Role Of Financial Statement In Investment Decision Making.

ROLE OF FINANCIAL STATEMENT IN INVESTMENT DECISION MAKING.
(A CASE STUDY OF FIRST BANK OF NIGERIAN PLC)

ABTRACT
Corporate organizations owe a duty to fully disclose matters concerning their operations so as to aid investors in making investment decisions because Investment decision makers rely on information obtained from financial statements to predict future rates of return. Without the financial statement, there will be a problem of how to determine the profit of a company, and evaluation of performance of a company. The general objective is to ascertain the role of financial statement in investment decision making. The study will be based on survey and questionnaire will be used to gather information. There is a total population of 70 personnel but the sample size is 60 using Taro Yamane’s formula. The methods used in analysing this study are simple percentage and chi-square. We discovered from the test of hypotheses that financial statement is relied upon in investment decision making and financial statements are useful for forecasting company’s performance. Concluded was drawn based on the findings that financial statement plays a vital role in investment decision making and recommends that no investment decision should be taken without the consideration of a company’s financial statements.
TABLE OF CONTENT
Cover page------------------------------------------------------------------------------i
Title page-------------------------------------------------------------------------------ii
Certification page--------------------------------------------------------------------iii
Dedication-----------------------------------------------------------------------------iv
Acknowledgement------------------------------------------------------------------v
Abstract-------------------------------------------------------------------------------vi
Table of content--------------------------------------------------------------------vii
CHAPTER ONE
1.0 Introduction---------------------------------------------------------------------1
1.1 Historical background---------------------------------------------------------2
1.2 Statement of the problem---------------------------------------------------3
1.3 Objective of the study--------------------------------------------------------4
1.4 Research hypotheses---------------------------------------------------------5
1.5 Research questions-----------------------------------------------------------6
1.6 Significance of the study----------------------------------------------------7
1.7 Scope of the study------------------------------------------------------------8
1.8 Limitation of the study-------------------------------------------------------8
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction------------------------------------------------------------------10
2.1 Features of financial statement------------------------------------------12
2.2 Functions of financial statement-----------------------------------------12
2.3 Objectives of financial statement----------------------------------------13
2.4 Analysis of financial statement-------------------------------------------14
2.5 Users of financial statement----------------------------------------------14
2.6 Attributes of an ideal financial statement-----------------------------18
2.7 Types of financial statement----------------------------------------------21
2.8 Definition and nature of investment decision------------------------29
2.9 Importance of investment decision-------------------------------------32
2.10 Types of investment decision-------------------------------------------34
2.11 Investment evaluation criteria------------------------------------------36
2.12 The role of financial statement in investment decision making42
2.13 Types of ratios and their uses-------------------------------------------43
Reference
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction-------------------------------------------------------------------49
3.1 Research design--------------------------------------------------------------49
3.2 Area of the study-------------------------------------------------------------50
3.3 Population of the study----------------------------------------------------50
3.4 Sample size and sample technique--------------------------------------50
3.5 Instruments for data collection------------------------------------------52
3.6 Sources of data collection-------------------------------------------------52
3.7 Methods of data collection-----------------------------------------------53
3.8 Method of data presentation and analysis---------------------------54
3.9 Validity of instrument used----------------------------------------------56
3.10 Reliability of the instrument used------------------------------------56
Reference
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Data presentation-----------------------------------------------------------58
4.2 Data analysis------------------------------------------------------------------58
4.3 Test of hypotheses----------------------------------------------------------67
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings--------------------------------------------------------72
5.2 Conclusion---------------------------------------------------------------------73
5.3 Recommendations----------------------------------------------------------74
Bibliography ----------------------------------------------------------------------76
Appendixes ---------------------------------------------------------------------78
CHAPTER ONE
1.0 INTRODUCTION
Corporate organizations owe a duty to fully disclose matters concerning their operations so as to aid investors in making investment decisions. Both large and small organizations in addition to satisfying the legislating requirement tend to retain existing investors and to attract potential ones through the publication of their financial statements where the capital stock of a corporation is widely held and its affairs are of interest to general public relations. The discussions and illustrations of the study will be centered on the financial statement presented to shareholders and also available for potential investors, bond holders and trade creditors as a tool of information for investment decision. Financial statement based on result on past activities are analyzed and interpreted as a basis for predicting future rate of returns and assessment of risk.
Financial statement provides important information for a wide variety of decision, investors draw information from the statement of the firm in whose security they contemplate investing. Decision makers who contemplate acquiring total or partial ownership of an enterprise expect to secure returns on their investment such as dividends and increase in the value of their investment [capital gain]. Both dividends and increase in the value of shares of company depends on the future profitability of the enterprise. So investors are interested in future profitability. Past income dividend data are used to forecast returns from dividend and increase in share prices.
1.1 HISTORICAL BACKGROUND
For the purpose of this research, first bank plc. Anyigba branch kogi state is selected as a case study for academic purpose
According to google.com [electronic library] first bank of Nigerian Plc. was established in 1894 as the first bank in Nigeria, a premier in West African and the leading financial service solution provider in Nigeria. From being the only bank for decades, weathered the banking exposure of the 1930,s to 1950s followed by the era of government ownership and control to a flurry consolidations and then gradual growth in number banks up to the early 1980s, then yet another industry growth spurt in early 1990s when the banking sector was deregulated, leading to an industry shake-up in the late 1990s, which reduced the number of banks from 126 to 77. At later resuscitation and growth to 89 banks leading al through the seasons, first bank plc has remained resilient dependably dynamic and truly the first.
Based on the researchers’ oral interview with the bank officials, the Anyigba branch of first bank plc. was established in the then kwara state in the 1978. They render other services than safe keeping of money like giving loan to their customers and hire purchase. The branch presently has about 288 customers.
1.2 STATEMENT OF THE PROBLEM
It is observed that the role of financial statements in investment decision making in Nigeria has some problems to both investors and managers of business organizations who are either not aware of the importance of interdependence relationship that exist between investors and business organizations. Such problems include;
i. How analytical tools are set to aid prospective investors in accessing the financial position of the corporate organization.
ii. Evaluation of performance of a company in investment decision making.
iii. How to determine the profitability of a company.
The above listed problems are the problems to look into in this research work. The problems analyzed tend to scare away both existing and potential investors. The reason of this study is to adequately look into the above problems and suggest possible solution to any of them. Nevertheless this research will find possible key factors to solving these problems because financial statement in investment decision making in Nigeria is the life blood of every organization to the potential investor.
1.3 OBJECTIVE OF THE STUDY
The general objective is to ascertain the role of financial statement in investment decision making. The specific objective is as follows;
i. To examine how a set of analytical tools will aid prospective investors in assessing the financial position of the corporate organization.
ii. To evaluate the performance of a company for investment decision making.
iii. To determine the profitability of the company.
iv. To appraise the fundamental use of financial statement information, this is to provide information for investment decision making.
1.4 RESEARCH HYPOTHESE
Hypothesis according to the English dictionary is an unproved theory, proposition sent forth as an explanation of something, often as the basis for further investigation. Hypothesis is the guides for the investigators in the entire process of research endeavor and they keep the researcher on the main line of the study, in this research, the following hypothesis are formulated for the study;
Ho; financial statements are not used to be relied upon in investment decision making in a company.
H1; financial statement are used to be relied upon in investment decision making in a company.
Ho; financial statements are not useful for forecasting company’s performance.
H2; financial statements are useful for forecasting company’s performance.
Ho; financial statement does not determine the profitability of a company.
H3; financial statement determines the profitability of a company.
Ho; financial statement does not project new investors.
H4; new investors are projected by financial statement.
1.4 RESEARCH QUESTIONS
According to Uzoagulu [1998; 96], research questions guide the researcher in constructing the questionnaires. Therefore the researcher raised the following research questions to guide her in constructing her
questionnaire which are instruments in the study. The questions are as follows;
i. To what extent is financial statements used in the investment decision making in a company?
ii. Are financial statements useful for forecasting company’s performance?
iii. Do financial statements determine the profitability of an organization?
iv. Do financial statement projects new investors?
1.6 SIGNIFICANCE OF THE STUDY
This study will be of immense benefit to banks by improving the banking performance financial analysts, investors, companies and financial organizations. This is because the study intends to help these stockholders in decision making. The study will help in widening knowledge financial statement in investment decision making, it will also make the organization to appreciate the importance of sound financial statement in the provision of information necessary for decision making. It will review the improvement in the organization handling the financial statement and show equally the ways through which improvement could be accomplished finally this research will equally serve as a reference to students in this noble institution and other school who may be interested to embark on a further research study of this nature and above all, report of this study shall definitely add to existing knowledge in research methodology.
1.7 SCOPE OF THE STUDY
This study will be limited to a geographical entity known as Nigeria and specifically first bank plc. Anyigba branch, kogi state of Nigeria.
1.8 LIMITATION OF THE STUDY
There are some limitations encountered by the researcher in the process of this research which limited the scope to only first bank plc. Anyigba branch, some of the limitations are as follows;
i. Uncooperative attitudes of the respondents; the researcher could not get some necessary information from the respondents because of their negative attitude in their response to the oral interview with the bank officials and the questionnaires.
ii. Time constraints; despite the time provided, it was not still enough for the researcher to go all the relevant places like banks and company etc to get relevant information and due to the combination of project and academics work.
iii. Financial constraints; financial constraints is also another factor that limited the researcher to go to many branches of first bank and even other banks and organizations. The researcher lacked finance for transportation, electronic library etc. and as such was limited to only Anyigba branch of first bank plc.