ABSTRACT
This research work was designed to appraise the financial
statements in assessing the performance of companies and in giving investment,
government and others, what the companies are worth. The purpose of this study
is to find out whether investors carry out analysis of financial statements
before making investment decisions and how the company’s financial statements
are influenced by political instability. To achieve the objective of this
study, the researcher formulated questionnaires, which were administered to the
respondents to gather data drawn from the subject being studied. The data
entered were analyzed using simple percentage method. The following findings
among others was made that companies financial statement are of immense
importance to be analyzed by prospective investors and the management so as to
know what a company is worth and based on the findings, the researcher
recommended among others that in taking investment decision, companies should
present information so obtained and translated into financial statement in a
clear and simple form to the management, shareholder or investors.
TABLE OF CONTENTS
TITLE PAGE
i
APPROVAL PAGE
ii
DEDICATION iii
ACKNOWLEDGEMENT
iv
ABTRACT
v
TABLE OF CONTENTS
vi
CHAPTER ONE
INTRODUCTION 1
1.1 Background of the study 1
1.2 Statement of problems 5
1.3 Objectives of the study 6
1.4 Research Question 7
1.5 Significance of the study 7
1.6 Scope of the study 8
1.7 Limitation of the study 9
1.8 Definition of terms
10
CHAPTER TWO
Literature Review 13
2.1
Introduction
13
2.2 Development of
generally Accepted accounting principles 27
2.3 The objectives
of statement of changes in financial position 29
2.4 users of
financial statement
30
2.5 characteristics
of good financial Information 33
CHAPTER THREE
Research Design And Methodology 37
3.1
Introduction
37
3.2 Sources/ methods
of data collection 38
3.3 Population and
sample size
42
3.4 Sampling
techniques
44
3.5 Validity and
reliability of measuring Instrument 45
3.6 method of data
analysis 45
CHAPTER FOUR
Presentation And Analysis Of Data 48
4.1 Introduction
48
4.2 Presentation of data 50
4.3 Analysis of data
50
4.4 Interpretation of result (s) 60
CHAPTER FIVE
Summary, Conclusion And Recommendations 63
5.1 Introduction
63
5.2 Summary of findings
63
5.3 Conclusion
64
5.4 Recommendation 65
References
67
Appendix (s)
Questionnaire
CHAPTER ONE
INTRODUCTION
A financial
statement is a final output of the entire accounting process. It consists of a
profit and loss account and a balance sheet for that particular financial year,
and it is released either at the end of the given financial year or at the
beginning of the next financial year. A financial statements helps users (who
are decision makers for an organization) to understand the financial position
and performance of an organization. It is with the help of these financial
statement also known as final accounts that an organization decides its
business strategies for the upcoming financial year.
BACKGROUND OF THE STUDY
Financial statements are those parts of statement which is
used to communicate information about the company to those who have a right to
receive it. for instance, shareholders. Financial statement provide an
indication if the company’s trading performance.
As a minimum, financial statement includes profit and loss
account, balance sheet and related explanatory notes and also a cash flow
statement.
The analysis of financial statements is therefore the
interpretation and transaction of facts and data contained in the financial
statements. The purpose being the drawing of relevant conclusions operation,
financial position and future prospects.
The procedure involves the analysis of data contained in the
financial statements. For example, in carrying, is a very important figure.
Similarly, in balance sheet analysis, the components are net assets which is
usually compared with capital, loan stock and involving capital.
Transaction of those data into clear and simple form: the
translation process may lead to extraction of ratios or percentages that
established relationship between comparable data or even the presentation of
graph and charts, and also drawing relevant, conclusion and making inferences
concerning the company’s financial position, stability, profitability and
solvency.
Presentation of information so obtained for decision making.
The information is used for future controls and policies. The application of
this information will involve the isolation of the factors responsible for the
state of affairs revealed by the analysis. The analysis could be horizontal or
vertical, internal or external.
Horizontal analysis is a comparison of data in financial
statements of two or more consecutive accounting periods to detect whether
performance has improved or not. For example, the profit of a company in a year
can be compared with those of another year which a trend may arise from the
analysis. This analysis is internal as if concerns financial data of one
company alone. A horizontal analysis of financial statement can be internal
when a comparative study of data between one company’s financial statement and
that of another company over a given time is wholly internal and involves a
comparative analysis of data between one company’s financial statement and that
of another company over a comparative analysis of data in financial statement
within a single period.
In carrying out an analysis of accounts, a number of issues
must be considered and conclusion formed there on. These include:
PROFITABILITY OF THE BUSINESS: operation, particularly in
relation to capital employed.
SOLVENCY OF THE FIRM: the ability of the firm to pay its
auditors, the adequacy of its working capital and the liquidity of its current
assets reviewed side by side with current liabilities.
THE BUSINESS TREND: an analysis of the pattern of business
overtime to determine whether profits are rising and falling and the
implications for future performance.
THE FINANCIAL STABILITY OF THE BUSINESS: the limit of its
borrowing powers, available resources to finance expansion and volume of
earning.
The gearing and cover
assessing the adequacy of profit to meet payments, pay dividend and to shareholders
investment.
STATEMENT OF PROBLEMS
This research work intends to look into the extent to which
investors do carry out and rely on the result of financial statement analysis
before making their investment decisions, and the employment by companies of
financial statement analysis in assessing their performance and that of their
respective management.