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ANALYSIS
AND INTERPRETATION OF FINANCIAL STATEMENT AS A MANAGERIAL TOOL FOR DECISION MAKING
ABSTRACT
Financial Statement
Analysis and Interpretation is a very vital instrument of good management
decision-making in business enterprise. Good decisions ensure business
survival, profitability and growth. Without financial statement analysis in
investment decisions, an enterprise is likely to make decisions, which could
spell its doom. Poor or lack of qualitative financial statement analysis could
lead to investment returns, low profitability and even inability to identify
viable investment opportunities. The main objective of this project is
therefore, was to determine how firms could use financial statement analysis
and interpretation to aid management decisions and to avert the problems
highlighted above. Primary and secondary data are employed to broaden the scope
of this study. Primary data are sourced from questionnaire responses. This
provided data for the validation of the hypotheses tested with the use of
chi-square (X2). The test revealed as follows: (1) Significant difference
between the returns of the financial statement in Analysis and Interpretation
based on management decision. (2) Organizational profitability has relationship
with financial statement analysis and interpretation based management decision
but not significantly. The project concludes that companies should pay great
attention to the use of financial statement analysis so as to properly equip
themselves with this invaluable tool. The researcher recommends the following:
(a) Accountants or
financial analysts should not be rushed in collection, preparation, analysis
and interpretation off financial statements.
(b) Financial
statements should be made to reflect current cost accounting to eliminate or
reduce the effects to historical cost principle and inflation risk element.
(c) A combination of different ratios should
be used in analyzing a company’s financial and/or operating performance. Proper
use of financial statement analysis should be made not only in investment but
also in other areas of decision making.
TABLE OF CONTENT
Title page - - - - -
- - -- - i
Approval page - - - -
- - - - ii
Dedication - - - - -
- - - - iii
Acknowledgement - - -
- - - - iv
Abstract - - - - - -
- - - v
Table of content - -
- - - - - - vi
Chapter One:
INTRODUCTION
1.1 Background of the
Study - - - - - 1
1.2 Statement of
Problem - - - - - - 4
1.3 Objectives of the
Study- - - - - - 4
1.4 Research
Questions - - - - - - 5
1.5 Hypotheses of the
Study - - - - - 6
1.6 Significance of
the Study - - - - - 6
1.7 Scope of the
Study - - - - - - 7
1.8 Limitation of the
Study - - - - - - 7
1.9 Definition of
Terms - - - - - - 8
References - - - - -
- - - 10
8
Chapter Two:
LITERATURE REVIEW
2.1 Introduction - -
- - - - 11
2.2 What is Financial
Statement?- - - - 12
2.2.1 Objective of a
Financial Statement Analysis - 13
2.3 Uses and Users of
Financial Statement - - 14
2.4 Classification of
Financial Statement - - 15
2.5 Relationship
among the Statement of Financial
Position, Income
Statement, Statement of cash
Flows and Statement
of Retained Earnings - 18
2.6 Techniques and
financial Statement Analysis and
Interpretation - - -
- - - 19
2.6.1 Horizontal
Analysis - - - - - 19
2.6.2 Trend Analysis
- - - - - - 20
2.6.3 Vertical
Analysis - - - - - - 24
2.6.4 Ratio Analysis
- - - - - - 24
2.7 Definition of
Ratio - - - - - 24
2.8 Types and
Classification --- - - - 26
2.8.1Liquidity Ratios
- - - - - - 27
2.8.2 Leverage Ratios
- - - - - - 30
2.8.3 Activity Ratios
- - - - - - 32
2.8.4 Profitability
Ratios - - - - - 34
2.9 Nature of
Accounting Ratios - -- - - 37
2.10 Uses of Ratio in
Analyzing Financial Statement 39
2.11 Limitations of
Financial Statement Analysis - 40
2.12 Use of Different
Accounting Principles - - 40
2.13 Industry
Affiliation - - - - - 41
2.14 Accounting
Differences Between Countries - 42
2.15 The Impact of
Inflation of Financial Statement
Analysis - - - - - -
- - 42
2.16 Features of a
Good Management Decision
Technique - - - - - -
- 44
2.17 Environment of
Management Decision Making - 45
References - - - - -
-- - 47
Chapter Three
3.1 Research Design -
- - - - - 4
3.2 Sources and
Method of Data Collection --- - 48
3.3 Research
Instrument - - - - - 49
3.4
Reliability/Validity of Research Instrument - 49
3.5 Population - - -
- -- - - 50
3.6 Sample size and
Technique - - - - 50
10
3.7 Administration of
Research Instrument - - 53
3.8 Method of Data
Analysis - - - - 53
3.9 Decision Criteria
for Validation of Hypothesis - 56
References - - - - -
- -- 57
Chapter Four: DATA
PRESENTATION AND ANALYSIS -58
4.1 Data Presentation
- - - - - 60
4.2 Analysis of
Question - - - - - 61
4.3 Test of
Hypothesis - - - - - 71
Chapter Five: SUMMARY
OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of
Findings - - - - - 76
5.2 Conclusion - - -
- - - - 77
5.3 Recommendations -
- - - - 77
Bibliography - -- - -
- - 79
Appendix - - -- - - -
- - 80
11
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the
Study
The complex nature of
today’s business world and the transformation of the entire world into a global
village have been of great concerns to manages of all forms of business
organizations. According to Ojuigo (2001), the problems of managers are
multi:-varied because of inefficiency in management of poor decision outcomes
of these organizations. Therefore, the managers are unable to achieve the
organizational objective within a period of time.
As diverse as
business is, its controllable and uncontrollable factors influence all
decisions which ultimately lead to the realization of set objectives. To
achieve this, management needs reliable, authentic and relevant information
from the financial statements to efficiently facilitate decision making.
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