CHAPTER ONE
INTRODUCTION
1.1 Background of Study
In every organization irrespective of its size, ownership,
structure, impact of ration analysis on management decision making occupy a
crucial position. However, given this centrality can be said that behind every
successful organization the process in which the management arrives at decision
making is very important as far as financial management is concerned in the
private sector of the economy and specifically in a banking institution like a
united bank for Africa (U.B.A). In a nutshell, the impact of ration analysis is
the most preoccupation of this research work is referred to as the manner
through which the management of organization takes decision suitable for profit
as possible future planning, controlling current performances and future
development through and activity analysis. Significance change has taken place
in recent years in the size and complexity of both private organizations and
public organizations because this management is faced with evaluation in
technical, social-political and economic forces. As a result, the methods of
arriving at the decision has become more difficult management especially in the
accounting activity of the organization. This research is devoted to the
examination of some major impacts of ration analysis in a financial institution
(United Bank of Africa).
1.2 Statement of the problem
The part of ration analysis as a tool for decision-making
have the following area of concern. 75 ratio analysis useful in investment
appraisal. Whether management relies on ratio analysis for decision making Do
ratio analysis really determines the wealth maximization of the shareholder. It
a ratio analysis or management tool or technique used in determining the
liquidity, stability profitability and efficiency of the organization? Whether
ratio analysis can be used to determine the trend of development and performance
of the organization over time. At the time of choosing this topic, the above
was what the researcher has in mind and therefore pushes to find out what is
the need for ratio analysis n banking institutions like a united bank for
African.
1.3 Objective of study
The primary objective of this researcher is to find out how
efficient and effeteness does the management evaluates its financial position.
Also, the performance of the institution with regards to the financial a
quantitative judgment about the institution’s financial position and its
achievement which include it is further generalized as the following: The
effective implementation of the traditional function of banking acceptances of
deposit to find lending. Efficient financial resource mobilization without
inflation money supply expansion for economic development especially when
external borrowing is viewed as a last resort. Increasing sense of commitment
and identification with the institution and its good by institutional design
and activates of people and adopting a participating or democratic style of
management. Maintaining accountability of assets.
1.4 Research question
For the purpose of this study, the following question is
raised to enable the researcher to find a possible solution to the identified
problem if properly answered.
1.
How
is the application of ratio analysis useful when it comes to decision making in
the organization?
2.
In
what way is the application of ratio analysis useful in evaluating the
financial performance of the organization ?
3.
How
do interested parties in the united bank Africana apply and use ratio analysis
in evaluating the bank before taking their decision?
4.
How
is ratio analysis of importance when it comes to granting of loans and advances
to the customer?
5.
To
what extent does ratio analysis help the chief executive of the bank in
decision making?
6.
How
is ratio analysis of importance to the balance short of the bank?
1.5 Significance of the study
The significant impact of ratio analysis in financial
institutions cannot be overemphasized. It is therefore expected that this
research work is bound to be beneficial to the following:
a. Management: Most management decisions are
based on information from ration analysis. Management planning is also
supported by vital information from ratio analysis.
b. Shareholders: For shareholders to
determine their wealth maximization, they rely on information from ratio
analysis such as stability ratio and leverage ratio.
c. Potential Investor: for potential
infestation is and for them to know or ascertain the organization is based on
vital information from ratio analysis.
d. Employees: The interest of employees is
the organization is how their welfare can be improved. They are able to obtain
information for the agitation for improvement on their welfare through ratio
analysis such as profitability ratio.
e. Student: It is expected that students
mostly undergraduate stand to benefit from this research work because it serves
as a source of ratio analysis.
f. Government: Government also rely on
information from ratio analysis in the assessment of the organization for tax
purpose such as profitability and liquidity ratios.
1.6 Scope of the study
The scope of this research work be specially restricted to
United Bank for Africa Plc; with regard to its accounting ratio which helps in:
The
assessment of profitability; Assessment of activity; Assessment of failure.
1.7 Limitation of the study
In
search of data, problems were faced by the researcher despite all the
explanation of the purpose of the study.
1. In the first place, the respondent
did not react to the question sent to them is insufficient data.
2. Also, cost and time have a great
impact on the study since no adequate means were available and time under
consideration was short.
1.8 Plan of the study
The bank ground of the study, the statement of research on
ratio analysis is primarily used to compare a company as well as management
organization and firms. Analysis that helps financial analysis implement in
bonuses decisions. The proper use of information is an important part of
decision making, therefore, the researches carried out to show ratio analysis,
help managers. The significance of this study is that on its completion the
following benefit will be derived.
1.9 Definition of terms
The
trilogies used in this study are defined below for a better understanding of
this work so that research will not be misinterpreted.
Bank: it
is a financial institution which primarily holds out itself to accept deposited
from consumers and payout on demands.
Ratio Analysis: Ratio analysis refers to the
determination of the significant relationship which exists between firs as
shown in a firm’s performance.
Profitability: This measure indicates whether the
company is performing satisfactorily. They are used among other things, to
measure the performance of management to identify whether a company may be a
worthwhile investment opportunity and to determine a company’s performance
relative of its competitor.
Management: Management can be described as the art
of working particularly through people for the achievement of the board goals
of an organization.
Liquidity: Liquidity measures the ability of a
business to meet short term obligation on.
Activity: Activity helps assess the efficiency of
managers actions.
Return on capital employed: this is the yardstick
employed to measure the efficiency of the management in utilizing the assents
of the business.