CHAPTER ONE
INTRODUCTION
1.1 Background to
the Study
Beyond crunching and depicting numbers
in the financial statements, the primordial goal of financial management is
creating wealth (Tugas, 2012). Wealth creation and
general performance of any organisation are measured in terms of its financial
strength and weakness using financial ratio (Shirkouhi, et al, 2012). Wealth creation is best achieved by maximizing
firm’s value through optimal usage of resources over a long period of time
(Tugas, 2012). In other words, it is the continuous and sustainable
accumulation of more assets (growth) as time passes by. Putting these into
perspective, wealth creation is a factor of a series of sound business decisions,
made one after the other, that originate from structured or scientific basis.
As risks are the ones that prevent any firm from achieving its objectives,
coming up with structured and scientific bases of decisions reduces the
likelihood of the former (risks). In financial management, one of these
structured and scientific bases on which firm decisions are anchored is the
financial statement analysis (Tugas, 2012).
According to Drake (2010), financial
statement analysis is the selection, evaluation, and interpretation of
financial data, along with other pertinent information, to assist in investment
and financial decision-making. Moreover, it is also the process of identifying
financial strengths and weaknesses of the firm by properly establishing relationship
between the items of the balance sheet and the profit and loss account
(accounting for management website).
One of the tools in financial
statement analysis is financial ratio analysis. As financial statements are
usually lengthy, it will be more efficient and strategic to just pick up the
figures that matter and plug them in pre-defined formulas developed through
time by finance and accounting scholars.
Financial ratios provide insight into the strengths and
weaknesses of a business and give the managers indications of areas that need
improvement (Heidari, 2012). A thorough knowledge of which ratios to be used
and how to use them is a critical management skill. The primary focus of every
business is to make a profit, have enough liquidity to pay its bills and
maintain control of borrowed funds (Heidari, 2012). Several ratios give
managers the tools to evaluate these areas and measure their performance.
Businesses should constantly monitor these ratios to
detect negative trends and identify areas that need improvement. Thus financial
ratio information
assists its financial statement users in obtaining the relevant information
concerning the detail and source of cash for operating, investing and financing
activities of the company over a reported period.
Financial investment ratios have
proved vital for purposes of financial analysis over several decades ago, with
the effect that the traditional ratio analysis techniques have become quite
well established in literature. Traditionally, financial analysis, for a long
time, depended on accounting performance via profitability measures such as
return on assets and net sales to income, among others. These forms of ratios,
however, are affected by the fundamental drawbacks that are characteristics of
‘accrual based accounting’ (Albrecht, 2003).
While most business owners focus on
providing exceptional products and services to their customers, they must also
pay attention to the performance and health of their company (Heidari, 2012). This study is therefore concerned with
the analysis of cash flows ratios as a measure of performance and investment
decisions of manufacturing companies.
1.2 Statement of the Problem
Proper evaluation/measurement of a company performance for
investors, shareholders and lenders is of paramount importance to management of
all businesses in general. performance evaluation using financial ratios from the statement of cash flow (SCF) have gained attention from
academicians and industry practitioners (DeFranco & Schmidgall, 1998;
Schmidgall, Geller, & Ilvento, 1993) as cited in (Ryu & Jang, 2004).
This is mainly due to the ability of financial ratios provide supplementary
information in understanding the "real" operational status of a
business.
Previous studies
have provided substantial evidence supporting the application and usefulness of
cash flow approaches in financial ratios analysis (DeFranco & Schmidgall,
1998; Mills &Yamamura, 1998; Zeller & Stanko, 1994). Despite the fact
that financial ratios are becoming increasingly important yardstick for
performance measurement and investment decisions, limited efforts have been
made to investigate the usefulness of financial ratio in measuring financial
performance firms in the manufacturing sector especially of emerging economies
like Nigeria. Thus, this study is therefore a modest attempt aimed at filling
the hitherto existing gap in the literatures.
1.3 Objectives of the Study
The main objective of this study is to
investigate the relationship between financial ratios and the performance of
manufacturing companies in Nigeria. Specifically, this study seeks to
accomplish the following objectives:
1.
To investigate the extent of the relationship between inventory turnover
ratios (ITR) and the net profit margin of Dangote Cement Company.
TABLE OF CONTENTS
Title
Page - - - - - - - - - - i
Declaration - - - - - - - - - ii
Approval
Page - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgements - - - - - - - - vi
Table
of Contents - - - - - - - - vii
List
of Tables - - - - - - - - - x
Abstract - - - - - - - - - - xi
CHAPTER ONE:
INTRODUCTION
1.1 Background to the Study - - - - - - 1
1.2 Statement of the Problem - - - - - - 4
1.3
Objectives of the Study - - - - - - 5
1.4 Research Questions - - - - - - - 6
1.5 Research Hypotheses - - - - - - 6
1.6 Significance of the Study - - - - - - 7
1.7
Scope of the Study - - - - - - - 7
CHAPTER TWO: REVIEW OF RELATED
LITERATURE
2.1 Introduction - - - - - - - - 8
2.2 Historical Background of Ratio - - - - - 8
2.3 Conceptual Framework - - - - - - 10
2.4 Empirical
Review - - - - - - - - 32
CHAPTER THREE: RESEARCH METHODOLOGY
3.1
Introduction - - - - - - - - 36
3.2
Research Design - - - - - - - 36
3.3 Population of the Study - - - - - - 37
3.4 Sample Size of the Study - - - - - - 38
3.5 Definition of Variables employed in the
Study - - 38
3.6 Data Analysis Techniques - - - - - - 40
3.7 Model Specification - - - - - - - 41
CHAPTER FOUR: DATA
PRESENTATION ANALYSIS AND FINDING
4.1
Introduction - - - - - - - - 43
4.2
Data Presentation and Data Analysis - - - 43
4.3 Test
of Research Hypotheses - - - - - 51
4.4 Discussion
and Interpretation of Results - - - 53
CHAPTER FIVE: SUMMARY,
CONCLUSION AND RECOMMENDATION
5.1 Introduction - - - - - - - - 55
5.2 Summary
of Findings - - - - - - - 55
5.3 Conclusion - - - - - - - - 56
5.4 Recommendations - - - - - - - 56
5.5 Limitations of the Study - - - - - - 57
Bibliography - - - - - - - - 59
Appendices - - - - - - - - 60
TOPIC: FINANCIAL RATIO AS A TOOL FOR EVALUATING THE PERFORMANCE OF COMPANIES AND INVESTMENT DECISIONS, A STUDY OF DANGOTE CEMENT COMPANY
Chapters: 1 - 5
Delivery: Email
Delivery: Email
Number of Pages: 65
Price: 3000 NGN
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