CHAPTER ONE

INTRODUCTION

 

1.0                         BACKGROUND OF THE STUDY

According to frank wood and Allan songster (2002) business accounting is concerned with the quantitative expression of economic data? As a discipline it evolve from a need for a frame work of recording, classifying, summarizing, analyzing and communicating economic data.

Financial management is a specialized area of accounting, which is concerned, with the effective and efficient management of financial resources of any organization. The survival of any firm depends on how well the financial resources are being managed.

The interpretation of accounting involves the analysis and criticism of a given set of financial statement with the aim of providing useful information for decision making the principal techniques used in the interpretation of accounting is for calculating important and relevant ratios to an organization, such ratios when computed are most often used for comparism purposes and to know if the organization is sounding well in their performance.

This study is based on first bank of Nigeria plc Kaduna because it is widely believed that the cause of failure of much business organizations both small and large in Nigeria today is as a result of poor financial institution which could give an insight into the challenges facing the business world, the interpretation of the business world, prevalent economic situation of the country and how to manage financial resources effectively and efficiently.

Most business that started newly hit the rock on sooner than they start, not because the product is unprofitable but because of lack of modern techniques of financial management lack of planning and the ability of the entrepreneur to make use of financial management techniques to appraise the performance of the business and make correct forecast about failure.

Therefore, financial analysis is concerned with the key decision function in the firm these include:

a. The planning and allocation of funds for working capital.

b. evaluation of financial alternatives open to the firm and the cost associated with       them

c. the strategy of acquisition and mengers and the external growth of the firm.

The assessment of financial management is to provide a basis for assessing the financial implication of decision made in order areas of management, which will be judged according to 

i.                   the firm financial goal

ii.                 how they affect the overall valuation of the firm

iii.              How they affect the overall performance of the firm.

 

1.2 STAETEMENT OF PROBLEM

The survival of any firm depends on how well the financial resources are     being managed. The firm determines how well the firm may progress. Points could be considered.

1.  What role does financial record play in achieving good financial               management?

2. In what way does financial ratio help an enterprise in management decision                  making?

3. What is the important of short and long – term loan or borrowing to an   enterprise?

4.  What is the major source of income for the organization?

1.3 OBJECTIVE OF THE STUDY

       The main aim of this research work is to enlighten the entrepreneur on:

1.     The objectives and uses of financial ratio as a tool for financial analysis, which could be helpful to the company in forecasting for future and making some management decision.

2.     How to investigate some management policies and practices of the company.

3.      How to look at the financial structure of the company and analysis, their financial implication for the company’s activities now and in the near future.

1.4 RESEARCH QUESTIONS

       For the purpose of this research work the following questions are formulated:

1.     Does the company uses financial ratio analysis or not?

2.     How does the company handles the issue of inflation in analyzing their financial ratio?

3.     Could poor performances, poor planning, poor financial management, poor approach to performance appraisal be attributed to poor financial ratio analysis?

4.     Of what importance is financial ratio analysis to the banking industry?

1.5 SIGNIFICANT OF THE STUDY

The study is based on first Bank of Nigeria plc Kaduna because is widely    known as the financial ratios institution which will be able to give a better interpretation and use of the financial ratios to the banking industry and to the business organizations.

The ratio analysis is widely used to determine the ability of a firm to meet its current obligation by revealing the overall operational expenses or efficiency of business organization. It gives an insight into the past performance which can serve as an indication into the future performance. It is important for companies to make comparison between themselves and other firms or companies at different times in order firm to weight themselves if they are making progress or not.

The project work is also to enlighten the business organizations and bring into focus significant changes in the business and to have a good or a better financial management.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of this study is concerned with first Bank of Nigerian Kaduna, its     importance this project work will emphasize greatly on the financial ratio of first Bank of Nigeria plc and their interpretation.

1.7 HISTORICAL BACKGROUND OF FIRST BANK OF NIGERIA PLC       KADUNA

First Bank of Nigeria (FBN) is one of Nigeria top three commercial banks. It was establish in 1894 by Sir Alfred Jones, a shipping magnate from Liverpool, the Bank started out as a small operation in the office of elder Dempster and company in Lagos.

The Bank was incorporated as a limited liability company on 31st march 1894, with a head office in Liverpool. It began trading under the corporation name of the Bank for British West Africa (BBWA) with a paid up capital of twelve thousand pound (E 12 000), marking the creation of the Banks international banking operation, a second Nigerian branch was opened in the old Calabar in 1900, and two years later services were extended to Northern Nigeria.

To respond successfully to changing conditions over the years, the bank had restructured several times in 1957, it changed its name from Bank for British West Africa to Bank of West Africa, and in 1969 it was incorporated locally as the standard Bank of Nigeria Limited, in line with the companies decree of 1968, in march 1971, the Bank obtained a listing on the Nigerian stock exchange. Further name changes took place 1979 and 1991.To first Bank of Nigeria plc. In 1985, the bank introduced a decentralized structure with five regional administrations, and this was reconfigured in 1992 to enhanced operational efficiency.

To satisfy the weeds of its customers, first bank has diversified into a wide range of banking activities and services. These include corporate and retail banking, registraship, trusteeship and insurance brokerage. The banks currently have 394 branches throughout Nigerian the biggest branch network in the industry. Over the years, the bank has experienced phenomenal growth from a share capital of N55.6 million in 1980, to N2.619 billion in March 2006. Also in march 2006, the banks total asset base was. N540.2 billion, its deposit base was N390.8 billion and market capitalization stood at N193.81 billion (N 37,000 per share).

First bank is quoted on the Nigerian stock exchange (NSE), where it’s issued and paid up share capital as at march 31 2009 was 24.86 billion units. For the half year ended since 2010, the bank made a whopping N31.3 billion recorded the previous year. It achieved this feat with total earnings of N139.7 billion over the given period.

In June 2011, first bank of Nigeria plc has a total assets base of N2.9 trillion representing a 20% growth over the previous years and deposits of N1.4 trillion, first bank is the largest bank in Nigeria and one of the top five banks in Africa in terms of assets. FBN has developed impressively, base on key criteria such as number of branches, growth in deposit base, asset size and size of loans and advances. A strong track record of profitability and reliability in sound banking industry.

FBN is strongly committed to its social responsibility and identifies with communities in which it is represented as at march 1992 Nigeria interest constitutes 80% of the share holding of the bank.

1.8 DEFINATION OF TERMS

 It is expected that the research has to explain some certain terms in order for the whole research project to be meaningful to the reader and those terms are as follows:

a. ACCOUNTING: Is the system way of recording, classifying, analyzing, summarizing and communicating economic data on order to provide useful information to the users.

b. FINANCIAL ANALYSIS: is the process of identifying the financial strength and weakness of the firm by properly establishing between the items of the balance sheet and the profit and loss account.

c. FINANCIAL RATIO: This is the process of dividing one figure by another figure to device the relationship.

d. WORKING CAPITAL: This is the difference between current assets over current liabilities that excess is sometimes referred to as net working capital.

e. FINANCIAL MANAGEMENT: Is the specialized area of accounting, which is concerned, with the efficient and management of financial resources of any organization.

f. CAPITAL EMPLOYED: It may be define in many ways as the total asset used or total asset less current liability or total asset less total liabilities.

g. BANK OVER – DRAFT: This is a situation were a bank grants permission to some firm to over draw the account.

h. MORTAL FINANCE: This referrers to found provides of the security of fixed assets.

I. LEASING: it is a contract between the leaser (financial) and the lessee (hirer) for the hiring of a specific asset from a manufacturer of such assets by the lessee.

J. HIRE PURCHASE: this is an agreement under which a trader or a financial house transfers possessions and right to use equipment after the buyer sign agreement to repay the balance of cost of the hire goods in pre – arranged installments.

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