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FINANCIAL STATEMENT ANALYSIS AS A MEASURE OF MANAGEMENT PERFORMANCE AND EFFICIENCY

CHAPTER ONE

1.1   INTRODUCTION

The great value of corporate financial reporting in view of development in both the money and the capital market cannot be over-emphasized. The success of any enterprise can be properly assessed only from its financial position as reflected in the financial data. The accounting information summarises the economic performance and the situation of a business enterprises. In order to arrive at the correct conclusion, it is important that the account disclose of true and fair view. Corporate reporting serves as an effective medium of communicating financial and other data by companies to the shareholders, prospective investors, government authorities and the general public.

Annual reports and account are the most efficient means of communicating the financial information to the shareholders and other interested group. Therefore, annual reports are central to corporate reporting. Every organisation prepares  their financial statement in such a way to include profit and loss account shows the result of operation over a particular period while the balance sheet shows the financial position at a particular date. Financial statements make use of financial data in the balance sheet and profit and loss account in order ot enable the uses of financial statement have an insight into the better understanding of the financial statement.

The balance sheet and the profit and loss account can be of great benefit to the users when properly analysed. In order for the users of annual reports and accounts so as to understand the financial statement. When confronted with framework of analysis available to make attempt to get some facts from what is important from the ones of less important data.

One of the essential of financial accounting is to report the information to external interested parties. Those that do not participate in the day to day activities of the business such as shareholders, investors, bankers etc. There are individuals and organisations that finances the firms operations. Each of these parties has an interest in analyzing and interpreting one or more broad areas of business especially its financial soundness and stabilizes the efficiency of its management as well as the future prospect for an investor.

1.2  STATEMENT OF THE PROBLEM

The research question centres on what the research work is designed to achieve with some assumption, work is designed to achieve with some assumptions, speculations that are tentatively accepted or an investigations purpose. It will extensively deal with the purpose of the research work such as:

i.  What is the various evaluation methods used on financial analysis?

iii.  Why are the returns offered on investment by a company relatively different from other companies with similar risk?

1.3  PURPOSE OF STUDY

Annual reports and account provides a method of assessing the financial strength and weakness of an enterprises using information found in its financial statement. The purpose of this analysis is to gain an understanding of the firm’s current financial condition as well as the future prospect, which in turn can serve as the basis for decision making.

The purpose of this research work are of two folds:

One, it seeks to determine the efficiency of the management of any case study, Literamed Publications Limited. To accomplish this objectives, the financial ratio that measures the efficiency of an enterprise such as gross profit making, net profit margin, returns on total assets, net assets and other necessary ratio will be calculated and compared over a period of five years (2001-2005).

Second, the calculations of other types of ratio to determine the overall performance of the management of the Literamed Publication Limited and calculation will be compared over a period of five years, (2001-2005). These ratios are liquidity ratio, profitability ratio, debt and gearing ratio.

1.4  HISTORICAL BACKGROUND OF THE STUDY

Literamed Publication Limited was established in April 1969. It first publications were the monumental quarterly pharmaceutical index (medipharm). The company has produced books in different areas such as education, religion books, children books, medical journal, philosophy etc.

Literamed Publication Limited specalises in the production of pre-primary and primary school books under the label ‘Latern Book’. The consistency and steady focus of the organisation has made the organisation unique. The consistency and steady focus of the organization has made the organisation unique. The label ‘Lantern pre-primary books and ‘lantern books’ and known for their high quality features, standard illustrations and up to date information.

1.5  SIGNIFICANCE OF STUDY

This research work has been of great benefit to some people. The categories of those that will benefit from this study are the directors, creditors, employee etc. The benefits will be having a great knowledge on how a company should be efficient in its operation. The accurate preparation in the company’s profit and loss and balance sheet which is a great benefit to the users of account record.

1.6  RESEARCH QUESTION

The research questions focus on the achievement of the research work. The research question are as follows:

i.             What are the organisational sources of fund?

ii.           How adequate is the financial analysis?

iii.          Is the financial analysis important to your organisation?

iv.          Is proper analysis of the performance of the company helps in taking a better decision?

v.            Is management performance has relative effect on the profitability and efficiency of the company?

1.7  HYPOTHESIS

The statement of hypothesis will be carefully predicted as a guide to the research. This include:

i.             Simple hypothesis (H)

ii.           Alternative hypothesis (H1)

iii.          Null hypothesis (H0)

a.       H:      There is no relationship between financial statement and management performance.

b.      H1:    Financial statement affects management performance.

c.       H0:    Financial statement does not affect the management decision.

1.8  LIMITATION AND SCOPE OF STUDY LIMITATION OF STUDY

A number of predictable problems assail the analyst from attempting financial statement analysis using financial ratio. One of these problems is non-availability information’s that are needed to calculate some ratios. This researcher has to rely solely on the information contained in the annual reports and accounts of the enterprises.

SCOPE OF THE STUDY

The quality of information of this research work is continued to the analysis of annual report and account of Literamed Publication Limited and the analysis would focus specially the profit and loss account and balance sheet. This research work cannot be quite generalized for other publications. As attempt is made to compared the findings with the average, the method of comparism comparing of financial ratio of Literamed Publication Limited over a period of five years (2001-2005).

1.9  DEFINITION OF TERMS

Financial Analysis: This is analysis of financial statement. It can also be referred to as the breaking down of figures and subsequently expression of such figures in relation to the other, for the purpose of comparision.

Investors: An investor is being referred to as a person or an organisation who invest money in something or in a business.

Management: These are the people who runs and controls a business or similar organisation

Evaluate: This form an opinion of the amount a value of something after thinking about if carefully.

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