Effects Of Performance Evaluation Through The Analysis Of Financial Statement On Investment Decisions

This study examined the effects of performance evaluation through the analysis of financial statement on investment decision, using Longman Nigeria Plc as the case study. Based on the set objectives of the study, structured questionnaire consisting of eighteen (18) close-ended questions and one (1) open-­ended questions were developed and administered on one hundred (100) respondents of the aforementioned company, but a total of ninety-four (94) questionnaires were completely filled and returned. Hence, the study employed primary and secondary data (i.e. questionnaire method, interview method, and data sourced from established publications). Data collected were analysed with the aid of chi-square statistical technique. Findings from the study shows that Performance Evaluation should be in line with achieving Corporate Objectives and moreover, analyses of financial analysis has helped in identifying the weakness in company"s operation. The study recommended that management should ensure that performance evaluation in line with corporate objectives.

Introduction

1.1 Background to the Study

Financial analysis involves the assessment of a firm"s past, present and anticipated future financial condition. The objective is to identify any weakness in the firm"s financial health that could lead to the future problems and to determine any strength that the fine might capitalize upon.

The need for financial accounting statement is becoming increasingly indispensable. This is due to the increased complexity of the economy and the massive growth of corporate organization.

1.2 History of the Company

Longman Nigeria was incorporated on the 10" August, 1961 as a subsidiary of Longman group Ltd. A renowned British Publishing Company founded in 1724. Although, Longman, Green and Company, as this company was then known had since 1947 had a representation in Nigeria, it had operated as a mere trading out post of the U.K. parent company concentrating on the importation and distribution of education books produced primarily for the British school system.

A study of the progress of Longman Nigeria Plc. over the past thirty-three years has shown various successful project that have had powerful influence on the direction and development of publishing industry and indeed education in Nigeria. The blue-print of Longman"s text development and list building strategies are largely attributable to its crop of pioneer employees.

1.3 Statement of the Problem

Extent to which the company is able to influence its overall performance.

Ability to meet its financial obligation in form of dividends to investors.

Inability to meet debt payment on due dates by having sufficient cash available.

1.4 Objectives of the Study

The objective of this study is to:

Assess the performance of organizations (with particular reference to Longman Nig. Plc.), in order to ascertain its level of performance.

To see to what extent investors" decision are influenced by the analysis of the company"s performance.

Finally interpret and advices where necessary on appropriate actions to take in order to improve the performance of the company.

1.5 Research Questions:

Financial ratios give the previous year"s performance and average performance in the industry meaningful comparison of a firm"s financial data at different points in time and with other firms. It provides the basis for answering some relevant questions concerning the well-being of the firm.

How liquid is the firm?

Is management generating sufficient profit from the firm"s assets?

How does the firm"s management finance its investment?

Is the common stakeholders recovering sufficient returns on their investment?

1.6 Research Hypotheses

Top executives must know that the effectiveness with which accounting information satisfies the organization"s wider goals depends on to relevance, time lines and accuracy and the way it is used by member of the organization.

Ho: Performance evaluation should be in line with achieving corporate objectives

Hi: Performance evaluation should not be in line with achieving corporate objectives

1.7 Significance of Study

This research will be useful to management of up and coming companies. It is aimed at helping organizations in their bid to improve growth and to allow more investing public. Significantly, this study will be of benefit in the following areas:

The study will guide the company in its future planning and growth formation

It will also guide the company to more purposeful areas investment.

1.8 Scope and Limitation of the Study

The scope of this study will be based manually on the financial statements of Longman Nigeria Plc. as presented in its annual reports which would be used to evaluate its performance. The scope of the research shall cover a period of four years. The balance sheet and income statement contained in the annual reports shall be analyzed using ratios to highlight the company"s operating performance.

The research will be limited to the publishing industry to which Longman belongs. This research would also be limited to the performance of Longman Nigeria Plc in relation to that of its competitors; care would be taken not to delve into inter-firm comparison but the general performance of the company. The personnel function, administrative and such other functions not financially oriented will not be dealt with.

1.9 Methodology

Method of Data Collection

The researcher made use of primary and secondary data as supported with the aid of Annual Reports of the company (Longman Nigeria Plc.) and that of its competitors in the publishing industry.

1.10 Limitations of the Research Method

The main tool of this research was the annual reports of the companies under review and the use of ratio analysis to interpret the information contained in the reports. Hence, the primary data is also used to elicit information for the study.

With reference to the Annual reports, the information contained therein were arrived at, in line with the historical cost concept, they are not perfect indicators of future and may not represent the presents the naira worth.

1.11 Definition of Terms

Performance Evaluation:

This refers to the evaluation of the operating performance of the company. Thus it refers to the evaluation of the profitability and efficiency of its operation.

Financial statements:

This is the collective name for the items in the company"s annual report i.e. balance sheet and income statement. Those statements represent the final output of the accounting process.

Ratio analysis:

This is the comparison of relationship between two items for a useful interpretation of financial statements.

Profitability:

This is profit in relation to investment that generated it.

The company:

This refers to Longman Nigeria. Plc

Summary, Conclusion and Recommendations

5.1 Summary

The summary of the entire study is made in this chapter. Conclusion and recommendations are also drawn for the study based on the findings. However, the main problem addressed in the study has been to find out current assets should be managed efficiently for safeguarding the firms against the dangers of illiquidity and insolvency.

The major findings are stated thus:

That there is a divert link with performance evaluation and corporate objectives in management organizations.

That performance evaluation is effective in work organization.

Management organization is able to influence its overall performance

It was also discovered that most companies are able to interpret and advise where necessary on appropriate actions to take in "order to improve the performance of the company.

That investment decision is often time influenced by the analysis of the company"s performance.

That government and its relevant agencies general sufficient profit form firm"s asset.

That management of finance on investment is effective.

That shareholder recovers sufficient return on their investments.

That their company"s financial statement is reliable

That organization most often meets to fulfill the financial obligation in form of dividend to investors.

That timely analysis of financial statement improves organizational performance.

It is however, summarized that financial ratio has become a powerful tool of financial analysis. Hence, it is the commonly used instrument in interpreting and analyzing financial statement.

5.2 Conclusion

The quality of the decision made by management depends on the quality or quantitative data and information confirmed in the financial statements. Based on the major findings from the study, the following conclusions are drawn:

Financial statements are analyzed before a major decision is taken.

The priority areas for improvement are indicated by financial statement analysis

Analyses of financial statements have helped in identifying the weaknesses in the company"s operation.

Financial statement analysis has helped in ascertaining the growth of the company.

Investment decision making are based on financial statement analysis.

Timely analysis of financial ratio improves a company"s performance.

5.3 Recommendations

Based on the findings of the study, some measures are hereby recommended;

Financial statements should be revised periodically

Timely and adequate financial statements should be presented by management for decision making

Also, changes in the economy and accounting policies should be indicated in the financial statements.

Performance evaluation should be in line with achieving corporate objectives.

Finally, resource employee (including the non-accounting staff) of the financial institutions should be trained in the effective use of ratio analysis in order to strengthen and improve the performances of the institutions. This analysis should be published and made available to would be investors and depositors for them to know that their investments are safe.

5.3.1 Recommendations to the Management

Management (top management) should ensure that performance evaluation is in line with corporate objectives.

Management should ensure that timely analysis of financial statement be improved to facilitate organizational performance.

5.4 Suggestions for Further Studies

The following suggestions for further studies are as a result of certain limitation that is inevitable in any research endeavour, no matter the type of research design that is adopted.

Most measures of performance should be looked at, over a period of several years. This is partly to give an idea of "trends" over time and partly to allow for a particular year"s results being atypical.

The study should be extended and should -be based manually on the financial statements of Longman Nigeria Plc in particular, and, or in publishing companies in general.

Other aspects of personnel function, administrative, and such other functions not financially oriented should be appraised for proper evaluation of organizational performance.

Finally, the study should be more current, more challenging and more interesting.

Preliminary Page(s)

Title Page

Declaration

Approval

Dedication

Acknowledgement

Abstract

Table of Content

Chapter One

Introduction

1.1 Background to the Study

1.2 History of the company

1.3 Statement of the Problem

1.4 Objectives of the Study

1.5 Research Questions

1.6 Research Hypothesis

1.7 Significance of study

1.8 Scope and Limitation of the Study

1.9 Methodology

1.10 Limitations of the Research Method

1.11 Definition of Terms

References

Chapter Two

Literature Review

2.1 Introduction

2.2 Effectiveness and Efficiency

2.3 Objectives of Performance Evaluation

2.4 Inter-Firm Evaluation

2.5 Inter-Temporal Evaluation

2.6 Industrial Average Evaluation

2.7 Other Aspects of Performance Evaluation

2.8 The Financial Statements

2.9 Financial Statement Analysis

2.10 Ratio Analysis

2.11 Alternative means of Analysis Financial Statements

2.12 Summary

References

Chapter Three

Research Methodology

3.1 Introduction

3.2 Research Design

3.3 The Study Area

3.4 The Study population

3.5 Sample and Sampling Technique

3.6 Research Instrument

3.7 Pilot Study: Validity and Reliability

3.8 Method of Data Analysis

3.9 Reason for using Chi-square method

Chapter Four

Data Analysis and Interpretation

4.1 Background Information

4.2 Research Question

4.3 Test of Hypothesis

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

5.2 Conclusion

5.3 Recommendations

5.4 Suggestions for Further Studies

References

• Critical Evaluation Of The Impact Of Teamwork On Organizational Performance
• Performance Evaluation Of NNPC (1999-2015) Using Regression Analysis Techniques
• Naira Devaluation And SMEs Performance In Nigeria
• Ratio Analysis As An Important Tool For Evaluation Performance In The Banking Sector
• Evaluation Of The Effect Of Export Channel Strategy On Organization Performance
• Performance Evaluation And Its Effects On Employees Efficiency In Nigeria
• Evaluation Of Factors Affecting The Performance Of FCT Students In English Language

• Accounting Project Topics and Materials