INVESTORS RELIANCE ON FINANCIAL STATEMENT (A CASE STUDY OF UNION BANK OF NIG. PLC, UYO BRANCH AKWA IBOM STATE)

ABSTRACT

The principal aim of this research work is to show financial statement analysis and the degree investors can rely on financial statement and also to show how to analyze and interpret financial statement to intend users. Questionnaires were administered through which data were collected the secondary source were analysis using ratios. The research find out that the liquidity ratio of the bank was good which means the bank is highly liquid to meet it short term debts needs, the researcher recommendation amongst others was that investors at all level should at all times analyze and interpret financial statement before making investment decision that will affects the investors plans. Also that in the case of analysis and interpretation of financial statement, a qualified Accountant should handle it and communicates the results to the interest party.

CHAPTER ONE

BACKGROUND OF THE STUDY

According to America Accounting Association, Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information. From this definition, it can be seen that the main objective of accounting is to provide economic information that will enable the users to make decisions.

According to Patrick .A. Casabona (2006), Investors and creditors throughout the world base their decision on the information published in various financial and economic reports issued by business entities.

The most important of these, are the annual and quarterly reports that depicts an entity profitability and financial condition, which investors and creditors reviews carefully before investing their fortunes. It is therefore, imperative that these reports convey information that reflects the economic reality of an entity in a meaningful, transparent and comparable fashion.

Recently however, there have been a host of corporate financial scandals accompanied by fraudulent financial reporting in Nigeria, which have affected the very foundation of corporate financial reporting and investor’s confidence. Obviously, this had an adverse effect on investor’s confidence in the Global financial reporting process and ultimately on the market values of corporate equity securities. These activities leads to swift actions by Government and their regulatory agencies, i.e. accounting and Auditing standards setter and other financial influential organizations around the world, in other to restore public confidence in the global financial system.

The use of different accounting standards by different countries over the years has also had an adverse effects on the flow of investment capital across borders, which has negatively affects international economic growth an security valuations. However, due to economic, political and regulatory developments, progress toward attaining a convergent set of Global financial accounting reports in which users of accounting information base their opinion has to some extent be encouraging.

Financial accounting statements are summaries of monetary data about an enterprise and are used in an attempt to help make informed decision in the present and future. However, financial statement portrays the operation of transaction and other event by grouping them into element according to their economic characteristics. Many entities of the world ultilise financial statements, those financial statement may be drawn up for private individuals non-profit organization manufacturers and service industries but it is worth noted, that the these groups that takes much advantage of the usefulness of financial statements are large corporations, governments and the third one which is the topic of discuss “investors”.

Financial statement plays a decisive role in each of these entities. Corporations decided how much credit to extend to customers and how much should be distributed to investors as dividends. Investors use company’s financial statement to decide whether or not, it would prove advantageous to invest their fortuned money and if so, what percentage to invest. The government uses financial statement to determine how much an entity is required to pay as taxes, each decision stated above does not always require the same financial information however, a balance sheet would be used in the decision making process for assessing a competing firm and determining a customers credit unit. It provides the users with data about available resources as well as the claims to those resources. An income statement is prove useful in determining credit extension to customers, distribution of dividends, taxes and investment opportunities. It provides the users with data about the profitability of the enterprise. Detailing source of revenue and the expenses, which reduce profit. A cash flow statement would be a useful tool in each instance because it gives a brief description of how much cash is coming in, going out and where exactly, it reports on cash flow from investing, financing and operating activities. Although each one is unique in its own respect, each financial statement is a necessary tool in making any financial decision.

1.2   STATEMENT OF RESEARCH PROBLEM

          Research work is carried out to investigate into some areas where attention has not be focused. Some of these problem is researcher attempts to solve is the inability of most business organizations to sustain their existence on the long run which is attributed to academic weakness. However investors today no longer rely alone on the financial statements produced by the directors of company (Union Bank, Nig Plc), because of lost of confidence on the statements, that the set of financial statement might not represent the true and fail view of the company’s financial position, investors might also have the fear that the company have declared adequate profit through cash flow analysis in other to build investors confidence whereas that is not the true position of the company economic situation. Financial statement also does not guarantee the viability of the company and it does not reflect the substance of the company on the long run. These and many more problems a worth assessing in other to, advance a more realistic measure in making in investment decisions

1.3   OBJECTIVE OF THE STUDY

          This research aims at achieving the following objectives,

1. To determine if the state of Affairs of the company can attracts more investors to invest through than annual reports, analysis, advertisement or publication.
2. To find out the confidence investor lay on the financial statement presented by the directors of the company.
3. To ascertain if the fluctuation’s on the profit after taxation will attracts / dis-attracts investors in their investments decision and confidence build on the company

1.4   STATEMENT OF RESEARCH HYPOTHESIS

          In attempting to reach a decision, it is useful to makes assumptions about the population involved in the study. Such assumptions which may not be true are called hypothesis. In this study the hypothesis will,

A.    To determines if there is any significances relationship between the state of affairs of the company and investors in there investment decisions.

Ho: There is no significances relationship between the state of affairs of the company and investors in their investment decisions.

Hi:  There is no significance relationship between the state of affairs of the company and investors in there investment decisions.

B.    Is there is significance relationship between the financial statement and the confidence build on the company.

Ho: There is no significances relationship between the financial statement and the confidence build on the company.

Hi:  There is significance relationship between the financial statement and the confidence investors lay on the company.

1.5   SCOPE OF THE STUDY

          This research cantered on the investor’s reliance on the financial statement of the company. It shows the extent to which investors can make analysis of the Bank financial statement and for taking meaning decision as to, whether to invest / continue in businesses or to doctrine from investment on the company under review.

1.6   SIGNIFICANCE OF THE STUDY

          The study plays significant role in student, lecturers, analyst, government, institution and companies’ activities on their investment interest and judgment. However, the study should be able to help investors to realize the importance of analyzing financial statement by using ratio on a single year data before decision taking. The study is considered crucial for highlighting and analyzing the following views;

1. Informing actual or potential investors whose concern are their returns on investment.
2. Informing creditors who rely on the current financial position and solvency of the firm as a parameter for measuring the firms liquidity.
3. Informing as many users of accounting information the need of proper analysis therefore taking decision

1.7   LIMITATION OF THE STUDY

          Basically, there has been a number of limiting factors that affected this research work, thee factors includes;

1. Time constraint: This research work was carried out amidst of the academic tight schedule and this in no small way affects the project work.
2.  Another limitation was the difficulties involved in reaching some top employees of the bank due to their tight schedule, who could have give me first hand information to enhance the research work.
3. Non-co-operation of respondent; Respondent to the questionnaire were adamant in given first hand information that will aid the progress of the work.