PROJECT TOPIC: A STUDY ON THE ROLE OF ACCOUNTING RATIO ANALYSIS ON BUSINESS DECISIONS IN NIGERIA
Financial ratio analysis is important to the management, owners, customers, suppliers, competitors, regulatory agencies, tax payers and lenders each having their views in applying financial statement analysis in their evaluations and making judgments about the financial health of organization, while some authors found that financial ratios analysis is not an adequate method by which to evaluate the overall performance of an organization; also the balanced scorecard is more efficient than financial ratios analysis. The general objective of this study was to analyze the contribution of financial ratio analysis on decision making in commercial banks in Rwanda. Specific objectives were to analyze the contribution of liquidity ratio analysis in effective decision making in UBA; to determine the effect of efficiency ratio analysis on the effective decision making in UBA; to measure the extent to which asset quality ratio analysis affects decision making in UBA and to assess the role of profitability ratio analysis on the effective decision making in UBA. The findings should enable management of banking institutions come out with realistic policies for ratio analysis aimed at improving the quality of their decision. This research was descriptive and correlational design and used both qualitative and quantitative methods. The population under study was comprised of 139 employees of UBA and then, the sample size of the study was 104 employees. This study employed the stratified random sampling technique. This research used regression analysis to establish relationship between variables under study. The Statistical Package for Social Sciences (SPSS) version 16 was used in this study. The data was presented in forms of frequency and percentages into tables. The study revealed that if efficiency ratio increased by one per cent, the effective decision making also increased by 0.910. Hence, there is a positive effect of efficiency ratio analysis on effective decision making and if asset quality ratios analysis increased by one per cent, the effective decision making also increased by 16.935. Hence, there is a positive effect of asset quality ratios analysis on effective decision making. The study concluded that ratios analysis is a good way to evaluate the financial results of UBA in order to measure its performance. Ratios allow the UBA to compare its business against different standards using the figures on its financial statements. This research recommends National Bank of Rwanda to speed up the sensitization campaign of the Rwandan commercial Banks to focus on ratios analysis as among the best tool to the effective decision making in commercial bank
1.1 Background of Study
In every organization irrespective of its size, ownership, structure, impact of ration analysis on management decision making occupy a crucial position. However, given this centrality can be said that behind every successful organization the process in which the management arrives at decision making is very important as far as financial management is concerned in the private sector of the economy and specifically in a banking institution like a united bank for Africa (U.B.A). In a nutshell, the impact of ration analysis is the most preoccupation of this research work is referred to as the manner through which the management of organization takes decision suitable for profit as possible future planning, controlling current performances and future development through and activity analysis. Significance change has taken place in recent years in the size and complexity of both private organizations and public organizations because this management is faced with evaluation in technical, social-political and economic forces. As a result, the methods of arriving at the decision has become more difficult management especially in the accounting activity of the organization. This research is devoted to the examination of some major impacts of ration analysis in a financial institution (United Bank of Africa).
1.2 Statement of the problem
The part of ration analysis as a tool for decision-making have the following area of concern. 75 ratio analysis useful in investment appraisal. Whether management relies on ratio analysis for decision making Do ratio analysis really determines the wealth maximization of the shareholder. It a ratio analysis or management tool or technique used in determining the liquidity, stability profitability and efficiency of the organization? Whether ratio analysis can be used to determine the trend of development and performance of the organization over time. At the time of choosing this topic, the above was what the researcher has in mind and therefore pushes to find out what is the need for ratio analysis n banking institutions like a united bank for African.
1.3 Objective of study
The primary objective of this researcher is to find out how efficient and effectiveness does the management evaluates its financial position. Also, the performance of the institution with regards to the financial a quantitative judgment about the institution’s financial position and its achievement which include it is further generalized as the following: The effective implementation of the traditional function of banking acceptances of deposit to find lending. Efficient financial resource mobilization without inflation money supply expansion for economic development especially when external borrowing is viewed as a last resort. Increasing sense of commitment and identification with the institution and its good by institutional design and activates of people and adopting a participating or democratic style of management. Maintaining accountability of assets.
1.4 Research question
For the purpose of this study, the following question is raised to enable the researcher to find a possible solution to the identified problem if properly answered.
- How is the application of ratio analysis useful when it comes to decision making in the organization?
- In what way is the application of ratio analysis useful in evaluating the financial performance of the organization ?
- How do interested parties in the united bank Africana apply and use ratio analysis in evaluating the bank before taking their decision?
- How is ratio analysis of importance when it comes to granting of loans and advances to the customer?
- To what extent does ratio analysis help the chief executive of the bank in decision making?
- How is ratio analysis of importance to the balance short of the bank?
1.5 Significance of the study
The significant impact of ratio analysis in financial institutions cannot be overemphasized. It is therefore expected that this research work is bound to be beneficial to the following:
a. Management: Most management decisions are based on information from ration analysis. Management planning is also supported by vital information from ratio analysis.
b. Shareholders: For shareholders to determine their wealth maximization, they rely on information from ratio analysis such as stability ratio and leverage ratio.
c. Potential Investor: for potential infestation is and for them to know or ascertain the organization is based on vital information from ratio analysis.
d. Employees: The interest of employees is the organization is how their welfare can be improved. They are able to obtain information for the agitation for improvement on their welfare through ratio analysis such as profitability ratio.
e. Student: It is expected that students mostly undergraduate stand to benefit from this research work because it serves as a source of ratio analysis.
f. Government: Government also rely on information from ratio analysis in the assessment of the organization for tax purpose such as profitability and liquidity ratios.
1.6 Scope of the study
The scope of this research work be specially restricted to United Bank for Africa Plc; with regard to its accounting ratio which helps in:
The assessment of profitability; Assessment of activity; Assessment of failure.
1.7 Limitation of the study
In search of data, problems were faced by the researcher despite all the explanation of the purpose of the study.
- In the first place, the respondent did not react to the question sent to them is insufficient data.
- Also, cost and time have a great impact on the study since no adequate means were available and time under consideration was short.
1.8 Plan of the study
The bank ground of the study, the statement of research on ratio analysis is primarily used to compare a company as well as management organization and firms. Analysis that helps financial analysis implement in bonuses decisions. The proper use of information is an important part of decision making, therefore, the researches carried out to show ratio analysis, help managers. The significance of this study is that on its completion the following benefit will be derived.
1.9 Definition of terms
The trilogies used in this study are defined below for a better understanding of this work so that research will not be misinterpreted.
Bank: it is a financial institution which primarily holds out itself to accept deposited from consumers and payout on demands.
Ratio Analysis: Ratio analysis refers to the determination of the significant relationship which exists between firs as shown in a firm’s performance.
Profitability: This measure indicates whether the company is performing satisfactorily. They are used among other things, to measure the performance of management to identify whether a company may be a worthwhile investment opportunity and to determine a company’s performance relative of its competitor.
Management: Management can be described as the art of working particularly through people for the achievement of the board goals of an organization.
Liquidity: Liquidity measures the ability of a business to meet short term obligation on.
Activity: Activity helps assess the efficiency of managers actions.
Return on capital employed: this is the yardstick employed to measure the efficiency of the management in utilizing the assents of the business.
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