THE IMPORTANCE OF FINANCIAL STRATEGIES IN EVALUATING PERFORMANCE OF COMPANY

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THE IMPORTANCE OF FINANCIAL STRATEGIES IN EVALUATING PERFORMANCE OF COMPANY

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The performance of this company in recent years valued by the stock exchange market on the basis of earning per share and divided per share had shown different trend while some companies performance has been showing upward trend others are showing downward trend.

Hence, one will be interested in the strategies adopted by these companies in achieving different level of performance. Based on the problem at hand, it is of utmost importance to know the financial strategies been used by United Bank for Africa Plc as a case study in attaining their pre-determined performance the performance of United Bank for Africa, Plc in the past five years which will be used as a basis of this study have shown various trends.

It should be noted that a company can be financed by any or a combination of two or more, or all of the following:

Ordinary shares

Preference shares

Loan stock

Long-term liabilities

Despite this, the ordinary shareholders among other financiers are legally referred to as the owners of the business. Therefore, there is need to take into consideration, the relationship between the corporate objective of companies that is maximizing the market value of a company and the formulation and implementation of the financial strategies put in place. The study at the end the will be able to show the importance of United Bank for Africa Plc.

1.2 STATEMENT OF THE PROBLEM

As a result of different performance shown by various companies in Nigeria, the study intends to provide solution to some of the problem posted by this topic.

a. How financial strategies are formulated and implemented by financial managers.

b. The relevance of financial strategies to the performance of this company.

c. How these financial strategies assist company in turbulent periods.

d. The steps taken in evaluating the performance of this company.

1.3 RESEARCH QUESTIONS

These research questions were drawn to guide the study

a. What are financial strategies used by your company?

b. What is the likely importance of these financial strategies to the overall performance of the company?

c. Who are those responsible and how can the skill and knowledge require formulate and implemented these financial strategies could be improved?

d. What are the criteria, tools and steps a company undertakes in evaluating its performance?

1.4 OBJECTIVES OF THE STUDY

The major objective of the study is to identify different financial strategies been employed by this company in achieves high performance. However, the study will specifically identify the following purpose to be investigated the specific purpose of the study are to

a. Highlight the importance of financial strategies in evaluating performance of this company.

b. Identify the skill and knowledge needed in formulation and implementation of financial strategies.

c. Show the direct link between financial strategies and the objectives of maximizing shareholders wealth.

d. Highlight the constraint limiting the efficiency of financial strategies.

e. Show the need and ability required to evaluate performance of this company.

f. Highlight various tools used in evaluating the performance of this company.

1.5 RESEARCH HYPOTHESIS

For time constraint only two hypotheses will be tested, these are

Hi : financial strategies assist companies inversely in turbulent periods

Ho: Financial strategies do not assist companies inversely in turbulent period.

Hi: Financial strategies contribute to the overall performance of a company

Ho: financial strategies do not contribute to the overall performance of a company.

1.6 SIGNIFICANCE OF THE STUDY

The need to undertake this study can be rationalized on the need to provide more skill and knowledge on what financial strategies are about and how it can assist this company in their performance.

Great importance has long been placed on the performance of companies, but the fact that inadequate financial strategies have posed a lot of problems of companies achieving their goal. Hence, the need to educate companies to formulate effective and efficient financial strategies. Also, there is doubt that it will be revise and extend new knowledge or the part of financial analyst, undergraduate, financial, managers and accountant etc.

1.7 SCOPE OF THE STUDY

The study focuses on the following areas:

a. Sources of finance open to the company.

b. Procedure informatory financial strategies.

c. Financial strategies being employed in the company

d. Criteria and tools used in evaluating the performance of this company.

1.8 PURPOSE OF THE STUDY

a. It helps to summarize the large quantity of data (from the balance sheet and income statement).

b. It makes qualitative judgment about a firm’s financial performance.

c. It indicates a quantitative judgment.

d. By comparative analysis indicates where performance is poor relative to similar organizations.

e. It helps management to understand the economic trend.

f. It helps the management to pinpoint where performance is deteriorating (Obamuyi 1999)

1.9 DEFINITION OF TERMS

1. Turnover: is the amount of money taken by a business in a particular period or the volume of shares traded during a particular period, as a percentage of total shares listed.

2. Dividend: a sum of money paid, regularly typically by a company to its share out of its profit (or re-serves).

3. Capital employed: simply mean the capital (money) investment necessary for a business to function.

4. Capital expenditure: capital expenditures are those expenditure in which a company incurred or expenditures creating future benefits.

5. Net liquid fund: money plus salable investments minus short-term borrowings an organizations cash plus its markets as investments less its short-term borrowings such as overdraft and loans.

6. Earnings per share: is a portion of a company profit allocated to each outstanding share of common stock.

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