CHAPTER ONE
INTRODUCTION
- BACKGROUND OF THE STUDY
Interpretation of account is the art and science of translating the figures, this is such a way as to reveal the financial strengthen and weaknesses of a business.
Ratio analysis is a powerful tool of accounting analysis. A ratio is defined as the indicated quotient of two mathematical expressions as the relationship between two or more things.
In accounting analysis, a ratio is used as index or yardstick for evaluating the financial position and performance of a firm or company.
More so ratio analysis involves company figures in terms of relation to another figure. It is computed by dividing one number, that is it base into another ratio analysis facilitates the evaluation of accounting information by educating such data into a smaller unit. One of the utility of accounting analysis is that it is not affected by the relative size of the activities or department being compared. Thus it allows for comparison between small and large firm within the same industry. Ratio analysis in addition to providing us the means by which we test for the efficiency of various features of the business as presented by the financial statement, it also make it possible for the management to compare the performance of a firm with those of other firm in the same industry and within the same organization between different years.
The performance of an organization can be measured from its income statement and balance sheet. Therefore, the balance sheet and income statement to revaluate the company performances. The compilation of trading, profit and loss account and the balance sheet present the end product of series of transaction, which have taken place over a particular period and the balance sheet, the users need to analyze and interpret the meaning before making any conclusion.
The first stage in the analysis is the development of a systemic review of the accounting data with the aid of accounting ratio, which shows the relationship of the results of the firm activities. The interpretation of the final accounts and the balance sheet could thereafter be carried out using the accounting ratio so obtained from the result of the activities but before any interpretation is undertaken, the profit of view of the person requiring the information must be understood.
- STATEMENT OF THE PROBLEM
We shall play an attempt on all problem faced by a firm and all attempt by the management to solve this problem towards their satisfaction.
It is also discovered that most of the performance of the compared organization cannot be measured by another management because of the method used in carrying out their ratio analysis.
This can be traced to the development of a systematic review of their accounting data with the aid of accounting ratio.
- OBJECTIVES OF THE STUDY
The basic objective of this project s to facilitate the ratio decision, that are taken in the business organization of different situation at a point in time.
The research work will study the use of accounting ratio as a measure of organization performances and efficiency stressing the reason why various business activities embark upon by business organization have been so uncreative for the continuous existence of the business.
- RESEARCH METHODOLOGY
The research method used in gathering data for purpose of this project was both primary and secondary data. The primary data was collected through some personal interview with some staff and management of the establishment. The secondary data was collected through libraries’ and some relevant available post and present journals, textbooks, monthly reports as well as past projects.
- SCOPE OF THE STUDY
This particular project will attempt to disclose and limit itself to accounting ratio in the business organization with particular reference to Texaco Nigeria Plc.
It will also show how important business decision are taken based on adequate business information that is readily available derived from accounting ratio analysis.
Furthermore, this project will enumerate some of the reasons why business activities of organization have been so interesting to prospective investors to subscribe for shares of this company.
- PLAN OF THE STUDY
The organization of the project will be structured into five chapters i.e chapter one to five. The summary of each chapter is briefly state below.
Chapter one of these study contain the general description of the project which include scope of the study, objective of the study as well as the plan of the study.
Chapter two contains review of literature, here many write up based on accounting ratio for financial analysis and the users of accounting ratio.
Chapter three contains research methodology that is the source and the description of the instruments.
Chapter four on analysis of accounting ratio and their users in business organization.
Chapter five contain the comprehensive summary of the project as well as suggestion and recommendation.
- DEFINITION OF TECHNICAL TERMS
The terms attributed to accounting ratio as a means of measuring the efficiency in an organization are as follows:
BALANCE SHEET: this is a statement of the company showing the wealth of such company. This balance sheet is not an account, it shows the assets and liabilities of a company at a particular date.
ASSETS: this is normally computed in two halves fixed assets and current assets.
FIXED ASSETS: this include freehold, premises, motor vehicles, goodwill e.t.c. it is usually shown at original values. In most cases the depreciation of any is usually less from its original value.
CUURENT ASSETS: these are assets which can be changed to cash. It is not as durable as fixed assets. It comprises of closing stock, debtor, cash, bank e.t.c.
LIABILITIES: this shows the amount which the company own to outsider. It also includes capitals, creditors e.t.c.
LONG TERM LIABILITIES: loan debentures. We also have current liabilities, which accrued for only a year. It include short term trade creditor, payment, interest on loan e.t.c.
INCOME STATEMENT: this is computed to show the net earning of the company. It is then divided up between debentures holder and other supplies of long term loans. However, income statement shows that changes in wealth during a given period due to the interaction of cost and revenue.
In addition, the information which the company needs for decision making, would be determined from the accounting ration that has been completed.
This material content is developed to serve as a GUIDE for students to conduct academic research
THE USE OF ACCOUNTING RATIO AS A MEASURE OF A MANAGEMENT PERFORMANCE AND EFFICIENCY (A CASE STUDY OF TAXACO NIG PLC).
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