The researcher intends
to write on the topic “A study of the use of financial ratios for assessments
of the performance and profitability of a firm”.
Presently, most lending
bankers are faced with the problem of loan default as a result of in
appropriate study or appraisal of the financial statements of the borrowing
firm with the help of financial ratio analysis. Therefore, the proposed
objective of the study is to identify the various ratios, roles and problems
with the use of financial ratios in assessing the performance and profitability
of a borrowing firm
However, the researcher
also intends to source her data through the secondary means of data collection,
which implies the review of relate textbooks, journals, magazines, etc.
researcher intends to emphasis or limit her topic on the aspect of bank lending
in relation to the use of financial ratio analysis to assess the performance
and profitability of a borrowing firm.
respect to the plan for the review of relevant literature, the researcher
intends to elaborate more on the concept of financial ratios, various kinds of
financial ratios, their uses and importance, as well as limitations on their
uses or application.
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE
1.3 OBJECTIVE OF THE
1.4 SIGNIFICANCE OF THE
1.5 LIMITATION OF THE STUDY
1.6 DEFINITION OF
CHAPTER TWO: REVIEW
OR RELATED LITERATURE
2.1 THE CONCEPT OF FINANCIAL RATIO
2.2 THE GENERAL USES OF FINANCIAL
2.3 STANDARDS OF COMPARISON AND BASIC FINANCIAL
2.4 TYPES OF FINANCIAL
2.5 LIMITATION RATIO ANALYSIS
2.6 RATIO ANALYSIS AND THE LENDING BANKER
CHAPTER THREE: RESEARCH
3.1 SOURCE OF
3.2 LOCATION OF
3.3 METHOD OF DATA
1.1 BACKGROUND OF THE
The significance of
Financial ratios and its analysis can not be over emphasized. According to Iloh
(2001), a good financial planning for any functional organization has to be
related to the existing strength and weakness of such organization. In the
effort to discover the aforementioned factors, it becomes necessary to evaluate
the performance of such organization over a given period. Financial Ration
analysis is therefore one of the methods used in determining the level of
performance of an organization. It can be explained as the techniques of
reducing aggregate financial data into meaningful quotients, which are compared
to other existing financial data.
However, the researcher
has developed interest in this particular topic in order find out the impact of
financial ratio analysis, mostly to a lending banker. This is because, the
issue of credit extension is not an easy task and is of technical in nature,
one of the criteria for a successful lending is the review of the financial
statements of a borrowing firm. This is actually carried out with help of ratio
Furthermore, the analysis of such financial statements will enable
a lending banker to access the viability of such borrowing firm, in the area of
liquidity, profitability as well as the nature of its funding.
indept knowledge of the above concepts mentioned above through Financial Ratio
analysis, the lending banker will now be able to take appropriate decision on
either to accept or reject a given loan proposal or request.
1.2 STATEMENT OF THE
The occurance of loan
default is becoming so alarming in most Nigeria Banks. This has affected most
banks, specifically their capital adequacy, which invariably led to distress
According to Orjih (1996), manipulation of accounting records by
borrowers as well as inappropriate review and analysis of the financial
statements of the borrower are among the causes of loan default and bad debt.
That is, it creates room for the borrowers of fund to deviate from the terms of
payment or repayment of fund borrowed from the lending banker.
For several years, most
banks have experienced distress and failure statements. Therefore, the
researcher intends to financial out the necessary measure that could be adopted
in order to remedy this urgly situation. Therefore, the researcher intends to
find out the necessary measures that could be adopted in order to remedy this
1.3 PURPOSE/OBJECTIVE OF
The study of this
research work (the use of Financial ratios for the assessments of the
performance and profitability of a borrower by a lending banker) intends to
achieve the following objectives:
· To identify the various classes of financial
ratio as well as their importance
· To findout how these financial rations are used
to assess the performance and profitability of an organization.
· To find out the impact of financial ratio
analysis on a lending banker
· To identify the effect and incidence of poor or
inappropriate review and analysis of the financial statements of a borrower.
· To find out who benefits from ratio analysis
1.4 SIGNIFICANCE OF THE
This subsection is
associated with the usefulness of the study as well as who will benefit from
this research work. Hence, this research work is of great significant as it
deals with a study of the use of financial rations in assessing the performance
and profitability of a firm. That is, it helps to know how viable a company or
firm is. This research work will be beneficial to the following publics:
· The equity holder, it will enable them to assess
the ability of firm to pay dividend and avoid bankruptcy.
· Short term creditors, it will enable them to
assess the ability of firm to honour currently maturing financial obligations.
· Long term creditors, it will enable them to
evaluate annual interest rate operational efficiency and earnings power of a
firm over a period.
· The management, it will create room for internal
control and efficient asset management.
· The customer/client, it will enable them to know
the availability of product/service.
· Tax authority, it also creates room for tax
Finally, the lending bankers will see this research work as a
guide to its lending operations. The review of this work will help to increase
their knowledge on ratio analysis, which will help them to evaluate the
strength and weakness of a borrowing firm in order to decide accepting or
rejecting any given loan proposal.
1.6 DEFINITION OF TERMS
RATIO- A ratio is the
indicated quotient of two mathematical expressions.
FINANCIAL RATIO ANALAYSIS: This is one of the method used in
determining the level of performance of an organization.
PROFITABILITY: This implies the extent or level of profits,
which a firm realized over a period of time.
BANK LENDING: This is the extension of credits or funds to
deficit hands who need fund for business expansion and other purposes.
LIQUIDITY: Liquidity entail the ability of a firm to meet its
obligations as they become due.
BANK DISTRESS: A bank is declared distress when it is unable to
meet the bank examination rating system know as CAMEL, or when it is not able
to meet balance sheet test of having enough assets at market value to cover its
TERMS AND CONDITIONS APPLY
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