AN APPRAISAL OF THE USEFULNESS OF FINANCIAL STATEMENTS IN BUSINESS ORGANIZATION.

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AN APPRAISAL OF THE USEFULNESS OF FINANCIAL STATEMENTS IN BUSINESS ORGANIZATION.

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.

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