Relevance Of Financial Ratio Analysis In The Appraisal Of Small Scalebusiness

RELEVANCE OF FINANCIAL RATIO ANALYSIS IN THE APPRAISAL OF SMALL SCALEBUSINESS
(A CASE STUDY OF SELECTED SMALL SCALE COMPANY IN CROSS RIVER STATE)

ABSTRACT
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This research work examined the relevance of financial ratio analysis in the appraisal of small scale business with particular reference to Mr. Biggs fast food in cross river state. The study examined the establishing of the extent to which accounting ratio can be used to interpret accounting records of small scale business, finding and analysing the meaning of financial ratio analysis to the researcher knowledge and understanding of financial statement of the company, to establish the effect of ratio analysis on the users of financial statement and to highlight available ratios for measuring the true state of performance of company. The data were collected from both primary and secondary sources, while primary data was collected by the use of questionnaires; the secondary data were based on readings from textbooks, internet and journals. Data from the response to questionnaire was presented using the statistical tool Chi- square. From the analysis, the findings showed that non challant attitude in the use of financial statement affects small scale business; obsolete use of data affects small scale business and also that lack of competent management affect small scale business. It was however recommended that the retained earnings of the small scale business should be properly invested in order to have more capital for business
TABLE OF CONTENT
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Title page i
Approval Page ii
Certification iii
Dedication iv
Acknowledgement v
Abstract vi
CHAPTER ONE: INTRODUCTION
1.1 Background of the study 1
1.2 Statement ofthe problem 2
1.3 Objectives of the Study 2
1.4 Research questions 3
1.5 Research Hypothesis 3
1.6 Significant of the study 4
1.7 Scope of the study 4
1.8 Limitation of the study 5
1.9 Historical background of the case study 5
CHAPTER TWO: LITERATURE REVIEW
2.1 Coherent Literature review (Academic review) 7
2.2Financing of small scale business 9
2.3 The nature and scope of financial ratio analysis1 2
2.4 Financial analysis and its uses to firm 15
2.5 Tools for financial analysis 17
2.6 Ratio analysis and standard of comparison 19
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2.7 Types of financial Ratio
2.8 Relevance of financial Ratio analysis 28
2.9 Inflation and financial analysis 30
2.10 Limitations of Ratio analysis 31
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design 33
3.2 Sources of Data 33
3.3 Area of Study 34
3.4 Population of the study 34
3.5 Sample and sampling techniques 34
3.6 Viability of the instrument 35
3.7 Reliability of the instrument 36
3.8 Method of data analysis 36
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Analysis and interpretation of responses 37
4.2 Analysis of questionnaire 40
4.3 Test of Hypotheses 50
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings 61
5.2 Conclusion 62
5.3 Recommendations. 63
Appendix 65
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Bibliography 66
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CHAPTER ONE
INTRODUCTION
1.1BACKGROUND OF STUDY
Financial ratio analysis assumes that there is a relationship between certainaspects of the activities of the firm as revealed in the income statements, Accounting figures reported in the financial statement do not provideProfit and loss accountand the balance sheet, which established a pattern of behaviour. The information contained in the financial statement of a company isconnected with the financial well being and performance of the reporting entity, organized to enable users of financial statement to draw a conclusionmeaningful understanding of the performance of the financial position of a firm, except the figure are analyzed with other relevant information throughthe use of financial ratio analysis.
Having established the fact that a ratio is useful and reliable in measuring the relationship between two things, this then gives rise to the need to study the relevance of the financial ratio in the appraisal of small scale business.
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1.2 STATEMENT OF PROBLEM
The study is beset by a lot of problems which include:
- Problems of non-challant attitude on the use of financial ratio in the interpretation of accounting records of small scale business
- Lack of available ratio for measuring the state performance of a company
- Lack of competent management
- Obsolete use of data.
1.3 OBJECTIVES OF STUDY
The main purpose of this study is to identify and consequently analyze the relevance of financial ratios in the appraisal of small scale companies in Cross river state.
In view of the above, the researcher intends to find the following:
- To establish the extent to which accounting ratio can be use to interpret accounting records of small scale business.
- To identify the available ratio for measuring the state of performance of a company.
- To established the effect of ratio analysis on the users of financial statement.
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- To ensure current data‟s are use in small scale business.
1.4 RESEARCH QUESTIONS
The study will examine the following questions:
- Dose non-challant attitude in the use of financial statement affects small scale business?
- Is ratio analysis a measure of quality into consideration when measuring the performance of the firm?
- Does obsolete use of data affect small scale business?
- Is ratio analysis a dependable tool of financial analysis?
1.5 RESEARCH HYPOTHESES
Based on the problems and objectives, the following hypotheses are formulated for study.
Hypotheses1
H0: Non-challant attitude in the use of financial statement does not affect small scale business
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H1: Non challant attitude in the use of financial statement affects small scale business.
Hypotheses 2
H0: Obsolete use of data does not affect small scale business
H1: Obsolete use of data affects small scale business
Hypotheses 3
Ho: Lack of competent management does not affect small scale business.
H1: Lack of competent management affect small scale business.
1.6 SIGNIFICANT OF THE STUDY
This research work will help in determining how the performance of a company can be measured through the use ratio as a tool of financial analysis.
The study will help in reflecting a qualitative relationship between financial statement of a different period and different firms. It will serve as a reference to other researchers with the mind of having in depth insight about ratios and its performance measuring abilities.
1.7 SCOPE OF THE STUDY
This study as the case may be covers the relevance of financial ratio analysis in the appraisal of small scale business with particular reference to Mr. Biggs incross river
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state. The study takes a holistic approach in its research to unveil the relevance of financial ratio analysis in the appraisal of small scale businesses.
1.8 LIMITATION OF THE STUDY
The limitations involved in this research work include:
-Hostility and non cooperation on the part of the respondents.
-The levels of ignorance on ratios and illiteracy were very high e.g some business officials refused to answer questions as they felt they would be indicated.
-Also financial implications were soaring high and this imposed certain restrictions
-Finally, the constraint of time was a limiting factor as all the areas of interest were not covered by the researcher.
1.9 HISTORICAL BACKGROUND OF THE CASE STUDY
The company study Mr. Biggs plc. The research will delve into the relevance of financial ratio maintain in those organization in order to access the element the contain the role they play to interested parties both within and outside the organisations.
Mr. Biggs plc
Mr. Biggs a division of U.A.C Nigeria plc, which is regarded as one of the fastest growing quick service restaurants. It was founded in 1986 and since then, has
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restaurant services. Mr. Biggs is Nigeria first chain of fast food restaurant owned by conglomerate UAC of Nigeria plc. There are currently around first drive through restaurant, with another four locations in Ghana. The restaurant is styled after mc Donald‟s and is known for its red and yellow colour scheme. Mr. Biggs history begins with coffee shop inside Kingsway Department stores in the 1960‟s. In 1973, these shops were rebranded as Kingsway Rendezvous, which became Mr. Biggs in 1986.The chain rapid expansion after becoming one of the first Nigerian companies to sell franchises to investors. Mr.Biggs specialty is the meat pie. a common lunch might also include scotch egg, a sugared donot, chicken and a soft drink. Whilewestern fare such as hamburgers are served. Nigeria delicacies such as jollof rice and moi-moi are more popular. Birthday cakes are also a popular product and Mr. Biggs bakery offers cake and pastries.