ROLE OF FINANCIAL STATEMENTS IN INVESTMENT DECISIONS (A Study Of Selected Banks In Enugu Metropolis, Enugu State)
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ROLE OF FINANCIAL STATEMENTS IN
INVESTMENT DECISIONS (A Study Of Selected Banks In Enugu Metropolis, Enugu
State)
ABSTRACT
The research
topic of this study is “The role of financial statement in investment
decisions” – a study of selected banks in Enugu metropolis. The purpose is to
identify the relationship between financial statement and investment decisions,
and the impact of financial statement in investment decision making and also to
know if investment decisions depends solely on financial statement. The study
population is 125 persons who are the member of staff of the five major
selected banks. Using the Yaro Yamani formula, the sample size calculated gave
(95). The formulated hypotheses were tested using Z test with statistical
technique at 5% level of significance. The researcher also made use of primary
methods of data collection which included questionnaires and personal
interviews. Also the secondary methods of data collection used are library
research of relevant materials and existing documents from the selected banks.
The researcher recommends that banks in Enugu metropolis should consult the
financial statement before making investment decisions, and also it is
recommends that all interested parties to financial statement should used
required financial ratio analysis for decision making.
TABLE OF
CONTENT
Approval
page
Dedication
Acknowledgement
Abstract
CHAPTER ONE:
1.0
INTRODUCTION
1.1
Background of the Study
1.2
Statement of the Problems
1.3
Objective of the Study
1.4 Research
Questions
1.5
Hypotheses of the Study
1.6
Significance of the Study
1.7 Scope
and Limitation of the Study
1.8
Definition of terms
References
CHAPTER TWO:
2.0 REVIEW
OF RELATED LITERATURE
2.0
Introduction
2.1
Historical Development of Business Financial State Analysis and Financial
Ratios
2.2
Accounting Information Tools
2.2.1 The
Balance Sheet
2.2.2 The
Profit and loss Account (Income Statement)
2.2.3
Statement of Accounting Policies
2.2.4
Director Report
2.2.5 The
value Added Statement
2.2.6 The
five year financial summary
2.2.7 The
Auditor’s Report
2.2.8 Notes
on the Accounts
2.2.9 A Cash
Flow Statement
2.3
Quantitative Characteristic of Accounting Information
2.4 Use of
Accounting Information by decision makers
2.5
Objective of Accounting Information
2.6
Importance of Accounting Information
2.7 Users of
Accounting Information and their Objective
2.8
Financial Ratio Analysis
References
CHAPTER
THREE:
3.0 RESEARCH
DESIGN AND METHODOLOGY
3.1 Research
Design
3.2 Sources
of Data
3.3 Research
Instruments
3.4
Reliability / Validity of research Instrument
3.5
Population of Study
3.6 Sample
and Sampling Technique
3.7
Administration of Research Instruments
3.8 Method
of Data Analysis
3.9 Decision
Criterion for Validation of hypothesis
References
CHAPTER
FOUR:
4.0 DATA
PRESENTATION AND ANALYSIS
4.1 Data
Presentation
4.2 Data
Analysis
CHAPTER
FIVE:
5.0 SUMMARY
OF FINDINGS, CONCLUSION, RECOMMENDATION
5.1 Summary
of Findings
5.2
Conclusion
5.3
Recommendations
Bibliography
Appendices
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Every
business prepares profit and loss Account or income statement to ascertain the
net result of financial working of the business whether it has earned some
income or profit or sustained any loss. It also prepare balance sheet to find
out the financial position of the business. Profit and loss account or income
statement, retained earnings statement and balance sheet are known as financial
statements.
Gautam
(2005) sees financial statement as financial information which is the
information relating to the financial position of any firm; when presented in a
concise and capsule form. Besides profit and loss account and balance sheet,
some other statements are also prepared for deriving certain conclusions. A
schedule of current assets and current liabilities of two years may be prepared
to know the changes in working capital. Similarly a fund flow statement and
cash flow statement may also be prepared to ascertain the future estimate of
cash receipt and payment. Thus, financial statement include: profit and loss
Account, income statement and balance sheet along with certain schedules and
statement.
Ezeamama
(2010) is of the opinion that rational decisions have to be taken to manage
modern business successfully and for this rational decision to be taken in line
with the firms’ objective. Some analytical tools ought to be available and used
based on the strengths and weakness of the firms. Thus, the financial strengths
and weaknesses of a firm are revealed in its financial statement.
The nature
of financial statement is that financial statement is that financial statements
always relate to a past period and hence they are called historical documents.
Financial statements are expressed in monetary terms and it indicates profit
abilities of the business through balance sheet.
Financial
statement are analyzed in order to use the information in financial statements
to ascertain the profitability and financial soundness of the firm, to Judge
the managerial efficiency for inter form comparison of similar nature and to
make valuable for costs.
According to
Remi Aborode (2006), financial statement need to be interpreted for better
understanding and analysis and it can thus be interpreted using individual
items contained in financial statement or/ and using ratios computed from items
contained in financial statement ( Ratio analysis).
The
essentials of financial statements range from the fact that financial
statements should disclose correct information about profitability and
financial
position of
a business. The information disclosed should be presented in such a manner that
it can be easily compared with the figures of the previous year or with those
of other similar firms. The information so provided in financial statement
should be that which can be verified from the relevant and prepared within a reasonable
time after the end of accounting period. The information provided by financial
statement should also be easily understood by the interested parties. Such as
investors, creditors, lender and Bankers, customer’s employees, government and
other agencies, the public and stock exchange.
It can
therefore be seen that financial information is very effective and essentials
in making investment decisions in an organization be it private or public. Thus
the role of financial statements in investment decision in some selected banks
in Enugu metropolis will be critically evaluated.
1.2
STATEMENT OF THE PROBLEMS
Several
investment decision tools are used an financial statement of firms and these
has been used for several investment decisions, which most often pays off
bearing in mind the definition of what a financial statement is. It is
important to note the various roles it plays in investment decision.
However, the
problems encountered by these investors include.
Whether
these financial statements represent a true and fair view of what it purports
to represents.
Whether
all necessary disclosure have been made by the management of the enterprises,
which can now convince a person that deductions made base on the financial
statement is not misleading.
What
benefit is this financial statement to the external users particularly
investors who are taking decision on a daily basis?
How
analytical tools are set to aid prospective investors in accessing the
financial position of the corporate organization.
How to
determine the profitability of a company.
1.3
OBJECTIVE OF THE STUDY
The general
objective of this research work is to determine the role of financial statement
in investment decision of selected bank in Enugu metropolis. This research work
has the following objective
To
identify the relationship between financial statements and investment decisions
To
evaluate the impact of financial statement in investment decision making.
To
identify factors influencing investment decisions on financial statements.
To
highlight the problems associated with financial statement in investment
decision.
To highlight
the various tools used in investment decisions on financial statement.
1.4 RESEARCH
QUESTIONS
The research
questions were formulated from the objective such as:
What
significant relationship does financial statement have to do with investment
decision?
What
impact does financial statement have with investment?
Are there
any factors that influence investment decision?
Does
making investment decisions depends depend solely on financial statement?
What are
the various tools used in investment decision on financial statement?
1.5
HYPOTHESES OF THE STUDY
The
following questions were constructed to guide the researcher in her study.
H0 =
Financial statement does not have any significant relationship with investment
decision.
Hl
=Financial statement has significant relationship with investment decision.
H0 =
Financial statement does not have any impact in investment decision.
Hl
=Financial statement has an impact on investment decision.
H0 = Making
investment decisions does not solely depend on financial statement.
Hl = Making
investment decisions solely depend on financial statement.
1.6
SIGNIFICANCE OF THE STUDY.
This study
will be of immense help to the prospective investors and other interested
parties of the general public so as to know how to study the financial report
of a business firm in order for them to make a decision as to whether or not to
invest in such firm. It will help the government to determine the taxation due
and as well as to determine if all the company’s income has been included in
the computation of taxes. By doing this, there will be an improvement in the
overall assets and liabilities management and the management will also upgrade
assets quality and lower cost of funds. The researcher is of the view that this
research work will address the problem properly.
1.7 SCOPE
AND LIMITATION OF THE STUDY.
This study
is on the selected Banks in Enugu metropolis, the limitation is of the study in
the selected Banks in Enugu metropolis Enugu state. This is due to
some
constraints; those constraints were financial difficulties which prevented the
running down from one relevant selected Banks in Enugu to another for sources
of information necessary for this study.
Another
constraint is the time limit within my disposal, the demand from the academic
activities and limit within this constitutes.
1.8
DEFINITION OF TERMS
FINANCIAL
INFORMATION
Financial
information summarize the economic performance and situation of a business when
confronted with the information and it is useful to have a framework of
analysis available to make an attempt to draw what is important from the mass
of less important data
FINANCIAL
RATIOS
Financial
ratios provide a means by which various items in the financial accounts are
related to an appropriate base and thereby enabling these items to be regarded
in their proper perspective financial ratios permit comparative studies and
therefore they are important tools of financial analysis.
INVESTMENT
Investment
is the act of intelligently determining the uses to which saving can be put
investment can also be defined as the defined as the
sacrifice of
current consumption for a future large gain of money or consumption which could
be uncertain.
INVESTMENT
COMPANY
These are
financial institutions organized for the purpose of enabling an individual
investor to obtain the advantages of wide diversification in a single
commitment.
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