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THE USE OF FINANCIAL RATIO ANALYSIS AS A MEASURE OF ORGANISATIONAL PERFORMANCE

CHAPTER ONE 1.0 Introduction The financial statements viz. income statement and balance sheet report what has actually happened to earning during a specified period and presents a summary of financial position of the company at a given point in time. The statement of retained earnings reconciles income earned during the year and any dividends distributed with the change in retained earnings between the start and end of the financial year under study. The statement of changes in financial position provides a summary of funds flow during the period of financial statements.

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TABLE OF CONTENTS

Declaration.. iii

Dedication.. iv

Acknowledge. v

Table of Contents. vi

CHAPTER ONE.. 1

1.0 Introduction.. 1

1.1 Statement of the Problem.. 2

1.2 Objectives of the Study. 3

1.3 Significance of the Study. 3

1.4 Scope of Study. 4

1.5 Limitation of Study. 4

1.6 Research Methodology. 4

1.7 Research Hypothesis. 4

CHAPTER TWO.. 5

2.0 Literature Review.. 5

2.1 Users of Financial Ratio Analysis. 5

2.2 Nature of Ratio Analysis. 6

2.3 Standards of Comparison.. 7

2.4 Types of Financial Ratio Analysis. 8

2.5 Categories of Ratios. 10

2.6 LongTerm Solvency Ratios. 10

2.6.1 DebtEquity Ratio. 13

2.6.2 Shareholders Equity Ratio. 15

2.6.3 Debt to Net Worth.. 16

2.6.4 Capital Gearing Ratio. 16

2.6.5 Fixed Assets to LongTerm Funds Ratio. 17

2.6.6 Proprietary Ratio. 17

2.6.7 Interest Cover18

2.6.8 Debt Service Coverage Ratio. 18

2.6.9 Dividend Cover19

2.7 ShortTerm Solvency Ratios. 19

2.7.1 Current Ratio. 20

2.7.2 Quick Ratio or Liquid Ratio. 21

2.7.3 Absolute Liquid Ratio Super Quick Ratio22

2.8 Profitability Ratios. 23

2.8.1 Return on Capital Employed ROCE or return on Investment ROI.24

2.8.2 Earnings per Share EPS26

2.8.3 Cash Earnings per Share. 27

2.8.4 Gross Profit Margin.. 28

2.8.5 Net Profit Margin.. 29

2.8.6 Cash Profit Ratio. 31

2.8.7 Return on Assets. 31

2.8.8 Return on Shareholders Funds or Return on Net Worth.. 32

2.9 Activity Ratios or Turnover Ratios. 33

2.9.1 Inventory. 33

2.9.2 Debtors. 34

2.9.3 Creditors. 36

2.9.4 Assets Turnover Ratios. 37

2.9.5 Working Capital Turnover Ratio. 38

2.9.6 Sales to Capital Employed Ratio. 38

2.10 operating ratios. 38

2.11 Market Test Ratios. 40

2.11.1Dividends Payout Ratio. 40

2.11.2Dividend Yield. 41

2.11.3Book Value. 41

2.11.4Price Earnings Ratio P/E Ratio42

2.12 Utility of Ratio Analysis. 43

2.12.1Performance Analysis. 43

2.12.2Creditor Analysis. 44

2.12.3 Security Analysis. 45

2.12.4Competitive Analysis. 45

2.12.5Trend Analysis. 45

2.13 Cautions in using Ratio Analysis. 47

2.13.1Standards for Comparison.. 47

2.13.2Company Differences. 48

2.13.3Price Level Changes. 48

2.13.4Different Definitions of Variables. 49

2.13.5Changing Situations. 49

2.13.6Historical Data. 50

CHAPTER THREE.. 51

3.0 Research Methodology. 51

3.1 Introduction.. 51

3.2 Research Design.. 51

3.3 Research Instruments. 52

3.3.1 Primary Data and Sources. 52

3.3.2 Secondary Data and Sources. 54

3.4 Method of Data Analysis. 55

3.4.1 Sampling Process. 56

3.5 Restatement of Hypothesis. 57

CHAPTER FOUR.. 58

4.0 Data Presentation and Analysis. 58

4.1 Introduction.. 58

4.2 Data Preparation and Analysis. 58

4.2.1 Time Series Business. 59

CHAPTER FIVE.. 65

5.0 Summary, Conclusion, and Recommendation.. 65

5.1 Introduction.. 65

5.2 Summary. 65

5.3 Conclusion.. 66

5.4 Recommendations. 67

References. 69

 

 

 

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