ABSTRACT
Financial ratios are detective, predictive and informative tools that act as compass that shows an organization its corporate, strength or weakness.
The major instrument of financial computation is the historical data/records of the operation of an enterprise.
This research work was conducted to know how ratio analysis are been use as a tool of monitoring the performance of First Bank Nigeria Plc over a period of five years, commencing from 2000-2005.
Using several ratios, expense management, asset management, other ventures the bank is involved in, debt management and credit management were found to impinge significantly on the bank’s profitability.
Tax avoidance, size of the bank and situation pf headquarter hand on significant effect on he bank’s performance.
Finally, the study suggest measures, adoption and implementation of which will improve the bank’s performance.
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND OF THE STUDY
The modern banking industry is a convergence point for different interest groups such as Shareholders, Managers, depositors, Employees, Government and her agencies. Inadequate information available to these interest groups sometimes make the exact state of health of the banking sector unrevealed.
It is in order to protect these various interest groups with stake in the sector that the government and banking authority have strengthened the legislation to allow for more disclosure of information by these banks. By this, it was felt that various interest groups will have sufficient information about the banks they are dealing with and that such information will help to dictate the native and extent of their dealings with these banks.
However, it has been discovered that this disclosure will not reveal the exact state of health of these banks just as no amount of exposure of a human anatomy will reveal its state of health. For this purpose, certain tools have to be used to diagnose the bank’s exact state of health from the information disclosed by the banks. This diagnosis is called financial analysis or ratio analysis.
Ratio is a mathematical concept that expresses relationship between two figures. The concept of ratio has been established to be very important tool in analyzing and interpreting financial information. Financial ratio analysis is defined as the relationship between financial data in the financial statement to aid in everlasting the financial condition and performance of a firm or business organisation. Performance, have is viewed from the angle of liquidity, profitability and efficiency (Abass, 2004).
The traditional literature of financial statement analysis often emphasizes the desirability of adjustment the bank’s financial ratios to predetermined target (Baruch 1969). In recent years, a considerable amount of research has been directed toward an analysis of the predictive power of financial ratios.
Consequently, ratio analysis is a powerful tool of financial analysis. Ratio analysis is an analytical technique in accessing the performance of a business enterprise (Altman, 1968).
Various items of information contained in the balance sheet and profit and loss account of a bank which exhibit some significant relationship can be expressed in terms of each other to obtain a ratio. Once these ratio are obtained, they are analysed in the light of a given standard. These standards may be historical or industrial.