CHAPTER ONE
1.0INTRODUCTION
A
company’s financial statements are analyzed internally by management and
externally by investors and creditors.
Management analysis of financial statements primarily relates to
parts of the company which enables management to plan, evaluate, and control
operation within the company. Investors and creditors generally
focus their analysis of financial statements on the company as a whole, which
helps them decide whether to invest in or extend credit to the company.
As a minimum, financial statement will include a statement of source
and application of funds. Having been able to obtain a fair
knowledge of the legal aspects of preparing financial statements and having
worked examples through basic financial statements of a company, it is
reasonable to begin to think of the significance of the futures therein.
Corporate organizations owe a duty to fully
disclose matters concerning their operations so as to aid investors in making
investment decisions. Both large and small organizations in addition to
satisfying the legislating requirement tend to retain existing investors and to
attract potential ones through the publication of their financial statements
where the capital stock of a corporation is widely held and its affairs are of
interest to general public relations. The discussions and illustrations of the
study will be centered on the financial statement presented to shareholders and
also available for potential investors, bond holders and trade creditors as a
tool of information for investment decision. Financial statement based on
result on past activities are analyzed and interpreted as a basis for
predicting future rate of returns and assessment of risk.
Financial statement provides
important information for a wide variety of decision, investors draw
information from the statement of the firm in whose security they contemplate
investing. Decision makers who contemplate acquiring total or partial ownership
of an enterprise expect to secure returns on their investment such as dividends
and increase in the value of their investment [capital gain]. Both dividends
and increase in the value of shares of company depends on the future
profitability of the enterprise. So investors are interested in future
profitability. Past income dividend data are used to forecast returns from
dividend and increase in share prices.
1.1HISTORICAL
BACKGROUND
For the purpose of this research, first bank plc. Anyigba branch kogi
state is selected as a case study for academic purpose
According to google.com [electronic library] first bank of Nigerian
Plc. was
established in 1894 as the first bank in Nigeria, a premier in
West
African and the leading financial service solution provider in Nigeria. From
being the only bank for decades, weathered the banking exposure of the 1930,s
to 1950s followed by the era of government ownership and control to a flurry
consolidations and then gradual growth in number banks up to the early 1980s,
then yet another industry growth spurt in early 1990s when the banking sector
was deregulated, leading to an industry shake-up in the late 1990s, which
reduced the number of banks from 126 to 77. At later resuscitation and growth
to 89 banks leading al through the seasons, first bank plc has remained
resilient dependably dynamic and truly the first.
Based on the researchers’ oral interview with the bank officials, the
Anyigba branch of first bank plc. was established in the then kwara state in the
1978. They render other services than safe keeping of money like giving loan to
their customers and hire purchase. The branch presently has about 288
customers.
1.2STATEMENT
OF THE PROBLEM
It is observed that the Usefulness financial statements in assessing
performance companies guiding investment decisions in Nigeria has some problems
to both investors and managers of business organizations who are either not
aware of the importance of interdependence relationship that exist between
investors and business organizations. Such problems include;
i.
How analytical tools are set to aid prospective
investors in accessing the financial position of the corporate organization.
ii.
Evaluation of performance of a company in
investment decision making.
iii.
How to determine the profitability of a company.
The above listed problems are the problems to look into
in this research work. The problems analyzed tend to scare away both existing
and potential investors. The reason of this study is to adequately look into
the above problems and suggest possible solution to any of them. Nevertheless
this research will find possible key factors to solving these problems because
financial statement in investment decision making in Nigeria is the life blood
of every organization to the potential investor.
1.3OBJECTIVE
OF THE STUDY
The general objective is to ascertain the usefulness of financial
statements in assessing the performance of companies guiding investment
decisions
. The specific objective is as follows;
i.To examine how a set of analytical tools
will aid prospective investors in assessing the financial position of the
corporate organization. ii.To evaluate the performance of a company
for investment decision making.
iii.
To determine the profitability of the company.
iv.
To appraise the fundamental use of financial
statement information, this is to provide information for investment decision
making.
1.4
RESEARCH HYPOTHESE
Hypothesis according to the English dictionary is an
unproved theory, proposition sent forth as an explanation of something, often
as the basis for further investigation. Hypothesis is the guides for the
investigators in the entire process of research endeavor and they keep the
researcher on the main line of the study, in this research, the following
hypothesis are formulated for the study;
Ho; financial statements are
not used to be relied upon in investment decision making in a company.
H1; financial statement are
used to be relied upon in investment decision making in a company.
Ho; financial statements are
not useful for forecasting company’s performance.
H2; financial statements are
useful for forecasting company’s performance.
Ho; financial statement does
not determine the profitability of a company.
H3; financial statement
determines the profitability of a company.
Ho; financial statement does
not project new investors.
H4; new investors are
projected by financial statement.
1.4RESEARCH
QUESTIONS
According to Uzoagulu [1998; 96], research questions
guide the researcher in constructing the questionnaires. Therefore the
researcher raised the following research questions to guide her in constructing
her questionnaire which are instruments in the study. The questions are as
follows;
i.
To what extent is financial statements used in
the investment decision making in a company?
ii.
Are financial statements useful for forecasting
company’s performance? iii. Do
financial statements determine the profitability of an organization?
iv. Do financial statement projects new
investors?
1.6SIGNIFICANCE
OF THE STUDY
This study will be of immense benefit to banks by
improving the banking performance financial analysts, investors, companies and
financial organizations. This is because the study intends to help these
stockholders in decision making. The study will help in widening knowledge
financial statement in investment decision making, it will also make the
organization to appreciate the importance of sound financial statement in the
provision of information necessary for decision making. It will review the
improvement in the organization handling the financial statement and show
equally the ways through which improvement could be accomplished finally this
research will equally serve as a reference to students in this noble
institution and other school who may be interested to embark on a further
research study of this nature and above all, report of this study shall
definitely add to existing knowledge in research methodology.
1.7SCOPE
OF THE STUDY
This study will be limited to a geographical entity
known as Nigeria and specifically First bank plc. Anyigba branch, kogi state of
Nigeria.
1.8LIMITATION
OF THE STUDY
There are some limitations encountered by the researcher in the process
of this research which limited the scope to only first bank plc.
Anyigba
branch, some of the limitations are as follows;
i.
Uncooperative attitudes of the respondents; the
researcher could not get some necessary information from the respondents
because of their negative attitude in their response to the oral interview with
the bank officials and the questionnaires.
ii.
Time constraints; despite the time provided, it
was not still enough for the researcher to go all the relevant places like
banks and company etc to get relevant information and due to the combination of
project and academics work.
iii.
Financial constraints; financial constraints is
also another factor that limited the researcher to go to many branches of first
bank and even other banks and organizations. The researcher lacked finance for
transportation, electronic library etc. and as such was limited to only Anyigba
branch of first bank plc.