Profitability As A Measure Of Organizational Performance (A Case Study Of Union Bank Of Africa Plc, Ilorin)
Table of Contents
- Title page
- Table of content
- 1.1 Background of the study
- 1.2 Statement of the problem
- 1.3 Objective of the study
- 1.4 Research Question
- 1.5 Significant of the study
- 1.6 Scope and Limitation of the study
- 1.7 Research Method
- 1.8 Definition of Terms
2.0 Literature Review
- 2.1 Literature Review
- 2.2 Need for Financial Analysis
- 2.2.1 Financial Ratio Analysis
- 2.2.2 Uses of Financial Ratio
- 2.3 Profitability Analysis
- 2.4 Types of Profitability Ratio
- 2.5 Uses of Standard in Ratio Analysis
- 2.6 Limitation of Financial Ratio
3.0 Research Methodology
- 3.1 Historical Background of United 42 Bank for Africa Plc
- 3.2 Mission and Vision of the Bank
- 3.3 Accounting Policies Operated by the Bank
- 3.4 Data Specification
- 3.5 Research Instrument
- 3.6 Techniques of Investment
- 3.7 Personal Interview
- 3.8 Data Analysis
- 3.9 Limitation of Methodology
4.0 Data Analysis and Presentation
- 4.1 Presentation and Analysis of Data
- 4.2 Summary of Financial Statement for the part five years of UBA Plc.
- 4.3 UBA Plc Trend Analysis Table
5.0 Summary of Finding, Recommendations and Conclusions
- 5.1 Summary of Finding
- 5.2 Recommendations
- 5.3 Conclusions
- 5.4 Appendix
- 5.5 Journals
- 5.6 Bibliography
1.1 Background of the Study
The extent of which corporate objective are achieved depends on the quantum and quality of resources as its disposal. We all know that resources are not only scare relative to the demand for them but also waiting assets. For example, plants become absolute, land loses it fertility, money get spends and executives (men) get old. The scenario implies that resources must be constantly aquired used efficiency and replaced” (Asien, 2000).
The fact that activities mentioned above cost money implies that the survival of the firm depends on the profit realized by it. Profit can therefore be defined as the excess of income over expenditure.
The definition of profit depends on the information needs of the company. If the underlying profitability of the business the objective review a company’s, result, then it is an operating profit. i.e gross profit less expenses.
According to Ellis (1993) says that “Financial reporting of profit provides a key measure of the performance outcome, associate with performance outcome associated with an organization strategy”. This means that before the performance of a business can be evaluated a proper profit measure approach must be operated by the organization. Therefore, the function of financial manager is to include profit planning.
The term profit planning refers to the operating decision in the area of pricing, costs, volumes of out pout and the firms selection of product brings. Profit planning is therefore a pre-requisite for optimizing investment and financing decisions (Mao and James 1969).
The major aim of establishing a business is to make profit unless adequate (net profit) are generated and used for
the replacement of resources, the firm will eventually be run down., profit analysis in business have the following advantages:-
- It helps to increase the equity control of shareholders through retained earning.
- It also helps to raise the loss absorptive capacity of the organization.
- The ability of the companies to pay its dividends depends on the size of its profits.
A company should earn profits to survive and grow other a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by management of company should be earned at maximizing profits, irrespective of social consequences. Although, profits is the ultimate output of a company, and it will have no future say if it fails to make sufficient for a firm and the reporting of its in the financial statement is not just sufficient but to show the weak and strength of a real accounting system that is in the usefulness of its application rather than information or data gathering processing aspect (Paul et al, 1972).
In this view, the financial manager, should, continuously evaluate the efficient of its company as to achieve its targeted goal i.e profits. Financial statement of companies are tools which produces a means through which this evaluation can be carried out. Meaning that financial statement should be used to examine the statement of success of the business over the period. Also willsmore (1971). Confirm this statement that management use financial statements as working tools with which to obtain the most effective results in the control of business affairs so as to ensure the adequacy of the over all result, in the profitability and financial strength of the business as whole “financial ratio are therefore employed as means of paper evaluation for the business.
1.2 Statement of the Problem
Organization is expected to keep records of their transaction over the year. Adequate and proper records should be kept in order to measure financial performance of the business.
Over the years, it has been realized that financial statement i.e the profit and loss account and balance sheet are not well prepared which as a result of liability of most organization to meet their financial obligation.
This may be as result of the following reason:
- Poor Management or managerial control over the business affair.
- Lack of proper and adequate recording and keeping of books account.
- Inefficient use of the firm’s financial assets over the years
- Window dressing at top management level of the organization.
- Change in according policies operated by the company.
- Changes in the general price level and increase economic fluctuation over the years.
The problem of this study is to determine how financial statement=s can serve as a better tool for measuring the performance of a business over the years, so that night decision can easily be taken by the users. It financial statements help in knowing how profitable business has been by various interested parties. For example shareholders, creditors, bank and customers.
1.3 Objectives of the Study
Companies are required to publish this annual account which is made up of the balance sheet, profit and loss account as users of financial statement are interested in the information’s provided in three types of information.
Information about past performance (used in assessing the success of the business and effectiveness of management), information about the present before investing find in the business and also information about the future in order to know which their wealth will be maximized.
The basis objectives of companies in line with the users are to ensure that the profitability of the company is increase given the competitive factors and also to ensure the sustenance of it impressive profitability.
Based in this fact the objectives of measuring the profitability of the bank include.
- To indicate the effectiveness with the management has employed both total assets and the net assets a recorded on the balance sheets.
- To indicate the bank performance and relation to the owners equity.
- To indicate the risk and opportunities for the company under review.
- To reflect the efficiency with which management provides each level of their source or product.
- To indicate management efficiency in administration and selling of the services or products of the bank.
1.4 Research Question
The research questions that were asked are:-
- How profitable is the company
- Is the profitability
- Are the profitability ratio of the company increasing or decreasing over time.
1.5 Significance of the Study
Considering the extent of reliance on the accuracy of financial statement and profitability of the company by potential investors, management, shareholder, debenture holder and inland revenue. The relevance of this study cannot be over emphasized as this research will serve as a tool in assessing the profitability.
1.6 Scope and Limitation of the Study
This study has examined the United Bank for Africa Plc, Summary of the financial statement for 2001, 2000m and 1999.
Based on this fact, the research work that was conducted was restricted to the summary of the last three years financial statements of the Banks.
The research was also affected or limited to the information made available to me by the bank. Therefore, information that was made available for this research is limited to what was given to me by the management of the bank.
1.7 Research Methodology
The research instruments used to gathered information have to two divisions.
- The primary source of data: Research instruments like personal interview with finance exports of the bank was made use of.
- Secondary data: This includes the consultation of relevant textbooks, journal and published animal reports of the banks. Analysis of data collected was based on the consumption of all relevant profitability ratios.
- Profitability in relation to sale
- Profitability in relation to investment.
After the consumption of all relevant profitability ratios for al the three years, the trend in its was studied so as to know whether is increasing or decreasing and at what rate is it changing. This analysis was done using a trend analysis technique of financial analysis.
1.8 Definition of Term
This is relationship between two or more figure.
ii. Trend Analysis:
This indicate the direction of change over a period of year.
iii. Balance Sheet:
This is the statement of the affairs of a company.
iv. Profit and Loss Accounts:
This is an account containing the summary of profit and loss, indicating the profits and losses that are made at the end of an accounting period.
v. Published Account:
It is an account containing the summary of the profit and loss account, cash flow statement value added statement and the balance sheet of a company.
This is the total annual income generated by a company.
There are company’s expenditure incurred in form of payment made.
Summary, Conclusion and Recommendation
The period covered by this study was indeed a very trying and difficult period for most banking industries in Nigeria. It was a closely, period wheel in some banks, they witness distress in their activities and they go liquidated. It was also a closely period when, most bank witness changes in their activities and service delivery which as a result of advancement in technology which spread rapidly to banking business. The rapid development and increase in the number of new generation bank also pose a great to the old banks.
Fork this bank to have been able to pass through those period it means the bank operation and source has been well done.
For the study, the entire necessary profitability ratio have been computed and analyzed. The study revealed that the bank House fairly better profitability position in 2008 but in 2009, the profitability of the bank was not encouraging. In 2008 the bank has seen to have improve on his operation and service delivery which was direct reflection of the reduced number of the bank employees and better pay to their workers stipulated in their annual account.
The way the bank have been able to use the resources of its owners and management of the profitability of its owners investment was revealed in return on investment and return on equity ratio.
These two ratio were favorable in both 2008 and 2009 which was depicted from its rising trend. But for 2007, the bank performs poorly in term of maximizing it owners wealth. The returns to shareholders were very poor and low.
The rise in the ordinary share is not proportionate is to what we have in the bank profit level as at 2009.
Considering the dividend per share ratio and the dividend yield ratio, this has been following on down ward trend except for the dividend payout ratio which shows an arbitrary figure in 2009 and this was due to the poor earning per share realized in the year.
The trend analysis carried out during this study has indicated the fact that most of the problem highlighted in this study is always noticed by the management of the bank and receiving attention.
I hereby to emphasize the need for the bank to try sustain consolidate and improve on their present performance and profitability level, in this, the, following points can be considered as necessary. There are:
- There should be proper, management and control of activities of the bank since proper management will lead the bank to achieve it vision, mission and goals.
- A strong internal control system should be built up by the bank. This will help to ensure accountability and responsibility, also help to eliminate or reduce any form of fraud and regulates that may want to link the bank operation in reducing their desired profit level. Because 2009 profit was reduced drastically ask a result if provision make for fraud on terms of exceptional item.
- The management of the bank should also try to improve on the efficiency and effectiveness with which they deliver their service.
- There should be efficient utilization of available resources which will consequently increased return to shareholder.
- The bank should also improve on their earning per share basis through proper management of their overview expenses and ending that in the future where they want to increase the level of their shareholding or new share, they should not do it at a high rate they cannot cope with.
The bank’s performance with in period covered by the study has been to some extent very encouraging. But the most aspect of this study is that, the management are prompt in responding to unfavorable performances.
This can be seen in their 2009 performance. The bank has been able to use up ward trend in 2008 with expectation of increasing upward in next year but unfavorable it got decreased in the coming year which is unfavorable to the bank’s trend in 2009. I hope this trend will continue so log the bank can make some little adjustment in areas they have been made above will also be of great assistance in this period.
From this study, all necessary profitability ratios have been computed and these have been able to assists in measuring the banks performance over the last four year.
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