Relevance Of Financial Ratio Analysis In The Appraisal Of Small Scale business

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.

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.
– 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
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
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
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.