THE BUSINESS OF FINANCIAL RATIOS AS A TOOL OF EVALUATING THE PERFORMANCE OF A COMPANIES FOR INVESTMENT DECISION

By

ONWUAKPA LILIAN IFENYINWA REG. NO. AC/H2002/196

Presented To

Department of Accountancy

    Risks and uncertainties are factors, which a business must face so long as it remains a going concern. Thus to avoid the effect of such risks and uncertainties, management and other potential businessmen are advised to adopt the tool of financial ratios.
    The financial ratios will expose the position of the business in terms of performance and efficiency of operations. They show whether the management are efficient or inefficient in utilization of resources such as capital, assets labor etc.
    This project work is aimed at highlighting usefulness of financial ratios as a tool of evaluating the performance of companies for investment decision.
    Chapter one (the introduction) will explain the meaning of financial ratios, it will go further to state the purpose of the study, it significance, scope as well as definition of terms with respect of financial analysis.
    Chapter two will deal with the literature review. Then the study of background of topic will be equally highlighted. Explanation of selected financial ratios will also be shown.
    Coming to chapter three, the techniques of collection of data and data analytical tool to be used will be described here. The techniques for collection of data will include the questionnaire sources. The data analytical tools to be used as percentage size analysis and chi-square.
    Chapter four shows the analysis of the data collected.
    Finally, in chapter five, the findings be made will be stated, followed by recommendation to ensure effective and efficient use of financial ratios by users for investment decisions. Finally the conclusion will inform readers or users that usefulness or benefits of financial ratios in evaluating performance of companies for investment decision cannot be over emphasized and that if neglected, the shareholders or investors will not know their position or fate in companies.
 

TABLE OF CONTENT
Title page                                        ii
Approval page                                    iii
Dedication                                        iv
Acknowledgement                                    v
Abstract                                        vii
Table of content.                                    ix

CHAPTER ONE
1.1    Introduction                                    1
1.2    Purpose of study                                5
1.3    Significant of study                                6
1.4    Statement of problem                                7
1.5    Statement of hypothesis                            9
1.6    Scope and limitation of study                        9
1.7    Definition of terms.                                9

CHAPTER TWO
REVIEW OF RELATED LITERATURE                    13
2.1 Importance of financial ratios                        13
2.2 Users of financial ratios                            15
2.3 Reliability of financial ratios                        19
2.4 Limitations of financial ratios                        19
2.5 Computation of financial ratios                        22
2.6 Explanation of selected financial ratios                    22
2.7 Final consideration in financial statement analysis.            28

CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY                33
3.1 Sources of data                                    33
3.2 Sample to be used.                                34
 3.3 Methods or system of investigation.                    34

CHAPTER FOUR.
DATA PRESENTATION, ANALYSIS AND INTERPRETATION    37
4.1 Data analysis                                    37
4.2 Test of hypothesis                                49
4.3 Summary of ratio.                                54

CHAPTER FIVE
Summary Of Findings, Conclusion And Recommendation        59
5.1 Findings                                        59
5.2 Recommendation                                61
5.3 Conclusion                                    62
    Bibliography                                63
    Appendix                                    69