PROJECT TOPIC- FINANCIAL INDICATORS AS A BASIS FOR EVALUATING CORPORATE PERFORMANCE
The study is aimed at examining the extent to which firms uses financial indicators as key information items which portray the financial health or otherwise of an organization. The broad objective of this study is to ascertain the company’s financial strength and weakness using financial indicator analysis and also to ascertain the yardstick for comparison of performance relative to other firms in the same industry. The primary and secondary source of data collection was used in this study and the stratified and systematic sampling techniques were used to select fifteen firms which served as the sample size of the study. The chi-square statistical tool was used to test the slated hypotheses and the findings revealed that there is significant relationship between a firm’s performance and financial indicators. It was concluded that firms appraise their performance using financial indicators more especially than profitability ratios which are computed annually to appraise their performance. It was recommended among others that management should not attach too much importance to the profitability ratio alone as other users have interest in leverage ratios and liquidity ratios.
- 1 Background of the Study
Financial indicators are the monitoring points used to ensure that a department is meeting its financial goals set in the strategic plan. These indicators are typically monitored on a monthly basis with annual roll up (Wireman, 2010). Financial indicators are key information item contained in financial report (statement) which portrays the financial health or otherwise of an organization.
Measuring business performance is something which has been in business for a long time. Many organizations have been using financial indicator as net profit margin, Return on Asset (ROA) to name a few, to qualify the performance of the company (CIMA, 2004).
Financial indicators, properly use highlighted opportunities for improvements, they pinpoints “soft spot”. In a company and point the needs for further analysis and proffer solution to problem. The viability of a firm in an industry could be ascertained through the value shown from the financial indicators calculation from the financial statement (reports) (Abdallah, 2012).
Different users of financial report have interest in special component of information contained therein,that is the more reason why different types of indicators are computed such as liquidity, leverage, activity (asset management), profitability, market value ratio etc to outcross the interest of the various users. Different criteria of appraisal can be from these, which are very useful to the users.
- 2 Statement of Problem
Every stakeholder in business has particular interest in business or firms financial statement and not all have the skills to analyze such information to enable them make relevant decision. Although most firms do measure their performance through financial indicators, it’s not done in a way that will be meaningful to the least stakeholder. Most time, high profits are reported but these are presented to the owner and other interested parties without support. It is only when analysis of these reported account are made that one can get further insight into the strength and weakness of a firm.
The closure of platinum Habib Bank (Bank PHB), Savannah Bank of Nigeria Plc is a test case, the major reason advanced by central bank of Nigeria is that of financial weakness. If financial indicators analysts have been made at that time and the entire public was following the trend most people wouldn’t have been victims. Therefore the exigency of financial indicator analysis to appraise corporate performance become apparent. This will enable shareholders employees, government etc to make relevant decisions.
Besides financial statement without analysis may not make meaning to most users; hence analyzing these statements by different indicators will be a yardstick with which most companies can be made.
The study therefore, intend to examine the extent to which banks and insurance companies operating in Delta State use financial indicators to evaluate their performance and also its limitation.
- 3 Research Questions
The following research questions are addressed in the course of this work.
- To what extent do firm appraise their performance?
- To what extent do firm measure their performance?
- To what extent do firms compare their financial indicators?
- 4 Objectives of the Study
- To ascertain the company’s financial strength and weakness using financial indicator analysis.
- To ascertain the yardstick for comparison of performance relative to other firms in the same industry.
- To evaluate which performance measure is better to be used in measuring the profitability of the firm.
- 5 Statement of Hypothesis
This study addresses the following hypotheses.
Ho: There is no significant relationship between a firm’s performance and financial indicators.
HI: There is significant relationship between a firm’s performance and financial indicators.
Ho: There is no significant relationship between a firm’s appraisal performance and financial indicators.
HI: There is significant relationship between a firm’s appraisal performance and financial indicators.
Ho: There is no significant relationship between the use of financial indicators and other forms of performance evaluation method by firms.
HI: There is significant relationship between the use of financial indicators and other forms of performance evaluation method by firms.
PROJECT TOPIC- FINANCIAL INDICATORS AS A BASIS FOR EVALUATING CORPORATE PERFORMANCE
- 6 Significance of Study
This study is expected to be of significant importance to many parties. Since the study revolves around one of the popular issues of current business scenario because all users of financial statement are interest in the analysis of the information contained therein. So as to enable them deduce opinion about the financial indicator to appraise a firm the users can determine.
- The ability of a firm to meet its long term solvency, i.e. borrowed fund has been used.
- How efficient the firm has utilized it’s various assets in generating revenue.
- The overall operating efficiency and performance of the firm.
- To serve as a reference materials for both academicians and practitioners which would also help interested researchers to carry out more extensive studies in the area.
- 7 Scope of the Study
This study focuses on examining the financial health of firms using financial indicators as a basis for evaluating corporate performance with relevant references to some selected banks which include Ecobank, United Bank for Africa (UBA), Zenith Bank and Insurance Companies (Staco Insurance Plc, Greater Nigeria Insurance Plc) all located in Asaba, Delta State.
- 8 Limitations of the Study
This study is not without its limitations like any other study some of the limitation is that financial data beyond audited financial statements was unavailable to the researcher. This is so because according to the policy of the company those financial statements that have not been published in newspapers or the annual report of the bank cannot be disclosed.
There was also this financial constrain that prelude the researcher from conducting a job on the firms, the non-receptive attitude to respondents further compounded the problem while some were receptive and willing to comply by way of filling questionnaires open mindedly but others were not.
- 9 Definitions of Terms
This study uses a comprehensive definition of some terms which may not be familiar to some individuals, they include.
A bank is a financial institution that deals with fund raising and the collection of customer’s fund, lending or investing surplus deposit until they are required for payment. A bank is also known as a financial institution where money are kept for safety and collected on demand or request.
This is a company that offers insurance policies to the public, either by selling directly to an individual or through another source such as an employee’s benefit plan.
This is a formal record of financial activities of an entity. These are written reports that quantify the financial strength, performance and liquidity of a company. This is a statement prepared by the directors of a company to be presented to the shareholders at the annual general meeting (AGM).
This is an urgent need or demand that one must deal with.
This is a standard used for judging how good or successful something is.