Analysis of Financial Statement as an Aids to Effective Business Management

Chapter One of Analysis of Financial Statement as an Aids to Effective Business Management

BACKGROUND OF THE STUDY

Introduction

Success in business is judged on the basis of reasonable profits and good liquidity condition, which are two indicators of favourable business operations. Managers responsible for business success and need containing stream of information about these indicators of favourable business operations. Timely detection of unfavourable factors in business operation may enable management to take correction steps in time to avoid serious consequence of course; information alone does not produce desirable results.

Financial statement provides owners of business with the basic tools for determining how well their operations perform at all times. Many business owners do not realize that financial statement have a value that goes beyond their use as supporting document to loan applications and tax returns.

Owners and manager can use financial statement analysis to evaluate the past and current financial condition of their business, diagnose any existing financial problems, and forecast future trends in the firm’s financial position. Forecasting is valuable in statement analysis for two reasons. Forecast can be prepared to assume that the basic financial facts about a company will remain the same for a specified period in the future.

Forecast is likely to stand if the status quo is maintained or it can give insights into the impact of certain business decisions by calculation the answers to “what if question when testing the consequences of changes are contemplating or that may occur because of changing market conditions or customers taste, for example achieving a greater understanding about the financial interrelationship at work in a business.

Moreover according to Anad (2001) the figures which appear on the financial statement taken in isolation does not make any meaning until they are analyzed. Analysis would show existing and potential relationship, which can be exploited for better management of the entity. Financial statement analysis thus a powerful tool for a firm’s performance analysis and its application must be properly understood and applied be those who are saddles with the responsibility of financial management

 Statement of the Problem

A major source of information for decisions making of an organization is the financial statement. The amount of information that any manager can extract from the statement should be what is adequately understood and comprehended by the manager. This issue of non-comprehension of the financial reports became a problem and could be attributed to technically exclusion of certain information in the reports.

Management decision in no doubt, the most useful and most risky activity of the managers. It is useful when a choice action is arrived at from a well analyzed data. It is risky because the resultants effect of lack of financial statements analysis before decision making is business failure lack of financial statement analysis will make it impossible to compare performance in an organization and also trends and variance will not be variable for management decision. Business forecast will be impeded if financial statements are not analyzed. It is as a result of these problems, that the researcher on the analysis of financial statement as an aid to effective business management.

Objectives of the Study

The objective of this study includes the following:

1. To examine the effect of analyzing financial statement in the management of champion breweries.
2. To examine the importance of financial statement analysis to the management of Champion Breweries.

• To examine the techniques of financial statement used in assessing the profitability position of the company.

1. To determine the effects of its analysis in the management of Champion Breweries Plc Uyo Akwa Ibom State.
2. To examine the problems associated with financial statement analysis in Champion Breweries Plc, Uyo.

Research Questions

The following questions were used raised for the study

1. Does the financial statement analysis aid the management of the company in making financial decision concerning the company future?
2. Does financial statement usually disclose adequate and reliable information?
3. What techniques of financial statement analysis are used to aid management in assessing profitability position of the company?
4. Are the profit figures disclosed by financial statement enough to portray areas of profitability to management?
5. What are the problems associating with financial statements analysis?

Research Hypothesis

Ho:   There is no relationship between financial statement and achievement of organization goals.