FINANCIAL STATEMENT AS DETERMINANT OF PROFITABILITY IN BUSINESS ORGANISATION
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FIRST PART
INTRODUCTION
1.1 INTRODUCTION TO THE STUDY
Finance is the study of the allocation of assets and liabilities across time under certain and uncertain conditions. Alternatively, finance can be understood as the science of money management.
The time value of money, which argues that the purchasing power of one unit of cash can change over time, is an important concept in finance.
Financial Management as a Determinant of Profitability Over the years, scholars have struggled with the issue of the profitability determinant in commercial organizations. The use of financial statements to determine a company’s profitability is a crucial factor that cannot be overstated.
According to Emekekwue (2002), a financial statement is an analysis of the planning, organization, and control of an organization’s available resources in order to meet its demands and materials needs.
Financial management is an integrated aspect of general management, rather than a staff specialty concerned with fund-raising, according to Dave (2012). He emphasized that the primary challenge of financial policy is the reasonable balancing of the benefits of potential uses with the costs of alternative potential resources in order to achieve the broad financial objectives. Finance management has attracted the attention of both academicians and practicing managers due primarily to its great capacity to impact the profitability of a business. This capability encompasses both sides of financial management, including fund mobilization and deployment.
Financial statement, according to Pandeg (2002), is the managerial activity related with the planning and control of the firm’s financial resources. Financial statements are of intense interest to both academics and managers in practice. It is of significant interest to academics because the subject is continually evolving and there are still conflicts in specific areas for which no consensus solutions have yet been discovered.
At the microeconomic level, success is directly attributable to the management of diverse economic resources and their efficient use in operating, investment, and finance activities.
To optimize economic outcomes, extra focus should be placed on the soundness of managerial decisions. These should be based on complex information regarding the evolution of all types of activities with the company’s financial statements, which can be found in the annual financial statements, which become the primary source of information for qualitatively analyzing how resources are utilized in the process of creating value.
In order for businesses to operate on a long-term performance basis, it is necessary to establish, implement, and maintain economic and financial plans, measurements, and policies that are consistent with the firm’s internal and external environment.
The quality of managerial options is determined by the capacity to recognize those elements whose use could increase results and performance.
Considering that the purpose of this article is to investigate how to achieve these objectives, we feel that, among the relevant indicators, the ones that best depict the relationship between economic development and company performance growth should be selected.
Using information extracted from a company’s yearly financial records, an empirical investigation of the relationships between various impact factors and profitability has been done.
1.2 DESCRIPTION OF THE PROBLEM
The analysis of financial statements can be a highly important tool for comprehending a company’s performance and conditions. However, there are a number of challenges and issues that must be approached with caution, prudence, and sound judgment.
Among the difficulties in financial statement analysis are:
I Absence of a foundational theory.
(ii) Conglomerate firms
(iii) Window dressing
(iv) Differences in accounting policies
(v) Analysis and Interpretation of Results
(vi) the correlation between ratios.
1.3 OBJECTIVE OF THE STUDY
The primary objective of the study is to investigate the financial statement as a determinant of profitability in commercial organizations in Abeokuta and to provide recommendations on how to improve or enhance the financial statement quality of an organization.
I Examining the financial statements of businesses
(ii) The prospective performance of the companies.
(iii) The benefits that people have received from the companies thus far.
1.4 RESEARCH QUESTION
The following questions were constructed based on the research questions.
I Does the total assets turnover ratio (TATR) have a substantial link with gross profit margin? (GPM)
(ii) Does the debtors turnover ratio (DTR) have a substantial link with the gross profit margin? (GPM).
(iii) Does inventory turnover ratio (ITR) have a substantial impact on gross profit margins?
(iv) Is there a substantial relationship between creditors velocity (CRSV) and gross profit margin? (GPM )
1.5 Significance of the Research
This research is anticipated to be important in the following ways:
I It will serve as a resource for individuals who are interested in conducting comparable research.
(ii) It will function as a decision-making instrument for the companies.
(iii) It will assist the company’s customers with compliance.
1.6 DIMENSIONS OF THE STUDY
The research will examine the financial statement as an indicator of the organization’s profitability.
1.7 DEFINITION OF TERMS
A field concerned with the allocation of assets and liabilities over time under conditions of certainty and uncertainty.
A company engaged in the exchange of commodities, services, or both with consumers.
ORGANIZATION: An entity, such as an institution or an association, with a shared objective and ties to the external world.
Profitability refers to the state or quality of producing a financial profit or gain. It is frequently quantified by the price-to-revenue ratio
Economics is a branch of the social sciences that attempts to define the forces that determine the production, distribution, and consumption of goods and services.
DETERMINANTS: A square matrix’s related value.
Inventories are the items and materials that a firm maintains for the purpose of resale.
DEPTORS: An entity that owes another entity a debt.
Gross profits, also known as sales profits, are the difference between revenue and the cost of producing a good or rendering a service.
FINANCIAL STATEMENT AS DETERMINANT OF PROFITABILITY IN BUSINESS ORGANISATION
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