This study investigated financial ratio as a tool for measuring performance in an industry with specific focus on Nigerian Breweries Plc and Guiness Nigeria Plc. Six objectives were stated from chapter one and several literatures were reviewed in the second chapter. Informed by the six objectives stated, four hypotheses were formulated and tested at 5% level of significance. Secondary data were obtained from the annual reports of the selected companies spanning 2009-2014. Sample tables were used to present the data, while t-test of difference in means was employed to test the formulated hypotheses. Findings revealed that financial ratios can be used to access profitability of an industry and that the liquidity and gearing status of Nigerian Breweries Plc and Guiness Nigeria Plc are statistically the same. Based on those findings, it can be concluded that the liquidity, profitability, gearing and investment position of Nigerian Breweries Plc can stand a good test of time to keep the company alive and running. It was recommended inter alia that financial ratio figures should be investigated and compared with the values of previous periods and budgeted figure for the year so that changes can be discovered and a higher returns can be achieved in their present and future planned operations.




Title page        -           -           -           -           -           -           -           -                                   i

Certification    -           -           -           -           -           -           -           -                                   ii

Dedication      -           -           -           -           -           -           -           -                                   iii

Acknowledgment       -           -           -           -           -           -           -                                   iv

Abstract          -           -           -           -           -           -           -           -                                   v

Table of Contents Abstract     -           -           -           -           -           -           -           -           vi




1.1       Background to the study        -           -           -           -           -           -           -           1

1.2       Statement of the problem       -           -           -           -           -           -           -           3

1.3       Aim and objectives of the study         -           -           -           -           -           -           4

1.4       Research questions      -           -           -           -           -           -           -           -           4

1.5       Research hypothesis    -           -           -           -           -           -           -           -           5

1.6       Significance of the study        -           -           -           -           -           -           -           6

1.7       Scope of the study      -           -           -           -           -           -           -           -           6

1.8       Definition of operational terms           -           -           -           -           -           -           7

            References -    -           -           -           -           -           -           -           -           -           9         


2.1       Preamble         -           -           -           -           -           -           -           -           -           10

2.1.1    Historical background of Nigerian Breweries Plc      -           -           -           -           10

2.1.2    Sources of finance to Nigerian Breweries Plc -           -           -           -           11

2.2       Conceptual framework           -           -           -           -           -           -           -           12

2.2.1    Concepts of Financial Ratio Analysis             -           -           -           -           -           12

2.2.2    Criteria for measuring performance                -           -           -           -           -           13

2.2.3    Relevance of accounting information to financial analysis    -           -           -           14

2.2.4    Statement of financial position           -           -           -           -           -           -           15

2.2.5    Income statement        -           -           -           -           -           -           -           -           16

2.2.6    Users of financial analysis      -           -           -           -           -           -           -           15

2.2.7    Types of Financial Ratio Analysis      -           -           -           -           -           -           18

2.2.8    Relevance of financial ratio and interpretation to performance evaluation    -           25

2.2.9    Limitations of Financial Ratio Analysis         -           -           -           -           -           26

2.3       Summary         -           -           -           -           -           -           -           -           -           27

            References -    -           -           -           -           -           -           -           -           -           28


3.1       Preamble         -           -           -           -           -           -           -           -           -           31

3.2       Research design          -           -           -           -           -           -           -           -           31

3.3       Restatement of research hypotheses and research questions  -           -           -           31

3.3.1    Restatement of research hypotheses   -           -           -           -           -           -           32

3.3.2    Restatement of research questions      -           -           -           -           -           -           33

3.4       Population of the study          -           -           -           -           -           -           -           33

3.5       Sampling, procedure and sample size -           -           -           -           -           -           33

3.6       Data collection instrument and validation      -           -           -           -           -           33

3.7       Methods of data analysis        -           -           -           -           -           -           -           34

3.8       Definition of variable  -           -           -           -           -           -           -           -           34

3.9       Limitations of the methodology         -           -           -           -           -           -           35

            References -    -           -           -           -           -           -           -           -           -           36


4.1       Preamble         -           -           -           -           -           -           -           -           -           37

4.2       Data presentation        -           -           -           -           -           -           -           -           38

4.3       Descriptive statistics   -           -           -           -           -           -           -           -           41

4.4       Test of hypotheses      -           -           -           -           -           -           -           -           43

4.5       Discussion of findings            -           -           -           -           -           -           -           48



5.1       Summary         -           -           -           -           -           -           -           -           -           50

5.2       Summary of findings  -           -           -           -           -           -           -           -           51

5.3       Conclusion      -           -           -           -           -           -           -           -           -           51

5.4       Recommendation        -           -           -           -           -           -           -           -           53

5.5       Suggestion for further studies -           -           -           -           -           -           -           54

Bibliography   -           -           -           -           -           -           -           -           -           56





1.1       Background to the Study

Financial management connotes responsibility for obtaining and effectively utilization of funds necessary for the efficient operation for an enterprise. Financial management is contemporary time, is a managerial activity which concerns itself with the acquisition, planning and control of corporate financial resources'. Panday (2000). Lately, financial management activities has received tremendous emphasis in business management, this is due to the fact that corporate finance cannot be jeopardized. In effect, financial managers are tested effectively and use same efficiently to meet the set goals and objectives of the company on one hand, the other hand, to ensure planning performance. All the aims and objectives of the company are focused towards solvency, i.e. promotion of owners' wealth while ensuring profitability and continuity, on the other hand, to encourage creditors through payment of their interest and the redemption of the principal as when due, where it is redeemable.

In the bid to meet up with objectives of the company and to ensure brilliant performance, the entire functions of the firm must be harnessed of these objectives, the finance function is very important, it therefore covers all functions concerned in attempting to ensure that financial resources are obtained and utilized in the most effective way to secure attainment of the objectives of the organization, some vital decision has to be taken with respect to what investments to undertake, how to finance them considering the Weighted Average Cost of Capital(WACC) and earnings reinvested. What should be the dividend policy? How are debts to be repaid without adverse impacts on the going concern? All these are sufficiently answered by the function of finance in the organization, year in, year out to ensure good performance. When tasks in the preceding paragraph are accomplished, the need arises that the shareholders, creditors and other stakeholders are feedback by the overall management of the company. This feedback is prepared by the accounting sub-function to intimate all and sundry of the affairs of the company. The financial accounting information is useful even to the management for effective management as a guide post for management and not only them but owners(shareholders), creditors, potential investors, trade unions, employees, customers, government agencies; to facilitate assessment and evaluation of corporate performance. This was the essential reason why government, through the Corporate Affairs Commission (CAC), mandated every registered company to publish the statement of accounts (Annual reports). These must contain among other things, the statement and even the statement of financial position.

These are to be presented at the Annual General Meeting (AGM). This rule operators at a considerate level for private companies as specified in the Companies and Allied Matters Act (CAMA) 1990 sections 334 and 351.c

To a layman, the published account gives sufficient information about corporate existence; this assumption evolved overtime and gained recognition since it is known that the financial statement summarizes the economic situation. This information if accepted on the face value, can amount to gross misconception of the general performance evaluation. Better means can be introduced to reach performance measurement, if attention is converged and a thorough examination of the figures published in the financial statement is done. This exploit is done through expressing these figures in terms of the ratios to ascertain their relationship and analyzing the results ratios as comparative figures with respect to acceptable indices. It helps to study changes, experience overtime, to understand if there had been improvement or otherwise recovered in the performance of a company in the study period and why. Ratio analysis has been proven efficiencies in the measurement of corporate performance. This is not to say that other schemes do not exist. Such other schemes are: Trend Analysis, Multi Discriminate Analysis (MDA), Z' score Analysis, Zeta Analysis etc, though they exist and are in .use, there are somewhat extensions of the financial statement of Nigerian Brewery Plc for four (6) years and sampling other information as it is deemed necessary, through this information, test the efficiency of financial ratio analysis in measuring performance the range of awareness of company's management and other stakeholders to the use of ratios.

1.2        Statement of the Problem

Financial information is of immense importance in one way or the other to the corporate body and all its affiliates as mentioned above, i.e. owners, creditors, potential investors, Corporate Affairs Commission (CAC) and other government agencies.

Although ratios are widely used to evaluate the financial position and performance of business but they should be applied with great caution because they have same problems. Since financial ratios are calculated from accounting data, which are subjected to different interpretations and even manipulations, two independent firms may use different depreciation method or inventory valuation methods and depending on the procedures followed, reported profits can either be raised or lowered. Reported profits of companies actually operate a number of different divisions in quite different industries, thereby making it difficult to develop meaningful set of industry averages for comparison purpose. Even for those companies operating in one industry, it is difficult to decide on a proper basis for comparison. Ratios of a company have meaning only when they are compared with some standards. Also interpretation and comparison of ratios are rendered invalid by the changing value of money. In fact, prices change over the years and as a result, assets acquired at different dates will be expressed at different in the Statement of Financial Position. This makes comparison meaningless. The ratios calculated at a point in time are less informative and effected as they suffer short term changes.

1.3 Aim and Objectives of the Study

The aim and objectives of the study are to use financial ratio analysis as a tool for measuring performance in an industry with reference to Nigerian Breweries Plc, Iganmu, Lagos. Thus the study seeks to achieve the following:

i.          To expose the efficiency of financial ratio analysis as a tool for measuring performance.

ii.         To determine the company's ability to meet its current obligations.

iii.    To determine the extents to which the company has used its long term solvency by    borrowing funds,

iv.     To access the efficiency with which the company is utilizing its various assets in generating sales revenue.

v.      To show how financial ratio analysis can be harnessed by using it in conjunction with other models,

vi.      To ascertain the overall operating efficiency and performance of the company.

1.4       Research Questions

As part of the assurance to be derived that the aim and objectives of the project topic Financial ratio analysis as a tool for measuring performance in an industry' like Nigerian Breweries Plc and other competitors in the brewing industry like Guinness Nigeria Plc are achieved, there are certain questions to be raised in the course of doing the research work.

Such research questions include; is there any significant difference between the Liquidity of Nigerian Breweries Plc and its competitors? Is there any significant difference between the Profitability of Nigerian Breweries Plc and its competitors? Is there any significant difference between the Gearing of Nigerian Breweries Plc and its competitors? These are few of the questions to be asked in trying to achieve the aims and objectives of the research project.

1.5        Research Hypotheses

Financial Analysis emanated as a result of the research for better ways by which performance could be measured. To study this very well, the following research hypothesis have been formulated.

1.         H0:      There is no significant difference between the liquidity of Nigerian

Breweries Plc and Guinness Nigeria Plc.

H1:      There significant difference between the liquidity of Nigerian Breweries Plc and Guinness Nigeria Plc.

2          H0:      There is no significant difference between the profitability of Nigerian

Breweries Plc and Guinness Nigeria Plc.

Hi:       There is significant difference between the profitability of Nigerian Breweries Plc and Guinness Nigeria Plc.

3.         H0:      There is no significant difference between the gearing of Nigerian

Breweries Plc and Guinness Nigeria Plc.

H1:      There is significant difference between the gearing of Nigerian Breweries Plc and Guinness Nigeria Plc.

4.         H0:      There is no significant difference in the investment performance position of

Nigerian Breweries and Guinness Nigeria Plc

H1:      There is a significant difference in the Investment performance position of Nigerian Breweries and Guinness Nigeria Plc



1.6       Significance of the Study

This research work at its successful completion shall be of at significance in the following ways:

i.                    Owners- it will help the shareholders to access what they have, the potent of growth in what they have possibilities of profits and dividends, and most importantly the continuity of the business I n which they have invested.

ii.                  Creditors- it will help them to evaluate the extent to which their loans are secured and how certain it is, that the interest accruing on their loan will be paid. It shows that general level of risk to which they are exposed.

iii.        Potential investors- this research will help potential investors to best access the

organization. Accessing the present value and growth potentials in the stock of the


iv.        Government agencies- this research will put government and its agents in a better position to evaluate the solvency of the company and act accordingly. This could be in the direction of the tax administration, excise duties, allowances and subsidies.

v.         Business management- it will help managers, in all the functions of the company, particularly within the finance function to measure the performance of the entire company, once in a while to ensure consistent progress in its affairs.

vi.        Academicians- this research work will serve as a reference point and aid those that want to research further.

vii.       Others- in one way or the other, this research will be of immense advantage to such other groups as trade unions, employees, customers, general public etc.

1.7        Scope of the Study

This research work is conducted within the legal framework called 'Company' i.e. registered according to the requirements of Corporate Affairs Commission (CAC) and in conformity with the Companies and Allied Matters Act (CAMA) 1990 and other related laws in the country. This research is converged to the particular study and analysis of the data (Financial statement) and other information of the Nigerian Breweries Plc. These are assumed to sufficiently represent the same or similar statute.

This research will mainly involve the comparison of result analysis of responses as it will be seen in subsequent chapters.

1.8.      Definition of Operational Terms

1.         Financial Statement- This is the annual statement summarizing a company's activities over the last years. They consist of the statement of comprehensive accounts and other incomes, statement of financial position, statement of the total recognized gains and losses, and if required the cash flow statement together with supporting notes.

2.    Financial Ratio- A ratio calculated from two or more figures taken from the financial statement of a company in order to provide an indication of the financial performance and position of that company.

3.    Dividend-This is the distribution of the part of the earnings of a company to all its

shareholders. This dividend is normally expressed as an amount per share on the per value of the share.

4.         Liquidity- The state of processing cash or cash equivalent, having investment or land assets easily convertible to cash. The ability of a company to meet short term corporate responsibility and liabilities as they fall due.

5.         Shareholders Equity-The share capital and reserve of a company contributed by the numbers or owners of the company.

6.         Total Deposits- This is the total amount of money left with an organization, such as a bank for safekeeping or to earn interest, or with a broker, dealer etc as a security to cover any trading losses incurred.

7.         Total Assets/ Investment- This refers to the total statement of financial position figure of an organization comprising of cash and short-term funds, bills, investment etc.

8.         Gross Earnings- This is the earning available to an organization before interest is paid out.

















Akinsulire, O. (2011), Financial Management, Lagos, Ceemol Nig Ltd.

Birds, P. (1979), Understanding Companies Accounts

Carleton, W.T. (1986), A Theory of Financial Analysis, London, Harcourt, Brace and World.

Companies and Allied Matters Act (CAMA) as amended 2004.

Guiness Nigeria Plc, 2009-2014 Annual Reports.

Hornby, A.S. (2001), Oxford Advanced Learner’s Dictionary of Current English (6th Edition), Oxford, Oxford University Press.

Igben, R.O. (2009), Financial Accounting Made Simple (FAMS Vol. 2), Lagos, ROI Publishers.


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