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Analysis And Interpretation Of Financial Statement As A Managerial Tool For Decision Making
[A CASE STUDY OF NWOKEJI URBAN PLANNING AND ARCHITECTURAL STUDIO [NUPAS]]
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Financial analysis and interpretation assist in the:
- Identification of organizational performance through the use of analystical data.
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Identification of empirical relationships between operating results and
those items which have influenced the achievement of the results.
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Identification of historical data order to determine which internal or
external factors have exerted positive or negative influence on the
operating results (Mbat 2001:61).
Categorically, there are three
forms of financial analysis. These include: multivariate, univariate and
ratio analysis (Welsh, 1987). Moreover, ratios are the end results of
basis analysis. The ratio requires an interpretation on the basis of
their trends and in the lights of what is known of the business as a
young concern. It should be noted that financial statements represent
the positions of a firm at a particular point in time.
However, the
success or failure of a business depends largely on the quality of
decisions made by management, which in turn depends on reality of
accounting information available on them.
Research into this area is
quite relevant given the apparent investment failures experienced by
many business organizations. The collapse of many business either
private or public is due to poor decision. The question is whether
management has used information provided in the financial statement
extensively to enable rational decision making?
1.2 Statement of the Problem
The
principal aim of making investment decision is to get adequate returns
from it. According to Needham and Dransfield (1991), “people as a rule
will only tie up their money in a business if they are satisfied with
the returns they get from itâ€.
In an attempt to achieve maximum
returns from investment in production, services shares or stock and/or
other securities outside the firm, a comprehensive analysis of the
company which is intended to be invested in should be carried out using
the company’s financial statements to ascertain both its explicit and
implicit investment opportunities. However, organizations that do not
use financial statement analysis in making investment decisions could be
ill formed. As a result, the following problems may arise:
(i) Inability to identify viable investment opportunities
(ii) Decreasing returns from investments.
(iii) Decline in organizational overall profitability.
(iv) Increased investment risk: The organization might not achieve its corporate objective at the end of the period.
If
the trend continues, it will likely lead to the failure of the
organization. Therefore, there is a great need for organizations to
consider and analyse company’s financial statements before investing in
that company. These are the focus of this study.
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ABSRACT - [ Total Page(s): 1 ]AbstractFinancial Statement Analysis and Interpretation is a very vital instrument of good management decision-making in business enterprise. Good decisions ensure business survival, profitability and growth. Without financial statement analysis in investment decisions, an enterprise is likely to make decisions, which could spell its doom. Poor or lack of qualitative financial statement analysis could lead to investment returns, low profitability and even inability to identify viable investment ... Continue reading---
