Impact of Financial Statement on Financial Management Decision Making of an Incorporation
Chapter One
Objectives of the Study
Companies including those in the banking industry have had to face the onerous task of presenting a credible and generally acceptable financial statement in their annual reports, to the various people to whom they own such obligations. The purpose of the study is:
- To determine the various financial statement used by banks.
- To ascertain the problems of using financial statement to assess performance of banks.
- To determine if there’s a relationship between financial statement and performance evaluation of a bank.
- determine the impact of financial statement on the financial management decision making
CHAPTER TWO
REVIEW OF RELATED LITERATURE
The Need For financial statement
The need to render financial report is to acquaint the shareholders with which to assess sufficient financial information with which to asses and decide upon the companies’ courses of action. Such information will enable the risk takers become much better informed to make decision and take actions concerning their interests in the enterprises.
The need for financial report to shareholders and other interested parties is also to provide them with regular information intended to increase their knowledge companies business and financial affairs. There is obvious need for reliable information, which shareholders and other users of financial statement can acquire an essential knowledge of the way in which business enterprises are behaving in relation to public interest. By perceiving enterprise behavior through communication information, interested parties, can use this knowledge to amend or adapt their behavior vis-à-vis the enterprise concerned.
The Composition of The financial statement
According To Lee (1989) In company financial reporting, financial report are essentially historical documents describing the financial results of past company’s activities owing to inevitable delays in gathering the necessary accounting data, the information contained in a financial report are often much out of data when compared with the present situation of the company concerned.
Various reports, statement and notes constitute the totality of company’s financial statement, and each must be clearly understood in order that acquaintance of their impacts on performance can be ensured. Such statements and reports are:
THE CHAIRMANS REPORT
The chairman’s report is usually included in the financial report of most companies. This is rather as convention not as a rule, as it is not legally required to be presents. Its contents are mainly non-quantitative and formally included a review of the year’s operation and financial results, comments on important projects, information about new development, and the progress of the company within the economic, social and political environments that prevailed during the financial year.
According to Slater (1994), he said the following on the importance of the chairman’s report: “We always read the chairman’s report over several years in Considerable dept. it is often a good way on fudging the caliber of management as the hopes expressed in earlier years guide often do not come to fractions and can get a good idea from the chairman’s statement as to how the individual sectors of the business are performing of have performed over a period. The chairman’s remarks on the company’s future profit and prospects are studied very closely as these are sometimes the only guide to the accent and future.
The contents of the chairman’s report are not subject to verification or attestation by the company’s independent auditors. The quantity and quantity of the information contained in the report therefore depends on the chairman’s expertise and acumens.
THE DIRECTORS REPORT
Unlike the chairman’s report, the director is a regally required statement that gives information to their information users on such matters as principle activities of the company.
- Principle activities of the company and any significant charge.
- A fair review of the financial year and its position at the end of Year.
- Names of person who where director at any time during the year.
- Significant charges in the fixed assets of the company during the year.
- The difference, as principally as practicable between the market value and the book value of land and building, where such difference is substantial.
- Directives interest in shares and or debentures of the company or any other company within the group, both at the beginning of the financial (or) data of appointment as director, if later and at the end of the financial year.
- Particular of likely future development in the business of the company.
- An indication of the activities (if any0 of the company in the field of research and development.
- Amount recommended to be paid by way of dividend.
- Amount to be carried to reserve.
- Charitable and political donations
CHAPTER THREE
RESEARCH DESING AND METHODOLOGY
This chapter is mainly to explain the research design and method empty to ascertain the required information that led to accepting the hypothesis stipulated in chapter one; otherwise its rejection; this however make the rejection or acceptance of such hypothesis more objective. It will also discuss the various steps adopted in the research work.
RESEARCH DESIGN
According to Ndaji (1998), important of research design is used as a guide in collecting and analyzing the data for a study. This research is essentially on exploratory study to inquire into the use of financial statement in assessment of bank performance.
The data collecting and analyzing in made of proof that allow the research to draw inference casual relations among the variable under investigation. The research outlines the methods used in collect and analysis of data. And how the use of these of method lead to appropriate solution of the research question and text of hypothesis formulated.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the data collected by the researcher while carrying out this study through sets of questionnaire administered to sampled respondents.
Also included is the computation and analysis of the presented data are tables and other common statistical tools used in presenting and analyzing the data generated. Brief explanatory discussion were also attached to table for charity purposes.
It must however be not noted that the data presented and subsequently analysed and discussed in this chapter are only those which bear directly to the problems and objectives of this study and which particularly relevant to the testing of the hypothesis formulated.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
This sector deals with the findings and personal opinions of the researcher based on data collected from the bank and interview held with some officials of the bank.
It has to the stated here that the respondents to the questionnaire were qualified people with the necessary accounting background and experience; therefore data collected can be relied upon for the formation of opinions.
SUMMARY
The analyses of the research question were aimed at revealing the impact of financial statements on investment in banks and this performance appraisal in such banks. It was fund that financial statement of banks influenced most investment decisions. Categorically a mammoth percentage relied on the five-year summary of banks in their performance evaluation.
Furthermore, there as a consensus opinion that financial statements were prepared to satisfy the needs above facts that the major items of financial statement, i.e. profit and loss account, the five-year summary have positive influence on investments and are veritable tools in performance appraisal. Finally, it was found that financial statement meet the requirements of potential investors. This shows that potential investors would definitely have no problem in satisfying its need to make further investments in the bank. Such information as contained in the bank’s annual reports to satisfy these potential investors to decide on their investments and performance evaluation of the bank include: Information on earning per share (ESP).
Information on divided per share (DPS)
Information on source and application
RECOMMENDATIONS
In the light of the need to make financial statement credible and completely reliable, the research makes the following recommendations. The adaption of the current cost accounting as a basic for the valuation of assets and other monetary items such as debtors, creditors, overdraft, taxation etc is recommended for banks. Under this convention, the beating of price charges during the accounting periods is removed, and this would enable the financial statements depict a more creditable information for the various users of the statement where historical cost convention is used.
It is the resolve of the research to recommended that profits should only recognized when made, to make for objectivity as this has had a negative influence on investors and performance evaluation analysts.
Finally, the use of the five-year summary may not be able to stand the test of time. It is therefore recommended that a ten-year summary be used. This is to reduce the effect of inflation to the barest minimum.
CONCLUSION
The research was carried out to ascertain the use of the financial statement on evaluating performance in the bank, with particular reference to First Bank of Nigeria Plc.
The analysis of financial disclosed that although investors and performance evaluation analysis relied on financial statement in the decision and appraisal. The reliability of financial statement especially during inflation as in currently prevalent is not assured as a result of the historical cost convention as a basis for asset valuation; consequently, the use of these reports now in decision-making may lead to inadequate decisions.
SUGGESTIONS FOR FURTHER RESEARCH
It is the view of the researcher that further research can be undertaken in the same area of study in the future. However, he suggests that this should be carried out in another area perhaps in a manufacturing industry or insurance industry with a larger sample size. If this is carried out it would probably expose greater findings.
REFERENCES
- Orji .J. (1996) Business Research methodology Enugu: Metson Publicity. PP 202-203
- Pandy I.M. (1992) Financial Management India: Vikas Publishing House P 259.
- First bank of Nigeria Plc,(2004) annual Report and Account Lagos: Academy press Plc. P3
- Anthony M.G. (1990) Financial Accounting Teach Yourself Book Britain: Hoddex and Stoughton.
- Barton A.D. (1999) The Anthony of Accounting, St Lucial Queen land: university of Queen land press.
- Blumenthal, R. G. (1998). It’s the gift to be simple: Why the 80-year-old Du Pont model still has fans, CFO Magazine, January, 1998, pp. 1-3.
- Bodie, Zvi, Robert C. Merton, and, David L. Cleeton (2009). Financial Economics, Person Prentice Hall, London, 2nd Edition.
- Gibson, Charles H. (2007). Financial Reporting and Analysis: Using Financial Accounting Information. Thomson South-Western, 10th Edition.
- Gibson, Charles H. (2013). Financial Statement Analysis. South-Western Cengage Learning, 13th Edition.
- Helfert, Erich A. (2003). Techniques of Financial Analysis: A Guide to Value Creation. McGraw Hill, 11th Edition.
- Horrigan, J. O. (1965). Some Empirical bases of Financial Ratio Analysis. The Accounting Review, 40, No. 3, 558-568.
- Horrigan, J. O. (1968). A Short History of Financial Ratio Analysis. The Accounting Review, 43, No. 3, 339-352.
