RELEVANCE OF FINANCIAL RATIO ANALYSIS IN THE APPRAISAL OF SMALL SCALE BUSINESS (CASE STUDY OF SELECTED SMALL SCALE COMPANY)
ABSTRACT
Small and Medium-sized Enterprises (SMEs) play an important role in any economy through generation of employment, contributing to the growth of Gross Domestic Production (GDP), embarking on innovations and stimulating of other economic activities. The objective of the study was to establish the financial reporting and ratio analysis practices adopted by small and medium enterprises in AkwaIbom State and to establish the relationship between financial reporting and analysis practices and financial performance of small and medium enterprise in AkwaIbom.
The study adopted a descriptive cross-sectional research design. The target population comprised of 100 SMEs in AkwaIbom. The researcher used simple random sampling to select 50 respondents. Primary data is information gathered directly from respondents and for this study the researcher used questionnaires. Quantitative data collected was analysed by the use of descriptive statistics using SPSS and presented through percentages, means, standard deviations and frequencies.
The study found that there is a strong positive relationship between financial reporting, financial analysis, financial management and management accounting and financial performance of SMEs. There is need for management of Small and medium enterprise in AkwaIbom to enhance their financial reporting practices, financial analysis practices ,financial management practices and management accounting practices as it was found that financial reporting and analysis practices affects the financial performance of small and medium enterprises in AkwaIbom.
CHAPTER ONE
INTRODUCTION
1.1Â Â Â Â BACKGROUND TO STUDY
The purpose of preparing the financial statements of a company is to convey information on the overall performance and the state of affairs of such an organisation to all interested parties. Besides, users of these financial statements in such a way as to reveal the financial strengths and weaknesses of such an organisation in order to form an opinion as regard her going-concern. However, ratio analysis is one of the ways through which the financial statements could be interpreted. While ratio analysis is also a method used by financial managers and investors alike to compare a company’s financial structure, conditions and performances with standards prevailing in such industry for the purpose of high-lighting improvement or deterioration in the trend of the business performance. Lucey (1988) defined ratio analysis as the systematic products of ratios from both internal and external financial reports so as to summarize key relationships and results in order to appraise financial performance.
More so, ratio analysis could serve as a practical means of monitoring and improving performance and it could be enhanced when:
