USES OF ACCOUNTING RATING IN BUSINESS DECISION MAKING (A CASE STUDY OF NIGERIAN BREWERIES PLC)

USES OF ACCOUNTING RATING IN BUSINESS DECISION MAKING

(A CASE STUDY OF NIGERIAN BREWERIES PLC)

ABSTRACT

Accounting ratio is the most important factor used by management creditors, investor and other users of financial statement in carrying out mot business decision, it uses an application in making business decision remain inevitable.

This study has, therefore, been divided into five chapters, the first chapter briefly introduced the topic by looking at the definition of accounting ratio, it contains the statement of the problem, the objective of the study and the limitation of the study.

The second chapter which contains the profile of Nigeria Breweries Plc. Deals wit the review of related literature on the topic. Chapter three deals with the method of carrying out the research methodology. Chapter four appraises the analysis and interpretation of data collected from respondents.

Finally chapter five includes, summary, recommendation and conclusion. Any errors either by emission or commission are entirely unintentional and deeply regretted.

CHAPTER ONE

• Background of the study


• Statement of the problem


• Objective of the study


• Research questions


• Significant of the study


• Formulation of hypothesis


• Scopes and limitation


• Definition of terms

References

 

CHAPTER TWO       

2.0    Literature Review

• Profile of Nigerian Breweries Plc


• Standard of comparison


• Ratios as predication of business


• Failure on empirical approach


• Classification of ratio


• Types of ratio


• Significance of ratio


• Limitation of accounting ratios


• Inflation and accounting ratios


• Criteria for accounting ratios

References

 

CHAPTER THREE

Research Design and Methodology

• Research design


• Area of study


• Population of the study


• Determination of sample size


• Interview question (collection instrument method)


• Validation of the instrument


• Reliability of the instrument


• Sources of data


• Method of investigation

 

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

• An over-view


• Distribution of responses


• Testing of Hypothesis

 

CHAPTER FIVE

Summary, Conclusion and Recommendation

• Summary


• Conclusion


• Recommendation

 

Bibliography

Appendix

 

 

 

 

 

CHAPTER ONE

1.1   BACKGROUND OF THE STUDY

Omenya: defined “Accounting as a language of business, it is used in the business world to describe the transaction entered into by all kinds of organization shows that accounting centers on transforming raw data into information that would be used to many users. It takes care of the financial communication of the entry as it supplies the financial information in a way and form so desired by the users.

In a similar case, Miccichamp (1992) defined “Accounting as the art of recording, classifying and summarizing in a significant manner and in terms of money, transaction and events which are in part at least of a financial statements provides necessary information to users of financial statement. These users include owners, (shareholder) managers, suppliers, customers, government employees etc.

The users of these statements are expected to read, interpret and analyses them, objectives of financial statements are not accomplished when many users of the statement cannot understand them, let alone interpreting and analyzing them.

The information the users attempt to gain from financial statement are:

1. The ability of the business to pay its way and survive in the long run.


2. The quality of management and the rightness of decision made


3. Information that guide the future.

 

Regrettable, the inability of users of these financial statement to comprehend, interpret and analyses them and still has always contributed to harmful business and investment decision, by the users of these statements. As a result of these wrong business decisions, many users of these statements have been render poor, where as others are afraid and show indifference to investment and business opportunities. Case are abound where these financial statement users, individual and corporate, have lost millions of naira merely because of wrong business decisions.

Admittedly, faulty business decisions do not only affect management and investors. It is also affect the entire economic growth and development indeed, these problems of wrong investments and business decisions therefore prompted this to research work and topic. Reason behind the topic is the discovery that many victims of wrong business decision and people and firm who do sue analytical tool otherwise known as Ration Analysis in their decision making process.

Ration are simply, mathematical expression of relationship of one figure to another which may come from the same statement or from different statement (HMAN EDWARD 1968). Accounting ratios, by their very nature serve as indicator of the performance of a company both past and present.

Accounting to Mill Champ (1992). Ratio analysis is used to access performance and liquidity and to forecast the future is analytical technique used in making business decision in the center of this research work.

 

1.2   STATEMENT OF THE PROBLEM

Currently, many users of financial statement are not yet equipped, analytically to make good business decisions, notwithstanding companies and workshop on the been made to enlighten and educate financial statement users that their future business predications are based on accounting ratios, which use historical data.

However, these efforts have not made any meaningful change because the number of wrong decision makers is on the increase sometimes this attributed to total disregard of ratio analysis by financial statement user. Perhaps, ratio analysis their tendency of becoming victims of inadequate business decision.

Against this background, these situation become puzzling and have constituted research problems.

 

1.3   OBJECTIVE OF THE STUDY

The objective of this research is to assist in identifying and disclosing the extent to which accounting ratios help in decision making in business. The writer has in mind that the research will help to strengthen the weakness faced the companies in use of accounting ratio in the business decision and at the same time find solution the following problems.

1. How accounting ratios confuse their tendency of becoming victims of inadequate business decision.


2. The ignorance of importance of accounting ratio is responsible for detective business decisions by the users of financial statements.


3. The negligence and disregard of ratio analysis is responsible for wrong business decision by users of financial statement.

 

1.4   RESEARCH QUESTIONS

The questions this research work is seeking the answers are the following:

1. Do accounting ratio confuse financial of becoming victims of inadequate business decision?


2. Is ignorance of importance of accounting ratio responsible for defective business decision by users of financial statement?


3. Are negligence and disregard of ratio analysis responsible for wrong business decision by users of financial statement?


4. Do users of these statements require more enlighten campaign and workshop to enable them comprehend their importance?


5. Do financial statement contains differences and trouble that misdirect their users?


6. To what extent do accounting ratios used for financial analysis and business decision?

 

1.5   SIGNIFICANCE OF THE STUDY

Many scholars have written about the importance of financial analysis to business world. Others have also written ratio analysis as a test firm solvency.

However, no attempt has been made that wrong process. This of course, is where this research work is different from the other writings.

Additionally, ratio enables prospective leaders to decide whether to provide assistance to evaluate results and to use them as guide in controlling the firm. With the help of accounting ratio, creditors are well positioned to know whether their firm are able to pay their debts as the full due.

Stockholders known the performance of their firm, while investor are able equipped to predict the financial future of a particular firm before going into investment. The study also serves as a source of data for future research on this topic and related topics.

 

1.6   FORMULATION OF HYPOTHESIS

The researcher wishes to test four hypothesis in this research work.

 

Hypothesis 1

Ho:   Accounting ratio is not useful in making business decision

Hi:    Accounting ratio is useful in making business decision

 

Hypothesis 2

Ho:   Accounting ratios don’t accelerate business decision making process.

Hi:    Accounting ratio accelerates business decision making process.

 

Hypothesis 3

Ho:   Management do not appraise their efficiency and effectiveness in using resources with the aid of accounting ratios.

Hi:    Management do appraise efficiency and effectiveness in using resources with the aid of accounting ratios.

 

Hypothesis 4

Ho:   Negligence of accounting ratio does not result to risky and illogical business decision.

Hi:    Negligence of accounting ratio results to risky and illogical business decisions.

 

1.7   SCOPES AND LIMITATION OF THE STUDY

The researcher concentrated on accounting ratios in a manufacturing company. This study will examine the classification of five accounting ratio, liquidity ration, profitability ratio, activity ratio, leverage ratio, and debt to equity ratio. However, these are some other ratio which will not be mentioned.

Computation and analysis of these ratio research was subjected to some constraints. These constraints includes:

1. Time: The Researcher moves from place to place and time was not on is to reach all the information he require.


2. Finance: Being a students, the researcher did not have the required cash outlay for data collection and stationary procurement.


3. Insufficient information: Some officials believe that their financial documents and information is not external use.

 

1.8   DEFINITION OF TERMS

(a)    Ratio: the quotient of two mathematical expression.

(b)    Shareholder: Owners of firm

(c)    Financial Statements: This include balance sheet, profit and loss statements, statement of sources and application and five years financial summary.

(d)    Accounting period: A period of 12 months usually starting from 1^st January to 31^st December for many firms.

(e)    Analysis: Separation into two parts and interpretation of figures.

 

 

 

REFERENCE

Mill Champ A.M. (1992), Foundation Accounting, An Instructional Manual for Accounting Studies, 3^rd Edition, Shepherd Bush,, Green London, D.P. Publishers Ltd. Page 52 – 87.

 

Edward Altman: (1968), Financial ratio and Discriminate analysis, the Prediction of Corporate Bankruptcy. Create Longman Group Ltd. Page 23 – 76.

 

Tracy J.A. (1978) Fundamental of Financial Accounting, 2^nd Edition, New York Hamiton Publication page 115, Glautier and B Under Down (1986) Accounting Theory and Practice Edition, London, Pitman Publication Longman.

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