THE USEFULNESS OF FINANCIAL STATEMENTS IN ASSUASIVE THE PERFORMANCE OF COMPANIES AND IN GUIDING INVESTMENT DECISIONS (A CASE STUDY OF SUNRISE FLOUR MILL LTD ENUGU)
ABSTRACT
The importance of financial statements in any business organization cannot be overstated. Financial statements are required by a wide range of people for a variety of reasons. For example, the government requires a company’s financial books for taxation purposes, investors want to know how profitable a company is, and management wants to know the level of performance: all of this is impossible to know without analyzing the financial statements of the company or companies involved.
As a result, the research work investigates the utility of financial statements in assessing company performance and guiding investment decisions, in order to inform investors, management, government, and others about the company’s worth.
TABLE OF MATERIALS
CHAPITRE ONE
1.0 General Introduction
1.1 Problem identification
1.2 The study’s objectives
1.3 The Importance of the Study
1.4 investigational questions
1.5 The scope and limitations
1.6 The development of hypotheses
1.7 Terminology Definition
CHAPITRE TWO
2.0 A review of the related literature
2.1 General Information
2.2 Fundamental principles
2.3 Additional assumptions and principles
2.4 The Advantages of Financial Statements
CHAPITRE THREE
3.0 Methodology and design of the study
3.1 Information source
Questionnaire, Section 3.2
3.3 Interviewing Techniques
3.4 Sample construction
3.5 Investigation Methodology
3.6 Statistical procedure for data analysis
CHAPITRE FOUR
4.0 Display
4.1 Information interpretation
4.2 Hypothesis verification
CHAPITRE FIVE
5.0 Summary, findings, and conclusion
Recommendation (5.1)
Bibliography (section 5.2)
5.3 Questionnaire in the Appendix
TABLE LISTING
1. Open a trading account
2. the cost of the goods sold
3. a statement of the changes in a company’s financial position
4. Profit and loss appropriation account schedule profit and loss account for the years ended December 31, 1995 and 1996.
5. evaluation of the results
6. An examination of questionnaire respondents
7. an examination of the respondent department
8. Distribution of respondent departments in a pie chart
9th. response evaluation
ten. examination of responses
eleven. response evaluation
response evaluation
thirteenth hypothesis testing
14 hypothesis testing
111. hypothesis testing
16. Balance sheets as of December 31st, 1999 and 1996.
CHAPITRE ONE
INTRODUCTION
Accounting standard committee (ASC) defines a financial statement as a balance sheet, profit and loss accounts, statement of source and application of unds, notes, and other statements that together are intended to give a true and fair view of the financial position and profit or loss.
Several companies include fixed asset valuations in their balance sheets, and the depreciation charge in profit and loss is based on the revalued amount. Some businesses prepare financial statements on a current cost basis, but this is uncommon when compared to the use of historical cost or modified historical cost.
A financial statement is part of a company’s annual report, and its purpose is to communicate information about the company to those who have the right to receive it, such as shareholders, investors, potential investors, and other financial statement users.
It indicates a company’s trading performance and provides a snapshot of aspects of its financial position at a specific date. Accounting policy, balance sheet, profit and loss portraying organizations and income and expenditure for non-trading organizations, notes to the account, directors report, sources and application of funds, and value added statement are the minimum components of a financial statement.
The analysis of a financial statement or an account is thus the interpretation, amplification, and translation of facts and financial statements, with the goal of drawing relevant conclusions and making inferences about business operations, financial positions, and future prospects.
The procedure entails.
a. disaggregation of data from financial statements into basic component parts. For example, in conducting a profit analysis, net sales is a critical figure, and other data in the account such as cost of goods sold, gross profit, and cost of production are compared with this section of the income statements. Similarly, in balance sheet analysis, the cove components are net assets, which are typically compared to capital, loan stock, and working capital.
b. Conversion of those data into a cheery and simple format. The translation process may result in the extraction of ratios or percentages that establish relationships between comparable data, or it may result in the presentation of graphs and charts.
c. Reaching relevant conclusions and inferences about the company’s financial position, stability, profitability, and solvency.
d. Presenting information obtained to management for decision making. The data is used in the future process for controls and policies. The application of this information will entail isolating the factors that are responsible for the state of affairs revealed by the analysis.
Internal or external horizontal analysis is a comparison of data in financial statements from two or more consecutive accounting periods to determine whether or not performance has improved. For example, a company’s profit in 1994 could be compared to that of 1995, 1996, and 1997, and a trend could emerge from the analysis.
This analysis is internal because it only concerns financial data from one company. A vertical analysis is an external analysis that compares financial data from one company to another. That is, external when comparing data from one company’s financial statement to that of another over a given time period.
It is entirely external and entails a comparison of data in financial statements from a single period.
Data in the financial statements can be compared to one another using a common unit to determine the efficiency of current performance. For the purposes of the analysis, certain figures in the accounts are expressed as a percentage of another relevant figure. A number of issues must be considered and conclusions drawn when conducting an accounting analysis.
These are some examples.
a. the profitability of business operations, especially in relation to capital employed
b. company solvency: the company’s ability to pay its creditors, the adequacy of its working capital, and the liquidity of its current assets in comparison to its current liabilities.
c. Business trends: an examination of the pattern of business over time to determine whether profit is increasing or decreasing, and the implications for future performance.
d. The company’s financial stability: paying special attention to the company’s financial position, the limits of its borrowing powers, and available resources for financial expansion and earnings volume.
e. The gearing and assessment of profit adequacy to meet interest payments, individual payments to shareholders, and to provide sufficient safety to shareholders’ investments.
1.1 STATEMENT OF THE PROBLEM
The purpose of this research is to investigate the extent to which investors conduct and rely on the results of financial statements analysis before making investment decisions, as well as the use of financial statements analysis by companies in assessing their performance and that of their respective management.
1.2 THE STUDY’S OBJECTIVES
a. Determine whether investors conduct financial statement analysis prior to making investment decisions.
b. Determine the extent to which investors rely on the outcome of their analysis when making investment decisions.
c. To emphasize the significance of financial statements to the performance of businesses.
d. Recognize the importance of financial statement preparation by businesses.
e. To determine the extent to which financial statements are useful to investors.
1.3 THE IMPORTANCE OF THE STUDY
It is a well-known fact that whoever does not know where he is going will never know when he arrives. Accounting is defined as the process of analyzing, interpreting, and communicating financial data to financial statement users.
Thus, the statement of affairs must be interpreted in relation to the financial statement and analyzed to the cove in order for interested parties to understand the business and know what it is up to, as well as to guide management on how to make decisions for the business’s day-to-day operations.
Interested parties will be misled if the financial statement is not properly analyzed and interpreted. This study is thus intended to provide a guide to interested parties, bankers, creditors, and company management on how to best present the company’s statement of affairs.
1.4 QUESTIONS RELATED TO RESEARCH
i. Do investors conduct financial statement analysis prior to making investment decisions?
ii. To what extent do investors rely solely on financial statements?
iii. How important are financial statements to the overall performance of a company?
iv. Is the preparation of financial statements necessary?
v. To what extent are financial statements beneficial to investors?
HYPOTHESIS FORMULA
(HO) Financial statements do not reveal the company’s financial situation.
(H2)2 financial statements depict the company’s financial situation.
(HO)2 financial statements are not decision-making tools in the company.
(HO)3 financial statements are not a document of the company’s financial analysis.
(HI)3 financial statements are company financial analysis documents.
(HO)4 Outsiders and insiders do not assess the health of the company through financial statements.
1.6 THE DEFINITION OF TERMS
i. Financial statements: they are a means of communicating information about the reporting entity’s resources, obligations, and performance to third parties.
ii. S.A.S. Statement of accounting standard specifies the standard by which financial statements should be prepared.
iii. Balance sheet: displays the assets, liabilities, and proprietor’s interest at a given point in time.
iv. Profit and loss account reports an enterprise’s revenues, earrings or turnover, and expenses for a given accounting period.
v. Sources and application of find: provides information on the deviation and utilization of funds during the covered period.
vi. Notes on the account: it is usually included with financial statements and provides detailed or supplementary information on items disclosed in the balance sheet and profit and loss account.
THE USEFULNESS OF FINANCIAL STATEMENTS IN ASSUASIVE THE PERFORMANCE OF COMPANIES AND IN GUIDING INVESTMENT DECISIONS (A CASE STUDY OF SUNRISE FLOUR MILL LTD ENUGU)
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