THE IMPACT OF FINANCIAL ANALYSIS ON THE EVALUATION OF CORPORATE PERFORMANCE (A CASE STUDY OF CORNER STONE NIGERIA LTD.)


Content

 

 

ABSTRACT

Financial analysis is the summarizing of large quantities of financial data for the purpose of evaluation and corporation of performance of a company over time. It is more or less the process of reducing a large amount of historical financial data taken from financial accounting statement to a smaller set of information more useful for decision making. Thus analysis is usual for decision making. Thus analysis is usually done through the use of .accounting ratio otherwise known as financial ratio.

 

American institute of certified public accountants defines accountings as an act of recording, classifying and summarizing in a signification manner and in terms of money transaction event which are in part at least of financial characters and interpreting the result thereof. Every firm communicates financial information and other interested parties through his financial statements and reports presented as annual reports.

 

Financial statement however, shows the financial position of he firm at a particular point in time. It shows funds invested in the firm have been utilized. There are various parties that are interested in the performance of the firm such as shareholders, debenture holders, investors, bank managers, financial journalist creditors, professional advisers, government, other competitors and finally the public at large. Ratio ion the hand is the relationship that one open bears to another the letter is known as the lease and is divided by the former. Financial ratio provide a means by which various items in the final account are related to an appropriate base usually the sales or the capital of a business. Analysis of ratio disclose relationship as well as a basis for comparison which reveal conditions and trends that cannot be detected by inspections of the individual components of the ratio and if they are properly interpreted point the way to areas requiring further investigation and enquiries.

 

The management having the risk of running of business efficiently weigh to compare there performance over the past year with selected markets and profitability objectives and with the performance over the past year with the performance with the competitors. Basically, existing and the future of shareholders will be interested in investment ratio which indicate the level of return that can be expected on an investment in the business.

 

These investment wish to predict future dividends and charge in the market prices of the company’s common stock. Since charges in both dividends and prices are likely to be influenced by earnings, investors may seek to predict earnings.

 

Banks or financial institutions are also interested in the solving of a firm (i.e Ability to pay its debts). Short-term solvency is affected by the liquidity of the company, which is the company’s risk of processing liquid assets such as cash and other assts that will soon be converted to cash. Since short-term debt must be paid within the stipulated short-time, liquid assets available for their payment.

 

Long-term creditors are interested in a company’s long-term solvency, which is usually determined by the relationship of a company’s and liabilities.

Generally, a company is considered solvent which its assets exceed its liabilities so that the company has a positive stockholders equity. The larger the assets are in relation to the liabilities, the greater the long term solvency of the company ratio analysis techniques help compare and interprets significance features in financial statements. It is on the basis of the analysis that those interested in the financial statement can get better insight about a firm’s strength and weakness.

 


TABLE OF CONTENT

Page

Title Page

Certification                                                                                     i

Dedication                                                                              ii       

Acknowledgement                                                                           iii

Abstract                                                                                           iv

Table of Content                                                                     vii

 

CHAPTER ONE

Background of the study

1.1    Introduction                                                                           1

1.2    Statement of Problem                                                            4

1.3    Research Question                                                                5

1.4    Working hypothesis                                                               6

1.5    Purpose of Study                                                                   6

1.6    Significance of Study                                                             7

1.7    Research Methodology                                                          7

1.8    Limitation and Scope of Study                                              8

1.9    Brief history of the Selected Form  Corner stone

Nigeria limited                                                                        8

1.10  Definition of Terms                                                                10

 

CHAPTER TWO

2.0    Literature Review                                                                   11

2.1    Financial Analysis                                                                  11

2.2    Basic Financial Statement                                                     11

2.3    Financial Ratios                                                                     14

2.4    Interpreting Ratio                                                                   31

2.5    Standard of Comparison                                                       32  

2.6    Uses of financial ratios                                                 32    

References                                                                    36

 

CHAPTER THREE

3.1    Research Methodology                                                          37

3.2    Data Collection Method                                                         37

3.3    Identification of Population                                                   38

3.4    Determination of Simple Size                                                38

3.5    Questionnaire Design                                                            39

3.6       Questionnaire Assumption                                                   39

3.7       Reliability                                                                                40

3.8    Validity Test                                                                            42

3.9    Limitation of the Methodology                                               44

 

CHAPTER FOUR

4.0    Data analysis and interpretation of Hypothesis                  45

4.1    Return of Questionnaires                                                      46

4.2    Analysis of Questionnaire Response                                    46

4.3    Testing of Hypothesis                                                             54    

 

CHAPTER FIVE

5.0    Summary, Conclusion And Recommendation                     63

5.1    Summary                                                                                63

5.2    Conclusion                                                                             64

5.3    Recommendation                                                                   65

5.4    Suggestion for Further Studies                                             66

References

 

     

CHAPTER ONE

BACKGROUND OF THE STUDY

1.1    INTRODUCTION:

Financial analysis is the summarizing of large quantities titles of financial data for the purchase of evaluation and corporation of performance of a company over time.

 

It is more or less the process of reducing a large amount of historical financial data taken from financial accounting statement to a smaller set of information more useful for decision making. Thus analysis is usually done through the use of accounting ratio otherwise known as financial ratios.

 

American institute of certified public accountants defines accounting as an act of recording, classifying and summarizing in a significant manner and in terms, of money transaction, event which are in part at least of financial characters and interpreting the result therefore. Every firm communicates financial information and operating performances to shareholders and other interested parties through the financial statement and reports presented as annual reports.

Financial statement however, shows the financial position of the firm at a particular point in time. It shows funds invested in the firm have been utilized. There are various parties that are interested in the performance of the firm such as shareholders, debenture holders, creditors, investors, bank managers, financial journalist, professional advisers, government, other competitors and finally the public at large. Ratio on the other hand is the relationship that one open bears to another, the letter is known as the base and is divided by the former. financial ratio provide a mean by which various items in the final account are related to an appropriate base usually the sales or the capital of a business. Analysis of ratio can disclose relationship as well as a basis for comparison which reveal condition and trends that cannot be detected by inspections of the individual of the ratio and if they are properly interpreted, point the way to areas requiring further investigation and enquires.

 

The management having the risk of running of a business efficiently will be interested in all ratios managers naturally wish to compare their performance over the past year will selected market and profitability objectives and with the performance over the past years with the performance with the competitors. Basically, existing and the future shareholder will be interested in investment ratios which indicated the level of return that can be excepted on an investment in the business these investors wish to predict future dividends and charges in the market price of the company’s common stock. Since charges in both dividends and price are likely to be influence by earnings, investors may seek to predict earning.

 

Banks or financial institutions are also interested in the solving of a firm (i.e. ability to pay its debts) short- term solvency is affected by the liquidity of the company which is the company’s risk of processing liquid assets such as cash and other assets that will soon be converted to cash. Since short-term debt must be paid with in the stipulated short time, liquid asset available for their payment. Long term creditors are interested in a company’s long-term slovenly which is usually determined by the relationship of a company’s assets to its liabilities. Generally, a company is considered solvent which its assets exceed its liabilities so that the company has a positive stock holders equity. The larger the assets are in relations to the liabilities, the greater the long term solvency of the company ratio analysis technique help compare and interprets significant features in financial statements.

 

It is on the basic of the analysis that those interested in the financial statement can get better insight about a firm strength and weakness.

 

 

1.2                       STATEMENT OF PROBLEMS

The inexperience use of financial ratio can cause a great damage. Ratios analysis requires considerable judgement and discretion by the analyst if it is to serve as a basis for future analysis and application of rules of thumb and other mechanical interpretations may produce disastrous decisions by those who are ill informed about the ambiguity of information that may be contained in ratio. This study there fore intends to find out.

-        The right use and application of financial analysis.

-        The importance of financial analysis to performance evaluation.

-        The important of financial analysis to users of financial statements.

-        The extent of reliance on financial analysis. 

 

1.3                       RESEARCH QUESTIONS.

Considering the problems and purpose of this study, the following research questions were asked.

-        Does financial analysis provide for management control?

-       In your opinion do you think that non- adjustment of financial data used in ratio analysis can distort the analysis?

-        Does the excess of total current asset over total current liabilities indicates healthy position of the company?

-        Does difference in accounting policies employed by different companies lessen the reliability of results of comparison of the difference companies and can therefore be misleading?

-        In your opinion do you think that liquid ratios measure the ability of a firm to meet his obligation as they fall due and illiquid as factors of a company not to meet its obligations?

-        Does your company encounter any difficulty in computing ratio?

                          

 

 

 

 

 

                                               

1.4                       WORKING HYPOTHESIS

Working hypothesis is the tentative statement to be total during the course of this project. Statement when tested can either be true or false.

This will lead to the decision to be taken.

The working hypothesis is.

-        That financial analysis is an important tool through which the strength and weakness of a corporate entity can be measured.

-        That financial analysis helps an organization in analyzing its financial position.  

-        That the reliability of ratio analysis depends on the adjustments of financial reports.

-        That the difference in according to policies employed by different companies lessen, the reliability of results of comparison of two different companies.

 

1.5           PURPOSE OF STUDY

The study is directed towards the importance of financial analysis as a tool of evaluating corporate performance. To achieve this, attention is paid to the following.

-        To identify the different type of financial ratio.

-        To identify the basic financial statement on which financial ratio are applied.

-        The interpretation of financial ratios.

-        To identify the various statement of corporation.

-        The use of financial ratios.

-        The limitation of ratio analysis.

 

 

1.6       SIGNIFICANCE OF STUDY

Basically this study will expatiate and in greater details, the benefit that can be derived from the applications of financial analysis as a tool for performance measurement. It will help to highlight various areas of interest which include profitability trend and slope for improvement. Solvency, ownership and control financial strength, borrowing potential, gearing and interest cover, divided area. It will help the organisation in measuring.    

  

1.7       RESEARCH METHODOLOGY.

Both secondary and primary data are used for the study. The sources of secondary dates used include past write- up on the research topic, annual report of the company, official documents, journals, school / class notes, library and relevant textbooks. Primary data obtained for the study was through the distribution of questionnaires filled by member of staff of the company under reviewed.

 

1.8             LIMITATION AND SCOPE OF STUDY

Basically, these are diversification in corporate organisations but my study deals mainly with the application of financial ratio for measuring corporate performances. My computation is solidly on financial statements of the company under reviewed. The major limitation envisaged to be encountered during the cause of the study is difficulty in securing information, including the annual report of the company.

Furthermore, the problem of time shortage cannot be over looked. This has made me limit my study to only one company, however, effort shall be made to explore all the necessary units within the department in-order to improve on previous works.

 

1.9    BRIEF HISTORY OF THE SELECTED FIRM CORNER STONE NIGERIA LIMITED.

Corner stone Nigeria limited, commenced operation as a commercial company in 1990, having being established by RICHARDS AND SONS which had majority shareholding and other private and institutional investors. Providence sometimes affords a means the privilege of a new beginning. The new millennium brought such new dawn for Corner Stone Nigeria Limited manifesting in ownership, fresh management, revitalized work tone, enhanced capital, new focus, stronger capabilities and a new culture. It is a redefined moment that is financially mentally reshaping the destiny of the company.

After a decade of very difficult existence as a corporate entity. Corner Stone Nigeria Limited. Investment significant change in ownership due to the fore-sight of RICHARDS AND SONS, the former majority shareholders. Associate Discount House limited (ADHL) owned by a group of successful banks, including the pensioners of U.A.C Nigeria plc. Acquired 62.44% of the company shares. The acquisition ushered in a new era of confidence and professionalism as well as renewed hope for all shareholders.

The new core investors, ADHL with its management responsibility for the company and the mandate to turn around its fortunes, promptly constituted a formidable board of directors made up of eminent persons with impeccable integrity and proven track record in their various fields of human endeavour. The visionary and dynamic board and management wasted no time in charting a new direction for the new Corner Stone Nigeria Limited. 

1.10                   DEFINITION OF TERMS.

(i)       Financial Statement: Traditionally, this refers to balance-sheet and income statement.

(ii)      Ratio: The relation between two qualities which is expressed by dividing the magnitude of one by the other.

(iii)     Financial Period: This is the length of time in which financial activities take place.

(iv)     Going Concern: An in define continuance of business life usually for more than twelve months.

(v)      Trends: Movement in data revealed by statistical process.

 

  

                

Order Complete Project