THE IMPACT OF FINANCIAL STATEMENT ON INVESTMENT DECISION


Content

 

 

 

 

 

TABLE OF CONTENTS

 

Title Page                                                                                        

Certification                                                                                    i

Dedication                                                                                       ii

Acknowledgment                                                                            iii

Abstract                                                                                           iv

Table of Contents                                                                            xi

 

Chapter One

Introduction                                                                                    1

Statement of Problem                                                                     2

Objective of Study                                                                           4

Significance of Study                                                                      4

Research Methodology                                                                   5

Scope of the Study                                                                          6

Definition of Terms                                                                         7

 

Chapter Two

Literature Review                                                                            10

Introduction                                                                                    10

What is Financial Statement?                                                        10

Objective Financial Statement                                                       13

Regulatory Framework of Financial Statement                            14

Limitation of Ratio Analysis                                                           21

 

Chapter Three

Introduction                                                                                    25

Research Design                                                                             25

Research Strategies                                                                        25

Definition of the Population and Sample                                      26

Method of Data Collection                                                              26

Data Analysis                                                                                  27

Research Instrument                                                                      27

Questionnaire                                                                                 27

Personal Interview                                                                          27

Method of Analyzing data                                                               28

 

Chapter Four                                                                  

Introduction                                                                                    29

Data Analysis and Presentation                                                    29

Data Presentation                                                                           29

Testing and Interpretation                                                             29

 

Chapter Five

Summary, Conclusion and Recommendation                              41

Summary                                                                                        41

Conclusion                                                                                      41

Recommendation                                                                            42

Findings                                                                                          43

Bibliography                                                                                   45

CHAPTER ONE

 

INTRODUCTION

Accounting information statement has been prepared over the centuries to serve as a means of communicating the transaction of business entities to users and to educate the investors on the impact of financial statement in no doubt, must have been prepared over the ages, and infact there is no business entity that does not prepare financial statement for it’s organisation.

 

Financial statement has various definitions it can be defined as a means of conveying concise picture of the profitability and financial position of a business entity.

 

A financial statement is a detailed report that shows the managerial performances and financial stand of a business enterprises for a particular period of time, year and prepared and presented by the management in accordance with adopted accounting policy of the company, statutory requirement and professional regulation.

 

Lewis (1979) defined financial statement as means of communicating financial to the users of according information. Another definition says financial statement serve as a means of providing information about the financial position of the enterprises which is utilized by a wide range of users to the information in making investment decision. It is often necessary to interpret as a set of financial statement in order to identify the strength and weakness of the organisation and high light any underlined trend in operation for example shareholders and other investment analysis required information from the analysis of financial statement to make investment decision.

 

Management should be more interested in all aspect of financial statement analysis than outside suppliers who evaluate financial statement to boost his own payment capabilities.

 

There are various tools with which to analysis a set of financial statement. They include accounting ratio, cash flow statement etc.

 

Each of these has limitation in its uses as a tool of analyzing financial statement. Thus, the impact of financial statement provides useful information to all investors.  

 

STATEMENT OF THE PROBLEMS

It was gathered that management ability to interpret the financial statement was slightly ineffective. This arise because of the various limitation of financial statement which include its being historical being expressed in monetary term, which does not reveal enough information and also not take effect of inflation into consideration.

 

The banking industry has experienced various decree, which had hindered the investors from undertaking capital investment. The introduction of indigenization decree of encourage investors in investing in the investment is not justified. Fluctuation in the interest rate from one period to the other had endangered the investment decision great number of investors could not interprets tied down or involved in a big loss of capital. The capital commercial banks have from time to offered investors with interest rate which are not or far too risky to undergo a safe investment. The investment opportunities are still centralized that is still within a little set of investors and the interpretation of the financial statement that is not know to many had hindered free entry and exist from financial market.

 

In view of the fact that investment decision entails high financial statement involvement, if marched against it’s attendant risk, a study of the factors influencing investment decisions become necessary. Since investors expect to generate from their investment returns appropriate to their intention an examination of the extent of shareholders reliance on the financial statement in their investment decision making becomes imperatives.

 

OBJECTIVES OF THE STUDY

-              The objective of this research is to enable investors appreciate the full important statement and the role its play in investment decision.

-              Also the need to prevent or safeguard the investors from inventing in an organisation where the yield or return or investment is too low or not encouraging.

-              Identify those areas in the financial statement that are particular interest for investment purpose.

-              And also to identify, if any limitation as to the use of financial statement by investors.

-              To identify the purpose to which financial statement may put into by investors, knowing the meaning of financial statement and investor.

 

SIGNIFICANT OF STUDY

This study is carried out to show whether or not financial statement provides information for decision making. Furthermore, the study will be of importance to the organisation in the method of evaluating can be either the use of accounting rate or return, internal rate of return, net present value and use of cost of capital.

 

The study will also be useful to the investor in interpretation of financial statement so as to increase the level of investment in the economy. As a result of increase in the level of investment which will lead to increase in capital employed and also enhance employment to the generality.  

 

RESEARCH METHODOLOGY

The basic objectives of the methodology employed in this survey is to test the hypothesis and answer the research question stated, the methodology covers the research design, characteristics of the study population, research strategy description of research instrument method of data collection and method of data analysis.

 

The design was classified according to the nature of the research objectives and sample survey of selected department of the bank branch.

 

Population in this aspect means the total respondents that were interview during the course of carrying out this research, data collected from both primary and secondary source. The quantitative data obtained from the questionnaire and interviews conducted were analyzed using recognized scientific methods.

 

The instruments used in the research were questionnaire, personal interview and observation. This consists of a set of questions designed by the researcher to gather information or data for analyzing the result which were used to answer the research question and the data use for the test of hypothesis.

 

SCOPE OF STUDY

The study intended to evaluate the impact to which financial statement have had on investment decision with emphasis laid on some selected shareholders.

 

The research will attempt to give an insight into financial statement in banking industry, it will also discuss the impact of financial statement on investment decision. It will also analyse the uses of accounting ratio for investment purpose. However, the computation of financial statement and their analysis and the study in general shall be limited to Lagos Branch of Union Bank of Nigeria Plc.

 

DEFINITION OF TERMS

Debts Pay Back Period: This concepts is called “payout” or pay off period. It is the number of years which a debt have to be paid.

 

Accounting Ratio: This is the comparison of the operation of the enterprises for two or more years or between similar firms within the same industry could assist merge consideration.

 

Cash Flows Statement: This cash flows statement duplets on overall state of cash flows and out flows of an enterprises during a special period of time.

 

Accounting Rate of Return: This methods comprises the average of the after tax profit figure with the average amount invested.

 

Net Present Value: Under this concepts, the cash flow are discounted at specified return rate.

 

Cost of Capital

There are two concept of cost of capital these are average cost of capital, marginal cost of capital. The former relate to the weighted average cost of each constituent of the capital structure. The constituent is the source of capital and include ordinary share capital reference share capital and debenture. The latter represent the cost of an additional or next increment of capital to be introduced into a business.

 

Investment Decision: According to A.J. Curly (1979) defined investment decision as the planning, executing and controlling of event in order to achieve certain selected objectives.

 

Financial Decision: This is the process after the best alternative investment has been recommended, the next step is how to finance it.

 

Dividend Policy: This is the principles adopted by limited liability company to determine the amount given to the shareholder as a form of return on their investment in the company.

 

Investment Decision

According to A.J. Curit (1979) defined investment decision as the planning executing and controlling of event in order to achieve certain selected objectives.

 

Financial Decision: This is the process after the best alternative investment has been recommended the next step is how to finance it.

 

Dividend Policy: This is the principle adopted by limited liability company to determine the amount given to the shareholders as a form of return on their investment in the company.

 

Portfolio: Is the investment of an investors or a firm.

 

Business Risk: Is the threat that an event or action will adversely affect a business ability to achieve its on going objectives.

 

Systematic Risk: This is a risk that caused by external factors in an investment.

 

Specific Risk: This is an investment risk usually caused or within the control of the management.  


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