THE ROLE OF RATIO ANALYSIS IN BUSINESS DECISION

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THE ROLE OF RATIO ANALYSIS IN BUSINESS DECISION

ABSTRACT
Accounting information provided by means of financial statements- The income statement and the Balance Sheet are often in summarized form.  Viewed on the surface, the truths about the results and the financial position of a business hidden in them remain veiled.  To be of optimal benefit and as well enable the users make well – informed decisions, financial statements need to be analyzed by means of ratios.  Therefore, in order to establish the role of ratio analysis in business decisions, this research is carried out, using Ibom Power Company as the Case study.  The researcher made use of both primary and secondary sources of data collection.  However, for the former, questionnaires were administered, whereas for the later, relevant were received.  The data Collected via the primary data sources were analyzed using simple averages and percentages. After ratios analysis conducted on the chapter four, mode at 95 level of confidence (5% level of significance).  Finally, it was established that ratios analysis evils business decision.

 

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND INFORMATION

The two primary objectives of every business are profitability and solvency.  Profitability is the ability of a business to make profit, while solvency is the ability of a business to pay debts as they come due.  (Hermanson et al, 1992: 824).  However, the achievement of these objectives requires efficient management of resources of the business through planning, budgeting, forecasting, control, and decision – making.  Also, the strengths and weakness of the business need to be identified and necessary corrective measures applied.  Interestingly, accounting provides information that facilitates these functions.
Basically, accounting measures and communicates economic information needed for decision –making.  Thus, the American Accounting Association (in Okezie, 2002:1) defined accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the information”.  Statement and the Balance Sheet.  The Income Statement shows the profitability or  profitability or operational result of a business, while the balance sheet shows the solvency or financial position of a business.

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THE ROLE OF RATIO ANALYSIS IN BUSINESS DECISION

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