Accounting Ratio As A Measure Of Management Performance And Efficiency (A Case Study Of Coca – Cola Plc)

Accounting Ratio As A Measure Of Management Performance And Efficiency (A Case Study Of Coca – Cola Plc)

Chapter One

Introduction

RATIO analysis is a powerful tool of financial analysis.

According to Kennedy and macmillian , RATION is defied as the indicated quotient of two mathematical expressions” and as the relationship between two or more thing” in financial analysis a ration is used as an index or yardstick for evaluating the financial position and performance of a firm.

The compilation of trading, profit and of loss account and balance sheet represent the end product of a series transaction which have taken place over a particular period of time in order to make use of the information presented in all final account and the balance sheet, the user needs to analyze and interpret the meaning before making any conclusion. The accountant normally comments on final account and balance sheet either prepared by him or by other and interpret their significance doing so, he may find out that the accepted form of accounts and balance sheet are not easily followed by the lyman: therefore , he re- design the form so hat the figure becomes more intelligible to those with out expert knowledge in accounting. The first stage in the analysis is the development of a systematic review of the accounting data with the aid of accounting ratios, which shows the relationships of the result of the firm’s activities.

The interpretation of the final account and the balance sheet could there after be carried out using he accounting ratio so obtained from the result of the activities.

A ratio is meaningless unless interpreted against some standard. Two standard are used.

1. Trend analysis and
2. Comparative analysis

Trend analysis involves` the behaviours or ratio for a period of time, while comparative analysis requires the compassion of a ratio in a particular firm to another firm.

The ratio analysis involves comparism for a useful interpretation of the financial statement. a single ratio is itself does not indicate favorable on unfavourable condition. It should be compared with some standards.

1. Ratio calculated from past financial statement of the some firm.
2. Ratio of some selected firms specially the most progressive and successful at the point in time.
3. Ratio of the industry to which the firm belongs.

Ratio analysis in addition provide us the means by which we test the efficiency of various features of the business as presented by the financial account, it also or the performance of the organization between different. Years.

The performance of any organization can be measured form it income statement and balance sheet. Therefore, the accounting ratio uses the financial data from balance sheet and income statement to evaluate the company’s performances

Many question had been raised as to how to measure the managerial performance of a company from year to year, which is t he goal of financial manager to provide meaningful financial information about the business.

1.1 Purpose of the Study

The basic aim of this project is to facilitate the ratio behind various decisions that are taken in the business organization, in a difference situation at a point in time. The purpose of the study also is to find out how coca-cola plc, fared in the past two or three year in term of profitability, efficiency and effectiveness.

The study will also attempt a practical application of what the theory postulates in terms of performance evaluation.

This particular research aims at studying the use of accounting ratio as a measure of organization. It will also stress reasons why various business activities embark on by business organization have been uncreative for the continues existence of business.

1.2 The Scope and Limitation of the Study

This project will limit itself to an exhaustive analysis of the financial statement of coca-cola plc for a period of two to three years, using accounting ratios at tools from analysis.

This project will also show important business decisions a re taken because of adequate business information that is available.

Furthermore, this project will be limited to ratio analysis and the ratio that will be studied includes to following.

1. Profitability ratios
2. Liquidity ratios
3. Leverage ratios
4. Activity ratios

Accounting ratios through an efficient tool in measuring management performance and efficiency have some setback which would limit the extent to which users that is management can rely on it for weighing their performance limitation includes:

1. It is difficult to decide on the proper basis for comparison , because of differences in situation of two companies, or rendered difficult.
2. Price level change makes interpretation of ratio invalide.
3. Ratio calculated at a point in time may be less informative and defective as hey suffer from short term changes.
4. Definition of items in balance sheet and income statement differ, hence interpretation of ratio becomes difficult.
5. Ratio is generally calculated from post financial statement and this are no indication of the future.

1.3 Statement of the Problem

There are a lot problem faced in carrying out this research work out of which are:

1. Problem of transportation
2. Time
3. Finance
1. Transportation:

The road that leads to coca-cola Ilorin plant is not all that motorable. You either wait for hours before you get a car, or trek.

2. Time:

There is no enough time to go to other plant to obtain more is limited to Ilorin, plant only.

3. Finance:

Due to the problem of this country. There is no enough money to carry out this research work and to visit other plants, because money is the root and determination of every thing.

1.4 Significance of the Study

The topic of the project “ the use of accounting ratio as a measure of management performance and efficiency is a kind of study that can be available by used of financial statement especially the management , investor’s creditor and others,

If affords them to get a better insight about financial strength and weakness of the firm.

The following are he significant of accounting ratio.

1. It enables interested parties to know how profitable a business is.
2. The extent to which a firm has used its long term solvency by borrowing found can be ascertained.
3. The ability of firm to meet its current obligation can be measured.
4. The efficiency at which a firm is utilizing its various assets in generating sales revenue can be ascertained.
5. Communication is vital imparting knowledge with in and outside business organization. Ratio analysis plays a vital role informing the public of what has happened from one period to another.

1.5 Definition of Terms

To facilitate proper assimilation of this research work, the following information terms are explained briefly:

a. Accounting:

Deal with recording analysis describing and report the financial affairs of business corporations and other entity.

b. Efficiency:

In this study mean systems which consist of an action or process taken to gain certain aids or objectives.

c. Measure:

In this study means a system which consist objectives.

d. Management Performance:

In this study means how a business organization has excelled or achieve its objectives.

e. Accounting Ration:

A ratio is one number express inter s of another number to show the relationship between the two number.

1.6 Organization and Plan of the Study

This study has been divided into five chapters, chapter one deals with the introduction of the project work. Chapter two covers the literature review of relevant materials on accounting ratio. Chapter three deals with research method of the study, Chapter four contain data analysis, result and discuss and lastly, chapter five is the summary, conclusion and recommendation.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

Chapter one of the project deals with the introduction aims, scope and significance of the study. The next chapter is bas ed on literature review and the current state of knowledge on the subject matter was critically reviewed.
Further, examination of the project brought about various types of accounting ratio and the users for purpose this project also talked on the historical background of the study (coca-cola plc)

There are various ways of working accounting ratio almost all the ratio used for coca-cola plc are fluctuating, the company has been able to generate long term loan which has an adverse effect on leverage ratio finally, the objectives and important of this study has been able to achieve how the use of accounting ratio has help to measure management performance and efficiency .

5.2 Recommendations

Having gone through chapter two and chapter four the reader must have been made to understand what accounting ratio are all about. Also the reader must have known the various uses of financial statement and its significance.

We would therefore recommend that the company should identify effort on getting long term loan for its effective operation because it is very likely to run into problem if it has to be making use of short term credits.

Coca- cola plc must also increase the interest courage because the interest coverage ratio determines the willingness of the creditor.

Coca- cola plc must also increase the interest courage of the creditors to give is out short term loans. Effort should be made to stabilize the inventory turnover ratio since the company mainly relies on turnover for its obligation.
Most importantly, the company should endeavour it stabilized its profitability ratio because the ratio is paramount in the min d of management and outsiders, the ratios will increase the willingness of prospective investors.

5.3 Conclusion

In conclusion various accounting ratio has been analyzed they are.

1. Profitability Ratio
2. Liquidity Ratio
3. Leverage ratio
4. Activity Ratio

Each of these ratios has been treated with the analysis the importance of each of the ratio has been discussed in the study. Also the company has not been able to operated fine despite its huge profits, which should have been higher if the company is able to generate long term loan for its operation.

Accounting Ratio As A Measure Of Management Performance And Efficiency (A Case Study Of Coca – Cola Plc)

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