CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Each person like every
business requires some measures of both financial position and financial
performance in assessing his financial conditions. The financial position
depicts one’s wealth at ascertain point in time while one’s financial
performance describes once.
Financial statements according to Illoumezie
(2006:33) are like compasses “which navigators use to locate their bearing and
find direction”. People use them to
gauge their financial positions at various points in their lives in order to
judge their progress towards their financial goals.
Financial statements according to meigs and
meigs (1981:28) refers to reports which summarize the financial position and
operating results of a business (balance sheet and income statements). It
referred to as genera purpose that satisfy the need of many groups generally
called stakeholders. These groups are particularly concerned with the risk
inherent in and returns provided by their investments, and who require
accounting information to enable their assess the ability whether they should
buy, hold and sell their investments.
According to Anayaogu (2002:14) financial
accounting provides information to eternal decision makes such as shareholders
government, creditors, employees etc, these are people with whom or from whom
money is ultimately paid or received. Anayaogu (2002:20) also states that
records of financial accounting includes various ledges accounts, profits and
loss accounts, balance sheet and other financial records. These records are
intended to show the strength, progress, portability, management effectiveness
and stewardship. Financial statement
are the means of communicating to interested partners information or the
resource, obligation and performance of the reporting enterprise in a simple,
clear and understandable form to all its user with such attributer of relevance
to decision reliability, consistency and comparability materiality efficiency
and understandability.
According to information provides continuity
in history as quality in monetary terms of economic activities resources and
obligations of a business enterprises as well as the various activity that
cause a change in the level of these resources and obligation. It is also
serves as parameter for evaluating the performance of a business enterprise and
as a measuring tool to both the management and decision markers and possible
sale of shares by shareholder when actual results deviate from the target
objectives. The importance attached to accounting information cannot only be
related to management and the government but it also cuts across the cars of
the various categories of creditors, employee, and other water cooperate bodies
and potentials investors as well.
The annual report and accounts are said to be
published owing to the fact. It is being printed and dispatched to each
shareholder and any other unfrosted where person on request. The annual reports
and accounts are the primary means of communicating vital economic information
in the cooperation’s resources and obligation to absentee owners and could be
investor by the management. The published financial statement serve as a means
of conveying business information to the equity investor groups (shareholders),
the loans creditors group, the employee groups, the business contract group,
the government and its agencies as well as the general public. It gives a
concise and genuine picture of an enterprise profitability trend and its
financial position. The information contained in the published financial
statement act as a basis for which shareholder maker investment decisions.
However, the account days of pre-colonial
administration, the preparation and publication of financial reports used by
owner managers for internal control and cost determination. This inter became.
Inadequate role to increase completely of business organization. At the onset
of industrial revolution, trade begins to increase and expand. This
necessitated employing managers to manage the business on behalf of the
shareholders. Managers positions now necessitated companies to prepare and
publish a financial report that would reveal to the owners (shareholders) the
operational state and financial position of the company and how the capital
contributed by the shareholder had been utilized in the realization of the set
out objectives of the company.
The company Act 1963
outline that every registered business
organization should maintain and
submit audited financial statements every year during the annual general
meeting (agm) where. It is laid to the members. This is in consonance with the
provision of schedule two of the companies and allied matter decree of 1990
which states internally that the form and contents of published financial
statements and with the accounting standard issued from time to time by the
Nigeria Accounting Standard Board (NASB).
Meigs & Meigs
(1981: 14) states that the preparation of financial
statement is not the first step in
the accounting financial statement is not the first step in accounting process.
At the close of financial period, the stakeholders such as investors of a
company naturally desires to ascertain the following:
(a)
The result of the company’s operations for the period.
(b)
The resources and hostilities of the company over the
period in question.
(c)
Wealth created by the company and how it has been
distributed.
(d)
Financial resources acquired and how they have been a
expanded.
Thus,
published financial statement prepared under companies and allied matter decree
(CAMA) 1990 supplies information about the above. As a matter of fact,
shareholders of any corporation would require annual corporate report published
about the entity and which must be relevant, sufficient and reliable.
The
corporate report published in 1994 by a working paper setup by Accounting
Standard Committee (ASC) to be reexamined the scope and aims of published
financial reports identified seven user groups to include:
1)
The equity – investors group
2)
The analysis – advisory group
3)
The employee group
4)
The creditors
5)
The business contact group
6)
The government and its agential
7)
The public
Bell (1998) identified (15) fifteen information needs of users of
financial statements, which art concisely summarized here as the financial need
of shareholders in the published financial statement of any business entity.
These includes information for
(a)
Evaluating the performance of the entity.
(b)
Assessing the objectives established previously by its
management members or owners.
(c)
Evaluating managerial performance, efficiency and
objectives including employment, investment and profit distribution plans.
(d)
Assessing the liquidity of the entity.
(e)
Assessing the economic stability and inevitability of
the reporting entity.
(f)
Assessing the capacity of the entity to make future
realer nation of its resource for either economic or social purposes or for
both.
(g)
Estimating the future prospects of the entity which
respect to dividend payment remuneration and other cash outflows and
predicating future levels of investment, production and employment.
(h)
Predicting, compressing and evaluating potential cash
flow
Guinness
Nigeria is a Nigerian Brewery founded in 1962. It engages in brewery, packaging
and marketing of spirits, wines and beer in Nigeria. It offers its products
under Guinness Foreign Extra Stout (1962) Guinness Extra Smooth
(2003) Malta Guinness (1990) Harp
Lager Beer (1974) Gordon’s Spark (2001) Smirnoff Ice (2006) and Satzenbrau
(2006).
The
company was incorporated in 1950 and it’s headquartered at 24 Oba Akra Avenue
Ikeja industrial estate, Ikeja Lagos Nigeria. Guinness and unlevered are the
main shareholders, although some of the shares are locally owned. Guinness
Nigeria plc is a company that believes in enriching its community. This it has
achieved by embarking on laudable corporate social responsibility projects in
several communities. In Nigeria these projects are water of life initiative,
which currently provides potable water of over 500,000
Nigerians spread across several
rural communities from Northern to Southern Nigeria.
The
company was listed in exchange market in the year 1965, with its managers/
directors. Engr. (Chief) R.A. Alabi, OON (Chairman) Mr. N. Blazquez (vice
chairman) Mark R.M. Taylor (MD/CEO) and B.A. savage (OMD) of Guinness Nigeria
Plc, and so many other staffs.
The
company’s registrars is union registrars limited 2, Burma Road Apapa Lagos. And
there end of accounting year is every 30th June of every year as the
case maybe. The company has four branches in Nigeria so far, they have been to
grow their turnover at average ratio of 20.7% per year over past five years and
they are currently on track to overtake their turnover for the 2011 full year.
Based on this result the return on equity improved from 0.17 to 0.31, this
leads to an estimated full year return on equity of 0.60. They have a current
ratio of 1.56 and a quick ratio of 0.98.
1.2 STATEMENT
OF THE PROBLEM
Virtually, every economic
entity maintains its records on a historical cost basis. The historical cost
figures alone are inadequate. This is because net profit is over stated, the
balance sheet does not reflect the current worth of the enterprises and
inflationary situation, and the charging of the historical cost of operations
to profit and loss account may endanger the maintenance of the operating
capital of the entity. It is obvious that the current situation of published financial
statement has some limitations. This is because the result of operation (net
profit) is a function of accounting standards, policies and conventions adopted
by a company and used in the preparation of the financial statements.
The financial statement should
provide accurate financial information; which shareholders can effectively
manipulate to get the best out of their investment. It is pertinent to say that
analysis and interpretation of any financial statement will descend on the
adequacy and accuracy of the said statement and how the financial information
is being disclosed so as to enable to shareholder make major investment
decision such as “if to hold their shares or sell them and invest in bond other
than equity”. If they are to buy more share of the same firm, but the problems
statements.
i)
Some shareholders cannot interpret financial
information correctly and cannot be able to make good use of the financial
information disclosed to get the best out of their investment.
ii)
Company’s concepts, conventions and principles are not
capable of meeting the user needs.
iii)
Published financial statements do not induce more
people to make investment in some companies.
iv)
Some shareholders are not oriented before making
investment decision.
v)
Sometimes the dividend are not satisfactory considering
the risk involved in investment.
vi)
Some financial statement sometimes guide the
investors. vii)Some financial
statement prepared are window dressing.
viii)Some company’s find it difficult to make their financial
statement available to the shareholder at any point in time.
1.3 PURPOSE
OF THE STUDY
This research was undertaken to find a
better solution to the research problem(s) already existing in this area of
study. It is therefore imperative to establish some guiding steps and
principles in decision making process which will ensure that a given objective
is not defeated and to find out if the financial information that emanate from
the published finance statements makes any meaning to investing public.
a) To
know whether the information in the financial reports of companies and other
financial information areas are understood and used for investment decision
making.
b) To
ascertain the extent the company’s concept, convention and principles are
capable of meeting users/ investors needs.
c) It
is deemed to state categorically and in clear terms that the influence of
corporate reporting to investment differences in accounting methods and how
financial statement deficiency affects the investors (shareholders).
d) To
ascertain the extent published financial statement induced more people to
invest in companies.
1.4 RESEARCH
QUESTIONS
Bragging into consideration
the complexity of making financial decision and the immediate problems which
necessitated this researcher study, the work seeks or intends to provide
answers to the following questions posed.
1)
Do investors understand financial statement very
well?
2) What
do they (investors) see as the importance of published financial statement of
companies?
3) Do
the companies publish the market value of shares and dividend of the company to
the shareholders?
4) To
what extent do companies concepts, conventions and principles capable of
meeting users need?
5) To
what extent do the financial statement of a company encourage investors to
invest?
6) What
is the best source of information to the shareholder on investment
decision?
7)
Do the shareholders carryout analysis to the
appropriate personnel?
1.5
STATEMENT OF
THE HYPOTHESIS
Hypothesis One
Ho: Most investor does not analyze financial report before making an
investment decision.
Ho: Most investor does analyze
financial report before making an investment decision.
Hypothesis Two
Ho: Financial statement does not
show true and fair view of the statement in your company.
Ho: Financial statement show true
and fair view of the statement in your company.
1.6
SIGNIFICANCE
OF THE STUDY
This research work is
expected to be of great importance to investors and shareholders in particular.
It will serve them as a guide to individuals who are interested to acquire
shares in any firm, company or business organization. It is expected to serve
also as an indispensable tool for current and potential investors of business
organization as well as companies in their investment decision making by way of
providing sound investment strategies for
shareholders and other users of published financial
statement.
1.7
SCOPE OF THE
STUDY
This research work covers
all the relevant accounting information that was needed by investors/
shareholders of Guinness Nigeria Plc and their investment states of Guinness
Nigeria Plc using its published annual report and financial statements between
2004-2003. The goal behind every investment is either return, capital
appreciation, therefore the general goal of any investment decision that is
obtainable in our business enterprise can be related to another.
1.8
LIMITATIONS
OF THE STUDY
There is no research/ study
that is hitch free, during the course of this study, some of the constraint
failed and those envisage making this task all the more daunting are;
1)
Financial constraints
2)
Lack of co-operation among staffs
3)
Limited time
1.9 DEFINITION OF
TERMS
DIVIDEND: Is the distribution
of part of the earnings of a company to its shareholders. The dividend is
normally expressed as an amount per share on the par value of the share.
DILUTION OF EARNINGS: This is when additional shares of stock are
sold without an immediate increase in income. This result is a decline in
earnings per share until earning can be generated from funds raised.
EARNING PER SHARE: Is the amount of profit after tax and preference
dividend (but before taking accounting of extra-ordinary income and expenses
attributable to each ordinary share in issue and ranking for dividend during
the period.
FINANCIAL
INFORMATION: This is any information dealing with the
operation of company and how the fund acquired.
EFFICIENCY: This refers to achievement of organization goals within
minimum waste of resources that is best possible use of resources.
FINANCIAL STATEMENT: This is a periodic financial reports accounts
and other related documents that highlights the financial position of an
enterprise as well as the financial profitability.
INVESTMENT: This is the commitment and utilization of funds and
other scare resources in a project with the expectation, that the utilization
will generate return.
ORDINARY SHARES: These
are the common stock of a company which is to
be issued out for sale to individual public.
PROFITABILITY: Profitability
refers to the relationship between profit and the resources employed in earning
it. Its resultant effect is usually expressed as a percentage.