A CRITICAL ANALYSIS OF THE USE OF FINANCIAL STATEMENT IN ASSESSING THE PERFORMANCE OF AN ORGANIZATION IN NIGERIA (CASE STUDY OF NIGERIAN BOTTLING COMPANY PLC)

ABSTRACT

This study was intended to evaluate the use of financial statement in assessing the performance of an organization in Nigeria. This study was guided by the following objectives; To examine the role of financial statement in assessing the performance of an organization; To examine the nature of financial statements of an organization; To examine the impacts of financial statements on investment decision making in an organization; To examine the extent to which financial statement aid investors in making investment decisions in an organization; To examine the relationship between financial statements and organization performance; To recommend ways of making investors understood the financial statements before making investment decisions.

The study employed the descriptive and explanatory design; questionnaires in addition to library research were applied in order to collect data. Primary and secondary data sources were used and data was analyzed using the correlation statistical tool at 5% level of significance which was presented in frequency tables and percentages. The respondents under the study were 100 employees Nigeria bottling company, Lagos state. The study findings revealed that print media has an impact in shaping the Nigerian political structure; based on the findings from the study.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Financial statement analysis (or financial analysis) is the systematic way of reviewing and analyzing a company's financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity. The analysis of financial statement involves a specific method, process and techniques for evaluating risks, performance, financial health, and future prospects of an organization. With the development of industrial and commercial organizations and institutions in various countries has significantly increased benefiting from a range of finance sciences (Rahmani & et al, 2014). Financial reporting in organizations reflects the needs and expectations of various groups of users of the financial statements, such as investors, creditors and others to make informed decisions of economic. Set of financial statements is most significant tool of providing information to outside economic entities. The information provided in this form are useful for users if be transparent. In this regard, a financial statement is an important component management information system. Existence of financial statement of transparent and comparable is one of the main pillars of accountability executives and the basic needs of decision-makers of an organization. Although information can be extracted from various sources, but now the financial statements will form the core of financial information resources, so it should be has good quality (Darabi & et al, 2012). Expansion of public ownership of economic entities that realized in the form of emergence of public companies is a major cause of fundamental changes in the economic environment of recent years. Whatever the quality of financial information provided in such an environment be more favourable, thus users are making economic decisions more effectively. As a result, the financial statements should at all possibility provide most reliable and relevant information (Mojtahedzadeh & Moemeni, 2003). The overall objective of any organization is to consistently grow and survive on a long term basis. Most managers are also aware that their organizations are part of a large system which has profound direct and indirect influence on their operations. This implies that if these organizations must effectively and efficiently meet their objectives, they should properly adapt themselves to their environments. Adapting organizations (especially firms) to their environments signifies a reciprocal or symbiotic relationship between the ‘duos’ as typified by systems model of viewing business. Considering the current environmental crisis, businesses must give more to their environment. The environment in which businesses operate is on an unsustainable course. We are now faced with serious challenge of environmental changes such as global warming, health care and poverty. This situation is similar to what Welford (2010) described as tangible environmental crises (serious water shortage across around the world, global food insecurity and decline in fish catches). According to (Vlek & Steg, 2007), Ezeabasili (2009) as human population continue to grow, material consumption intensifies and production technology further expands there is a steady decline in the quantity and quality of environmental resources. There is continuing concern about nature fragmentation and loss of biodiversity, shortages in freshwater availability, over-fishing of the seas, global warming, extreme weather events, air pollution, water pollution, environmental noise and utter neglect and disregard for the protection of the immediate environment, much more the future environment. This type of environmental un-sustainability associated with continuously rising demand and a shrinking resource base now spills over into social and economic instability.

1.2 STATEMENT OF PROBLEM

In a modern business environment, which is becoming more competitive, the survival of firms, be it small or large; depends upon the strategic decisions made by management. This is however done with the help of financial statements analysis, which is a big challenge to most countries having shortage of professional accountants and financial analysts as it is the case to our country. Every manager needs information in order to make the right decision at the right time. In a business organization, the financial data are obtained from the financial statements. Financial analyst must analyze the data in financial statements to provide the meaningful information for use. Without correct information, the decisions made by decision makers may affect the growth of the organization. In this view, a sustained success will depend on how good decisions are made based on the proper analysis of financial statements. The relationship between analysis of financial statements and organization performance is twisted together, the management of an organization is depending on accounting information for taking various strategic decisions and financial statements provide such information. This information is made useful by analyzing and interpretation of financial statements with help of financial analysis techniques. Sharma & Shashi 2001, financial statements are prepared primarily for decision making, but the information provided in financial statements is not an end in itself and no meaningful conclusion can be drawn from these statements alone. The financial analysis helps in making decisions from the information provided in these financial statements. Thus, the proper financial statements analysis assists management in communicating information which is pertinent and purposeful for assessing the performance and effectiveness of the organization. This study is set to investigate the use of financial statement analysis on in assessing the performance of the organization.

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine the critical analysis of the use of financial statement in assessing the performance of an organization. Other general objectives of the study are:

1. To examine the role of financial statement in assessing the performance of an organization.

2. To examine the nature of financial statements of an organization.

3. To examine the impacts of financial statements on investment decision making in an organization.

4. To examine the extent to which financial statement aid investors in making investment decisions in an organization

5. To examine the relationship between financial statements and organization performance.

6. To recommend ways of making investors understood the financial statements before making investment decisions.

1.4 RESEARCH QUESTIONS

1. What are the roles of financial statement in assessing the performance of an organization?

2. What is the nature of financial statements of an organization?

3. What are the impacts of financial statements on investment decision making in an organization?

4. What is the extent to which financial statement aid investors in making investment decisions in an organization?

5. What is the relationship between financial statements and organization performance?

6. What are the ways of making investors understood the financial statements before making investment decisions?

1.5 RESEARCH HYPOTHESES

Hypothesis 1

H0: There is no impact of financial statement in assessing the performance of an organization.

H1: There is a significant impact of financial statement in assessing the performance of an organization.

.Hypothesis 2

H0: There is no significant relationship between financial statement and performance of an organization.

H1: There is a significant relationship between financial statement and performance of an organization.

1.6 SIGNIFICANCE OF THE STUDY

The researcher hope that this analytical research will play its part in giving attention to the financial performance of an organization, to the organization management as well as users of the financial statements. Also it will be useful for the management on setting of and selection of appropriate financing and operating strategies to be competent in any organization. In addition to that, it helps the researchers to employ their theoretical knowledge in to practice. Besides, the study and frame work designed to evaluate the financial performance of organizations will be expected to serve as an input for future researchers interested in assessing the performance of an organization using financial statements.

1.7    SCOPE OF THE STUDY 

The study is based on the critical analysis of the use of financial statement in assessing the performance of an organization, case study of Nigerian Bottling Company Plc.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Analysis: A systematic examination and evaluation of data or information, by breaking it into its component parts to uncover their inter-relationships or opposite of synthesis. An examination of data and facts to uncover, understand the cause, effect and relationships, thus providing basis for problem solving and decision making.

Financial Statement: Is a summary report that shows how a firm has used the funds entrusted to it by its stockholders (shareholders) and lenders, and what is it current financial position. The three basic financial statements are the (1) balance sheet, which shows firm's assets, liabilities, and net worth on a stated date; (2) income statement (also called profit & loss account), which shows how the net income of the firm is arrived at over a stated period, and (3) cash flow statement, which shows the inflows and outflows of cash caused by the firm's activities during a stated period.

Assessing: Is the action or an instance of making a judgment about something: the act of assessing something.

Performance: The accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, and speed. In a contract, performance is deemed to be the fulfilment of an obligation, in a manner that releases the performer from all liabilities under the contract.