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Usefulness of Ratio Analysis

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Usefulness of Ratio Analysis.

ABSTRACT

Accounting information provided by means of financial statements- The income statement and the Balance Sheet are often in summarized form. Viewed on the surface, the truths about the results and the financial position of a business hidden in them remain veiled.

To be of optimal benefit and as well enable the users make well – informed decisions, financial statements need to be analyzed by means of ratios. Therefore, in order to establish the role of ratio analysis in business decisions, this research is carried out, using O. Jaco Bros. Ent. (Nig.) LTD., Aba Abia State as the Case study.

The researcher made use of both primary and secondary sources of data collection. However, for the former, questionnaires were administered, whereas for the later, relevant were received.

The data Collected via the primary data sources were analyzed using simple averages and percentages. After ratios analysis conducted on the chapter four, mode at 95 level of confidence (5% level of significance). Finally, it was established that ratios analysis evils business decision

 

TABLE OF CONTENTS

Title Page i
Dedication ii
Certification iii
Acknowledgements iv
Table of Contents v
Abstract vi

CHAPTER ONE

INTRODUCTION
1 Background Information 1
2 Statement of Problem 2
3 Objectives of the Study 5
4 Research Question 6
5 Significance of the Study 6
6 Scope of the Study 7
7 Limitation of Study 8
8 Definition of Terms used in the Study 9
9 Brief Historical Background of Gentle Supreme
(Nig.) Ltd, Agbara, Ogun State. 11

CHAPTER TWO

REVIEW OF RELATED LITERATURE
1 Introduction 15
2 Financial Statement Analysis 15
3 Parties Interested in Financial Statement Analysis 16
4Objectives of Financial Statement analysis 17
5 Sources of Information for financial
Statement Analysis 18
6 Tools and Techniques of Financial
Statement Analysis 19
7 Uses and Objectives of Ratio Analysis 28
8 Types of Ratio Analysis 29
9 Limitations of Ratio Analysis

CHAPTER THREE

RESEARCH METHODOLOGY
3.1 Introduction 72
2 Research Design 72
3 Data Collection Technique 72
4 Population 73
5 Sample Size and Sampling Technique 74
6 Instrument for Data Collection 75
7 Questionnaires Administration 75

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
1 Introduction 77
2 Data presentation and Analysis 77

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS
1 Introduction 86
2 Summary and Discussion of Findings 86
3 Recommendations 88
5.4 Conclusion 89
Reference 91

 

INTRODUCTION

The two primary objectives of every business are profitability and solvency. Profitability is the ability of a business to make profit, while solvency is the ability of a business to pay debts as they come due. (Hermanson et al, 1992: 824).

However, the achievement of these objectives requires efficient management of resources of the business through planning, budgeting, forecasting, control, and decision – making. Also, the strengths and weakness of the business need to be identified and necessary corrective measures applied. Interestingly, accounting provides information that facilitates these functions.

Basically, accounting measures and communicates economic information needed for decision –making. Thus, the American Accounting Association (in Okezie, 2002:1) defined accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the information”. Statement and the Balance Sheet.

The Income Statement shows the profitability or profitability or operational result of a business, while the balance sheet shows the solvency or financial position of a business. Although profiles are often used as the basis for judging the performance of a business, such profits must be related to the various items of the financial statements in order to be meaningful and useful for decision making.

Furthermore, owing to the summarized nature of financial statements, a lot of truths are hidden in them. Thus, they need to the analyzed and interpreted by means of financial ratios to enable the users understand the meaning of the absolute amounts shown in them, and make informed business decisions.

 

REFERENCE

Dansby, Robert L., Burton S. Kaliski, & Michael D. Lawrence. (2000). Paradign College Accounting. Ed St. Paul, MN: Paradigm Publishing Inc.

Essien, Eniefiok E. (2006). Entrepreneurship: Concept and Practice Uyo: Abaam Publishing Co.

Hermanson, Roger H. James Don Edwards, & Michael W. Maher. (1992). Accounting Principles 5th ed. Boston, MA Richard D. Irwin, Inc.

Lasher, William R. (1997). Practical Financial Management St. Paul MN: West Publishing Company.

Needles, Belverd E. et al. (1996). Principles of Accounting. 6th ed. Boston. Houghton Miffin Company.

Omuya, J.O. (1983). Frank Wood’s Business Accounting. West African ed. Volumes 1 & 2. London: Longman Group Ltd.

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