Ratio Analysis As A Tool For Performance Appraisal In Nigeria Financial Market (A Case Study Of First Bank Nig Plc)
In this research work the Ratio Analysis as a tool for performance appraisal in Nigeria financial market in commercial banks were looked into vividly and some likely tool were also examined.
To the end, First Bank of Nigeria Plc, Ilorin was selected as a case study giving fair representation to the various classes of Commercial Bank in Nigeria some staff were interviewed orally as to the ratio analysis to the financial market in Commercial Bank in Nigeria and particularly in First Bank Plc.
It was observed that the present high rate of analysis and the direct product of our societal setting respectively where wealth is glorified respective of the source.
Questionnaire were drafted to identify the major important that hampered efficient performance of ratio analysis in the course of their audit daily financial market.
Finding revealed that the lack of effective and efficient internal and external control system and a poor recruitment exercise form part of the factors inducing and finding incidence of appraisal in Nigeria financial market in commercial.
- Chapter one deals with introduction of the project. This introductory part which is in chapter one contain some basic element such as the back ground of the study objective of the study, plan of the study importance and benefits of the study which will given an insight or a guide to ward the research in the guest for answering the problem being investigated. The scope of study, plan of the study has based on the research and investigation being carried out.
- Chapter two contains all the following: Review of related literature nature and types of Ratio, role of ratio analysis and function of First Bank of Nigeria Plc, and the control that the topic of study has.
- Chapter three deals with the research methodology sources from which that data information are being collected, method and mode of collecting the data needed. Historical background of the case study, organization structure of first Bank Nigeria Plc, balance sheet item of commercial banks.
- Chapter four talks about the presentation and analysis of data, data analysis based on the journal presentation of response on the oral interview conducted.
- Chapter five is the last chapter that the study will have to limit itself this chapter comprises of some sub-heading like summary of whole study, the conclusion on the study, the recommendation that will be give to the First Bank of Niger Plc, Ilorin branch as a case study and the bibliography which will give the full details of material made use of, for the effectives and success of the project work.
Table of Content
- 1.1 Background of the study
- 1.2 Statement of the research problem
- 1.3 Justification for the study
- 1.4 Objective of the study
- 1.5 Research hypothesis
- 1.6 Scope of the study
- 1.7 Plan of the study
- 1.8 Limitation of the study
- 1.9 Definition of term
- 2.1 Theoretical framework
- 2.2 User of Financial Statement
- 2.3 Management of an organization
- 2.4 Performance evaluation
- 2.5 Management control system
- 2.6 Method of performance evaluation
- 2.7 Analysis and interpretation of financial statement
- 2.8 Definition and relevance of financial ratio
- 2.9 Classification of ratio analysis
- 3.1 Introduction
- 3.2 Types of Data
- 3.3 Population and sample size
- 3.4 Method of data collection
- 3.5 Method of data analysis
- 3.6 Brief History of First Bank of Nigeria Plc.
Presentation and Analysis
- 4.1 Socio – demographic characteristic of response
- 4.2 Presentation of Questionnaire response
- 4.3 Testing of hypothesis
- 4.4 Result and Analysis of Liquidity ratio
Summary, Conclusion and Recommendation
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendation
1.1 Background of the Study
The concept of business entity in accounting practices which defines business as a separate entity from the owner brings forth stewardship reporting and accountability in any organization. Mores, the going concern concept anticipates a continuous life a firm within a foreseeable future. That is why the ultimate determine of the remain perpetually.
Moreover, the aim or objective of financial manager is to provide meaningful financial information about business enterprises to the outside world and for internal control as well as the management in decision making. This financial information are presented in financial statement. They are means of conveying to the management interested outside a concise picture of the profitability and financial position of a business. They constitute a report of managerial performance attesting to the managerial success or failure and flashing warning signals of inpending difficulties. (Meigs and meigs 1979). So, financial statement is obviously important to enable the users that have a clear picture of the position of the organization. It reports the liquidity and solvency of the company and the claim of these resources i.e debt owned, the equity of the owner and presents cash present cash position of the company.
It comprises comparative balance sheet, profit and loss account, income statement, cash flow statement, auditors report and some other necessary information base on year’s assessment.
Despite the fixation of financial statement, many user often fail to comprehend fully the information it intended to pass across, thus their desire one not met. This is due to the ambiguity of the financial statement where by the where by the volume of the data and figure mislead the users. In this sense, the for analysis and interpretation of the statement are imperative.
Financial statement can be converted and interpreted using three techniques. These are
1. Vertical or Static Analysis:
It examines relationship within a statement. It deals with the relative percentage value of the statement.
2. Horizontal or Dynamic Analysis:
This involves comparison of financial statement in respect of two more years. A weakness of this analysis is that comparism with the past does not afford any basis for evaluation in absolute terms.
3. Ratio analysis:
Is a commonly used technique in analyzing financial statement and it involves these of two difference economic units to ascertain performance.
It is obviously paramount since it practically evaluate performance that is check how strong or weak a company is. Therefore its interpretations are easily understand by the users.
1.2 Statement Of the Problem
Financial Ratio Analysis is a widely used tool for assessing the performance of an enterprises.
Financially statement is prepared in terms of historical costs. They do not fully reflect economic resources and managerial skill, hence poor decision may be made. The users of financial information are carried away by the figures displayed in the financial statement observing the trends of the financial investment while over – looking the performance of management as assess whether their resources have out to effective use. The analytical comparism of a large information is a problem to the users (The management of the company and the external users. Investors, analyst, creditor government and public).
1.3 Justification for the Study
Ratio analysis, being what it is can be perceived the production of relations for internal and external financial reports are important to summarize key relationship and results in order to appraise financial performance.
In this assessment this research will be of immense value in recent knowledge of at the enterprises and managerial achievement. This research is very useful to user of account and financial information. It is also to supplement the existing of the user of financial ratio as guide towards deterring company’s achievement as well as to show how financial ratio analysis can identity the strength and weakness of a company.
The research work can also serve as a materials for students who are interested in the study of financial rations as a tools for performance appraise.
1.4 Objective of the Study
The study into financial ratio analysis as a tool for appraising performance is to assist the use of financial information make decision predict the future and monitor possible irregularities in managerial behaviours in business.
Thus the main objectives of study are:-
- To determine the strength, weakness and opportunities based on the firms financial statement or performance and the threats to the continued existence of the organization.
- To assess the extent to which ratio analysis serves as techniques aid in decision making by management. To find out the extent, which the management. To find out the extent, which the management of the has been able to run and control effectively and efficiently, the assets and owners equity between the period under review.
- To find out the extent to which the trends indicated ratio are useful for prediction of the future last to make recommendation to the company.
1.5 Research Hypothesis
Hypothesis is assumptions upon which the researcher bases his finding for a data collected. The hypothesis basically formatted to be tested.
Ho – Ratio analysis cannot serve as a tool for measuring managerial performance.
Hi – Ratio analysis can server as a tool for measuring managerial performance.
Ho – Ratio analysis can not serve as tool for measuring managerial performance.
Hi – Ratio analysis can serve as a tool for measuring profitability and efficient of a firm.
While chi-square is used to test validity of the hypothesis
1.6 Scope of the Study
This study has been limited to five years financial summarize of First Bank of Nigeria PLC. Profit and loss account the value added statement using ratio and adequate interpretation was analyzed.
The study is carried out based on the fact that account represents a true and fair view of the company’s affair and not misleading.
Moreover, financial ratio will be compared with that of previous years using common size of statement, treads analysis i.e reaction of the economic unit overtime of the firm horizontal analysis.
The period was choosing because of its available financial statement representing its operation within the period 2002 to 2006.
1.7 Plan of the Study
The research is written to examine financial ratio analysis as a tool for performance appraisal.
The study begins with chapter one that deals with background of the study statement of the problem justification of the study and definition of terms. Chapter two deal. With the literature review of the work of other author related to this research. Chapter three emphasizes on research methodology: type of data population and sample size, method of data collection, method of data analysis and brief history of First Bank of Nigeria Plc, Ilorin Chapter. Chapter Four embraces the data presentation and analysis testing of hypothesis result and analysis of liquidity ratio. Chapter five deals with summary, conclusion and recommendation
1.8 Limitation of the Study
In the cause of carrying out the research the following limitation are encumbered. The limitations of the study is majority the limited available and strick access to some data’s demanded by the research from the appropriate body in the organization as a result of high work schedule but however due to continuous patronage the data was later discharge. Another problem that serves as a limitation against the smooth conduct of this research work was the high cost of transportation and also strick assess to other schools library but with the help of financial support both from our parent and school authority, the stress or limitation was over come.
1.9 Definition of Terms
Is the ability to operate efficiently as well as an action or achievement consider in relation to it is Oxford Advance Dictionary.
Are the instrument panel of business enterprises and constitute a report on managerial performance arresting to managerial failure or success and flushing warming signal of impending difficulties (Meigs and Meigs 1979)
Is a simple mathematical expression of the relationship of one item to the other
A statement of financial position showing the nature and amount of company asset and liabilities and net worth of a particular company.
Is the excess of current asset over current liability of a business.
Movement in data revealed by statistical process.
Summary, Conclusion and Recommendation
This chapter deals with summary of the research findings obtained from data analysis. This is followed by conclusion and recommendation.
There is no doubt about ratio analysis being an important tool for measuring the financial strength and weakness of a firm.
The research findings also show that main objective of ratio is to discover causes, which have contributed there to financial ratio analysis also serve as indicator of firms efficiency and performance.
As a way of facilitating meaningful comparison an attempt to qualify the financial statement of First Bank of Nigeria through the use of method such as liquidity ratio, profitability and efficiency ratio and investment ratio analysis. The average liquidity ratio for five years under review is 2.02. greeting ratio was not computer because there was no long term debt per share. The profitability ratio was measures in relation to assets capital invest and sales. To further elucidate the analysis, the study was extended to operating cash flow under the investment ratios.
So far, it has been discovered that financial statement of a company enable an analysis to gain insight into its economic well bring with a clarity that can not be mattered by any other document or sources of information.
In the proceeding chapter the most important ratio had been discussed in respect of first Bank of Nigeria Plc. For the period between 2002 – 2006. What had been found has thrown some light on the performance of the company for the relevant period e.g it becomes clear that liquidity needs to be over heaved to facilitate its continuous efficiency. It was discovered that the average liquidity ratio is considered standard but the acceptable standard should be 2:1.
According to the results obtained from the analysis of these ratios for the five years under review the performance of the company would not be considered as totally being satisfactory. Some are not the financial ratio used in this study to evaluate the current and part financial position and the result of operation of the First Bank of Nigeria Plc, with the primary objective to determine the best possible estimated and production about the future consideration and performance.
However, the environment in which the company is operating can not be over viewed as it definitely has a great impact on the success of the company.
Some ratio cannot be calculated because concern. However, as have been earlier said what had been carried out in this study is that an intra – comparison of the company’s performance was analysis as a measure of effective performance was analysis as a measure of effective performance and a fair judgment of the state of affair of the business is the strategies pillars upon which the economy of any nation rests.
A chi-square statistical method was also used through the questionnaire distributed to respondents to test management performance and also profitability level of the company.
Having critically analysis the annual report and accounts of First Bank of Nigeria Plc, through computation of some useful ratio and chi-square method questionnaire some discoveries had been made which now bring about the following recommendations in order to improve the performance of the company. It adequate concern is paid to them.
- The liquidity ratio of the bank 2.02:1 which is considered relatively normally for the acceptable standard which is 2:1. The company should try and work on their liquidity ratio, at least not to fall and remain to an idea level of a ratio 2:1, in order to be able to meet their customer demand for cash any day time.
- The asset turnover ratio of the bank had been experiencing and increase overtime and it is very high in 2001 and 2002 respectively, which denotes efficient use of their asset the more because the asset turnover ratio is low in 2003 and can be better than what it is now, it only they will devise better technique of using asset efficiently.
- Return on capital employed ratio experience increase and decrease but later increase. The ratio being a better measure of portability the company should ensure that it always increase by devising better ways of managing their capital and investing their capital investment they have already appraised and discover it is worthwhile.
- The not profit margin is relatively low which might result from over spending on expenses. The company should watch their expenses analysis it and adhere from expending some funds that are necessary or there is no need for, so as to increase their net profit percentages which is averagely low.
- The bank should try and ensure stability in the amount set dividend per share it not an increase, so as to have more investors and not lose their shareholder because average investor will always be concerned about result i.e what accrues to than as income.
- There should be an increase in the price earnings ratio of the company, so that the shareholder may have confidence in the future earnings ratio of the company. Nothing the fact that there was a drastic decline in the price of earnings ratio in both 2002 and 2006.
- Finally, the management should always use ratio analysis for monitoring of the company performance and managerial profitability measures or performance because it is an effective mechanism for performance evaluation and appraisal.
Ratio Analysis As A Tool For Performance Appraisal In Nigeria Financial Market (A Case Study Of First Bank Nig Plc)
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