EFFECTS OF PERFORMANCE EVALUATION THROUGH THE ANALYSIS OF FINANCIAL STATEMENT ON INVESTMENT DECISIONS

(A CASE STUDY OF LOGMAN NIGERIA PLC.)

ABSTRACT

This study examined the effects of performance evaluation through the analysis of financial statement on investment decision, using Longman Nigeria Plc as the case study. Based on the set objectives of the study, structured questionnaire consisting of eighteen (18) close-ended questions and one (1) open-­ended questions were developed and administered on one hundred (100) respondents of the aforementioned company, but a total of ninety-four (94) questionnaires were completely filled and returned. Hence, the study employed primary and secondary data (i.e. questionnaire method, interview method, and data sourced from established publications). Data collected were analysed with the aid of chi-square statistical technique. Findings from the study shows that Performance Evaluation should be in line with achieving Corporate Objectives and moreover, analyses of financial analysis has helped in identifying the weakness in company’s operation. The study recommended that management should ensure that performance evaluation in line with corporate objectives.

TABLE OF CONTENTS

CHAPTER ONE INTRODUCTION

1.1      Background to the Study

1.2      History of the company                          

1.3      Statement of the Problem                                              

1.4      Objectives of the Study               

1.5      Research Questions                                                          

1.6      Research Hypothesis                                                                    

1.7      Significance of study                                                        

1.8      Scope and Limitation of the Study

1.9      Methodology                                             

1.10   Limitations of the Research Method                                        

1.11   Definition of Terms                                   

References

CHAPTER TWO: LITERATURE REVIEW

2.1      Introduction                                                           

2.2      Effectiveness and Efficiency

2.3      Objectives of Performance Evaluation                       

2.4      Inter-Firm Evaluation

2.5      Inter-Temporal Evaluation                     

2.6      Industrial Average Evaluation                           

2.7      Other Aspects of Performance Evaluation                

2.8      The Financial Statements                                                

2.9      Financial Statement Analysis                             

2.10   Ratio Analysis                                                         

2.11 Alternative means of Analysis Financial Statements 

2.12   Summary                                                                 

References                          

CHAPTER THREE: RESEARCH METHODOLOGY

3.1      Introduction                                                                       

3.2      Research Design                            

3.3      The Study Area      

3.4      The Study population

3.5      Sample and Sampling Technique          

3.6      Research Instrument                                                        

3.7      Pilot Study: Validity and Reliability                   

3.8      Method of Data Analysis                         

3.9      Reason for using Chi-square method  

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION

4.1      Background Information                                                

4.2      Research Question                                                            

4.3      Test of Hypothesis                                    

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1      Summary                                                                 

5.2      Conclusion                          

5.3      Recommendations                                    

5.4      Suggestions for Further Studies                                    

References                                                  

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND TO THE STUDY

Financial analysis involves the assessment of a firm's past, present and anticipated future financial condition. The objective is to identify any weakness in the firm's financial health that could lead to the future problems and to determine any strength that the fine might capitalize upon.

The need for financial accounting statement is becoming increasingly indispensable. This is due to the increased complexity of the economy and the massive growth of corporate organization.

1.2      HISTORY OF THE COMPANY

Longman Nigeria was incorporated on the 10'' August, 1961 as a subsidiary of Longman group Ltd. A renowned British Publishing Company founded in 1724. Although, Longman, Green and Company, as this company was then known had since 1947 had a representation in Nigeria, it had operated as a mere trading out post of the U.K. parent company concentrating on the importation and distribution of education books produced primarily for the British school system.

A study of the progress of Longman Nigeria Plc. over the past thirty-three years has shown various successful project that have had powerful influence on the direction and development of publishing industry and indeed education in Nigeria. The blue-print of Longman's text development and list building strategies are largely attributable to its crop of pioneer employees.

1.3      STATEMENT OF THE PROBLEM

Extent to which the company is able to influence its overall performance.

i.           Ability to meet its financial obligation in form of dividends to investors.

ii.         Inability to meet debt payment on due dates by having sufficient cash available.

1.4      OBJECTIVES OF THE STUDY

The objective of this study is to:

i.           Assess the performance of organizations (with particular reference to Longman Nig. Plc.), in order to ascertain its level of performance.

ii.         To see to what extent investors' decision are influenced by the analysis of the company's performance.

iii.       Finally interpret and advices where necessary on appropriate actions to take in order to improve the performance of the company.

1.5      RESEARCH QUESTIONS:

Financial ratios give the previous year's performance and average performance in the industry meaningful comparison of a firm's financial data at different points in time and with other firms. It provides the basis for answering some relevant questions concerning the well-being of the firm.

i.              How liquid is the firm?

ii.            Is management generating sufficient profit from the firm's assets?

iii.          How does the firm's management finance its investment?

iv.         Is the common stakeholders recovering sufficient returns on their investment?

1.6      RESEARCH HYPOTHESES

Top executives must know that the effectiveness with which accounting information satisfies the organization's wider goals depends on to relevance, time lines and accuracy and the way it is used by member of the organization.

Ho:     Performance evaluation should be in line with achieving corporate objectives

Hi:       Performance evaluation should not be in line with achieving corporate objectives

1.7      SIGNIFICANCE OF STUDY

This research will be useful to management of up and coming companies. It is aimed at helping organizations in their bid to improve growth and to allow more investing public. Significantly, this study will be of benefit in the following areas:

·        The study will guide the company in its future planning and growth formation

·        It will also guide the company to more purposeful areas investment.

1.8      SCOPE AND LIMITATION OF THE STUDY

The scope of this study will be based manually on the financial statements of Longman Nigeria Plc. as presented in its annual reports which would be used to evaluate its performance. The scope of the research shall cover a period of four years. The balance sheet and income statement contained in the annual reports shall be analyzed using ratios to highlight the company's operating performance.

The research will be limited to the publishing industry to which Longman belongs. This research would also be limited to the performance of Longman Nigeria Plc in relation to that of its competitors; care would be taken not to delve into inter-firm comparison but the general performanceof the company. The personnel function, administrative and such other functions not financially oriented will not be dealt with.

1.9      METHODOLOGY

METHOD OF DATA COLLECTION

The researcher made use of primary and secondary data as supported with the aid of      Annual Reports of the company (Longman Nigeria Plc.) and that of its competitors in the publishing industry.

1.10   LIMITATIONS OF THE RESEARCH METHOD

The main tool of this research was the annual reports of the companies under review and the use of ratio analysis to interpret the information contained in the reports. Hence, the primary data is also used to elicit information for the study.

With reference to the Annual reports, the information contained therein were arrived at, in line with the historical cost concept, they are not perfect indicators of future and may not represent the presents the naira worth.

1.11   DEFINITION OF TERMS

Performance Evaluation: This refers to the evaluation of the operating performance of the company. Thus it refers to the evaluation of the profitability and efficiency of its operation.

Financial statements: This is the collective name for the items in the company's annual report i.e. balance sheet and income statement. Those statements represent the final output of the accounting process.

Ratio analysis: This is the comparison of relationship between two items for a useful interpretation of financial statements.

Profitability: this is profit in relation to investment that generated it.

The company: This refers to Longman Nigeria. Plc

REFERENCES

Abata, M. A. (2002): Financial: Theory and practice with Nineteen Accounting Standards.

Areblen, A. R. and Bierman, H (1982): Managerial Accounting An Introduction - 3rd Edition.

Folabi J. (1982): Financial Accounting: Principles and Practice Graham Burn Publisher.

Batty, J. (1986): Management Accounting. English Language Book Society - 4th Editor.

Pandey, L. M. (1967) financial Management Vikas Publishing House.

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