CHAPTER ONE:
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Any successive management is constantly estimating the performance of her comparing it with the company’s historical figures, with its industry editors. And even with successful business from other industries. To complete a thorough’ examination of company is effectiveness, however, one need to look at more than just easily attainable numbers like sales, Profits and total assets. One must be able to read between the lines of financial statements and make the seemingly inconsequential numbers accessible and comprehensible. This massive data overload could seem staggering. Likely, there are many well-tested ratios out there that make the task a bit less daunting. Comparative analysis and evaluation helps us to identify and quantify company’s strengths and weakness, evaluate its financial position, and understand the risks one may be taking. As with any other form of analysis, comparative evaluation techniques aren’t definite and their results shouldn’t be viewed as gospel. Many of the balance-sheet factors can play a role in the success or failure of a company. But, when in concert with various other business evaluation processes comparative management and performance are invaluable. Mathematically, the word ratio implies the relationship of one Item to another otherwise; it can be defined as the relationships that exist between two or more variables whether dependent or independent.
The coefficient that is obtained by using one variable to divide the other variables precisely tells us the positional situation Analysis therefore, is the systematic productions from both internal and external financial reports so as to summarize key relationships and results in order to appraise financial performance. Analysis and the evaluation as a practical means of monitoring and informing performance is greatly enhanced when (a) Analysis and evaluation are prepared regularly arid on a consistent basis so that trends can be highlighted and the charges investigated. (b) The analysis prepared for an individual firm can .be compared with other firm in the same industry. This process is greatly facilitated when the firm has ready access to comparative ratios prepared in a standardized manner. (c) It prepared showing the inter-locking and inter-dependent nature of factors, which contribute to financial success. (Terry, 2003). Analysis in accounting is an important predictive tool of business performance and to be able to apply the model to any business concern. Answers should be provided to the following question which contribute the problems that the researcher attempts to solve. So as to reduce to the barest minimum, the variability in investment risk become the more certain and uncertain the growth and profitability of an organization are, the less risky is an investment in such organization.
1.2 STATEMENT OF PROBLEM
This research work examines the use of ratios as a predictive tool for management and performance in order to measure the growth and profitability if the company. But there is some dissatisfaction associated with the use of certain techniques. These include:
(1) Analysis and evaluation of management used in financial statement can be misleading to user such Information if not carefully interpreted.
(2) Financial information Analysis normally uses are adjusted for changes in the level of general prices, which can distort the analysis and interpretation.
(3) It was historical (initial data) and the question arises as to whether such data can provide for a relevant basis for making predictions.
(4) The act of analysis IS firstly, in selection of those ratios must appreciate under circumstance and subsequently in the Interpretation of the position which they reveal.