Financial Statement As A Tool For Evaluating Performance Of Companies INVESTMENT DECISION

Financial Statement As A Tool For Evaluating Performance Of Companies Investment Decision

Abstract

The study looked at financial statements as a method for assessing how well businesses invest their money. The primary source was used to get the study’s data. Chi-square was used to create and test hypotheses. According to the data, the researcher discovered that a company’s reserves at any one time play a major role in determining whether or not to invest. When 76% of the questionnaire replies were in favor of ratio analysis, the researcher concluded that it is a useful tool for assisting in investing decisions. Additionally, it was shown that the achievement of goals serves as the primary driver behind the need for investment decisions. This is due to the questionnaire’s high response rate of 41% among the other three, as the researcher noted. Considering the results, the researcher suggests The user should be aware of the uncertainty surrounding the net income computation when analyzing the income statement. Bondholders should look at long-term indications such the capital structure of the company, historical and future earnings, and changes in financial position. Management should verify the accuracy of computed ratios using other-ratio decision-making approaches.

First Chapter Introduction

1.1 The study’s history

Financial statement analysis is a procedure that looks at previous and present financial data in order to assess performance and predict potential problems in the future. Investors, creditors, security analysts, bank leading officers, managers, taxation authorities, regulatory agencies, labor unions, customers, and many other parties who depend on financial data for making economic decisions about a company employ financial statement analysis. This course has a strong emphasis on the requirements of investors, particularly bond and stock holders.

Data from external reports and additional information from management are the main subjects of analysis of financial accounts. Major shifts or turning points in trends, numbers, and linkages should be noted by the study. Simply put, financial statements are summaries of extensive financial data. Access to financial statements is valuable to many different organizations, particularly creditors and investors. Their goals are frequently interrelated but occasionally different. However, all interested parties can use the fundamental tools and procedures of financial statements to their advantage.

Financial statement analysis can help creditors and investors obtain the information they need to decide how to proceed with their investments in a particular company.

The methods and instruments of financial statement analysis are of great interest to investment analysts and financial advisors. As it comes to their clients and potential clients, this person has the same fundamental information requirements as investors and creditors. Financial statements issued by accountants are frequently adjusted by analysts for elements they do not deem important or for items they do think important but do not appear on the statement.

The necessity of “comparability” of financial statement information across enterprises in financial analysis is suggested by supporting factors. The Securities and Exchange Commission (SEC) (2000) asserts that effective capital allocation and investor confidence are fostered when investors evaluate the merits of investments and comparability of investments. The Financial Accounting Standard Board (FASB) accounting concepts statement specifically states that “investing and lending decisions essentially involve evaluations of alternative opportunities and they cannot be made rationally if comparative information is not available” (our emphasis). This emphasizes the importance of comparable financial statements. The significance of financial statement comparability is frequently emphasized in financial statement analysis textbooks when evaluating a firm’s performance using financial ratios.By way of illustration, Stickney and Weil (2006) state in their conclusion that “ratios, by themselves, out of context, provide little information” (p. Despite the significance of comparability, there is no defined measure of it and no research on the advantages it offers to those who utilize financial statements.

In the economic world, the financial communication process is essential. Financial accounting information is the primary component of a firm’s financial communication policy, according to research done on the financial communication practices of the first 100 major industrial and trade company groups. The quality of the information, which has been continuously improving as a result of the harmonization of international accounting standards, is also crucial. This has allowed the companies to compete with other businesses operating on a national or international scale in the information market.

Financial statements were once just used to better organize accounting data and synthesize it; they were not utilized to make economic decisions because accounting was seen as more of a tool for protecting corporate assets.

All business entities are expected to regularly publish corporate annual reports and financial statements in particular. The statements are regarded as crucial tools for making informed judgments, not only for evaluating the performance of the company but also for comprehending how money is invested in the entity.

Financial statements include information content that is valuable to their readers, according to far older studies (Brown and Kennelly, 2003). This attribute entails the capacity to forecast an entity’s success using financial statements (Abdel-Khalik and Espejo, 2007, Coates 2001, Reilly et al., 2007).

Every investment activity does not revolve around making decisions. A decision is a selection among two or more options. Implementing sound decisions leads to the achievement of investment aims and objectives, whilst positively implementing poor decisions leads to investment failure.

Profit maximization and growth are the ultimate goals of investments, so it is required to make and implement capital decisions in order to accomplish the aforementioned goals.

A decision is taken and put into action, whether it be for action execution or corrective actions when necessary, in order for a meaningful decision that will be employed in these objectives for an investment to be made available, examined, and studied through what is derived.

The record that contains the financial component of an investment is what is known as the analysis of financial statement, and it is one of the crucial pieces of information required with regard to investments.

The researcher will base her analysis on Nigerian Breweries Plc 9th mile Conner Enugu in this study, which is based on financial statements as a tool for analyzing the performance of companies’ investment decisions.

1.2 Definition of the Issue

It is well known that many investors have gotten into investment endeavors without having a thorough knowledge of the investment opportunity, making and implementing poor decisions, and ultimately giving up when the going got tough. When investment operations are ongoing, the intended outcome is occasionally not achieved.

Given the limited financial resources and the impact of failure, many investments are made without consideration for those that would result in future lucrative returns, the risk involved, or the benefits to be gained. An investor’s life setback is liquidation in the case of brewing companies.

In order to improve the changes available to investment entities or firms through analyzing information regarding such investment opportunities, this study will identify the means by which meaningful decisions can be derived in order to address all of the aforementioned problems that result from poor decision-making.

The development of this research project was prompted by the following issues:

a. Nigerian breweries have begun to understand the use of financial statements in making decisions.

b. Nigerian brewers haven’t been paying attention to how financial statements affect how they make business decisions.

c. There are numerous issues that arise when analyzing financial statements in a business and offering answers.