the
business and know what it is up to and to guide management on how to take
decisions for the day to day activities of the business. If the financial
statement is not properly analyzed and interpreted, interested parties will be
mislead. This study is therefore intended to provide a guide to
interested parties, bankers, creditors and management of the company on how
best to present the statement of affairs of the company considered in the
study.
1.4 RESEARCH
QUESTIONS
i. Do
investors carryout analysis of financial statements before making investment
decisions
ii. To
what extent to investors verily on financial statements.
iii. To
what is the importance of financial statements to the company’s performance?
iv. Is
there any need for the preparation of financial statements?
v. To
what extent are financial statements useful to investors?
1.5 FORMULATION
OF HYPOTHESIS
(HO) Financial
statements do not show the financial state of the company
(H2)2 financial
statements show the financial state of company.
(HO)2 financial
statements are not tools of management decisions in the company.
(HO)3 financial
statements are not document of financial analysis of the company.
(HI)3 financial
statements are documents of financial analysis of the company.
(HO)4 it is not through
financial statements that outsides and insiders assess the health of the
company.
1.6 DEFINITION
OF TERMS
i. Financial
statements: they are means of communicating to intestate party’s
information on the resources, obligations and performances of the reporting
entity.
ii. S.A.S.
Statement of accounting standard states the standard on which financial
statements should be prepared.
iii. Balance
sheet: shows the assets, liabilities and proprietors interest at a point in
time.
iv. Profit
and loss account reports revenues, earrings or turnover and the expenses of an-enterprise
for a given accounting period.
v. Sources
and application of find: provides information on the deviation and utilization
of funds during the period covered.
vi. Notes
on the account: it usually forms an integral part of financial statements and
provides detailed or supplementary information in respect of items disclosed in
the balance sheet and the profit and loss account.
| Department | Banking and Finance |
| Project ID Code | BFN0153 |
| Chapters | 5 Chapters |
| No of Pages | 108 pages |
| Reference | YES |
| Format | Microsoft Word |
| Price | ₦4000, $15 |
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| Contact Us On | +2347043069458 |