CHAPTER ONE
1.0 INTRODUCTION
Corporate organizations owe a
duty to fully disclose matters concerning their operations so as to aid
investors in making investment decisions. Both large and small organizations in
addition to satisfying the legislating requirement tend to retain existing
investors and to attract potential ones through the publication of their
financial statements where the capital stock of a corporation is widely held
and its affairs are of interest to general public relations. The discussions
and illustrations of the study will be centered on the financial statement
presented to shareholders and also available for potential investors, bond
holders and trade creditors as a tool of information for investment decision.
Financial statement based on result on past activities are analyzed and
interpreted as a basis for predicting future rate of returns and assessment of
risk.
Financial statement provides important information for a wide variety
of decision, investors draw information from the statement of the firm in whose
security they contemplate investing. Decision makers who contemplate acquiring
total or partial ownership of an enterprise expect to secure returns on their
investment such as dividends and increase in the value of their investment
[capital gain]. Both dividends and increase in the value of shares of company
depends on the future profitability of the enterprise. So investors are
interested in future profitability. Past income dividend data are used to
forecast returns from dividend and increase in share prices.
For the purpose of this research, first bank plc. Anyigba branch kogi
state is selected as a case study for academic purpose
According to google.com
[electronic library] first bank of Nigerian Plc. was established in 1894 as the
first bank in Nigeria, a premier in West African and the leading financial
service solution provider in Nigeria. From being the only bank for decades,
weathered the banking exposure of the 1930,s to 1950s followed by the era of
government ownership and control to a flurry consolidations and then gradual
growth in number banks up to the early 1980s, then yet another industry growth
spurt in early 1990s when the banking sector was deregulated, leading to an
industry shake-up in the late 1990s, which reduced the number of banks from 126
to 77. At later resuscitation and growth to 89 banks leading al through the
seasons, first bank plc has remained resilient dependably dynamic and truly the
first.
Based on the researchers’ oral interview with the bank officials, the
Anyigba branch of first bank plc. was established in the then kwara state in
the 1978. They render other services than safe keeping of money like giving
loan to their customers and hire purchase. The branch presently has about 288
customers.
1.2 STATEMENT OF THE PROBLEM
It is observed that the role of financial statements in investment
decision making in Nigeria has some problems to both investors and managers of
business organizations who are either not aware of the importance of
interdependence relationship that exist between investors and business
organizations. Such problems include;
i.
How analytical tools are set to aid prospective
investors in accessing the financial position of the corporate organization.
ii.
Evaluation of performance of a company in
investment decision making.
iii.
How to determine the profitability of a company.
The above listed problems are
the problems to look into in this research work. The problems analyzed tend to
scare away both existing and potential investors. The reason of this study is
to adequately look into the above problems and suggest possible solution to any
of them. Nevertheless this research will find possible key factors to solving
these problems because financial statement in investment decision making in
Nigeria is the life blood of every organization to the potential investor.
1.3 OBJECTIVE OF THE STUDY
The general objective is to
ascertain the role of financial statement in investment decision making. The
specific objective is as follows;
i.
To examine how a set of analytical tools will aid
prospective investors in assessing the financial position of the corporate
organization.
ii.
To evaluate the performance of a company for
investment decision making.
iii.
To determine the profitability of the company.
iv.
To appraise the fundamental use of financial
statement information, this is to provide information for investment decision
making.
Hypothesis according to the
English dictionary is an unproved theory, proposition sent forth as an
explanation of something, often as the basis for further investigation.
Hypothesis is the guides for the investigators in the entire process of
research endeavor and they keep the researcher on the main line of the study,
in this research, the following hypothesis are formulated for the study;
Ho;
financial statements are not used to be relied upon in investment decision
making in a company.
H1;
financial statement are used to be relied upon in investment decision
making in a company.
Ho;
financial statements are not useful for forecasting company’s performance.
H2;
financial statements are useful for forecasting company’s performance.
Ho;
financial statement does not determine the profitability of a company.
H3;
financial statement determines the profitability of a company.
Ho; financial statement
does not project new investors.
H4; new investors are
projected by financial statement.
1.4 RESEARCH QUESTIONS
According to Uzoagulu [1998;
96], research questions guide the researcher in constructing the
questionnaires. Therefore the researcher raised the following research
questions to guide her in constructing her
questionnaire which are instruments in the study. The questions are as
follows;
i.
To what extent is financial statements used in
the investment decision making in a company?
ii.
Are financial statements useful for forecasting
company’s performance?
iii.
Do financial statements determine the
profitability of an organization?
iv.
Do financial statement projects new investors?
1.6
SIGNIFICANCE OF THE STUDY
This study will be of immense
benefit to banks by improving the banking performance financial analysts, investors,
companies and financial organizations. This is because the study intends to
help these stockholders in decision making. The study will help in widening
knowledge financial statement in investment decision making, it will also make
the organization to appreciate the importance of sound financial statement in
the provision of information necessary for decision making. It will review the
improvement in the organization handling the financial statement and show
equally the ways through which improvement could be accomplished finally this
research will equally serve as a reference to students in this noble
institution and other school who may be interested to embark on a further
research study of this nature and above all, report of this study shall definitely
add to existing knowledge in research methodology.
This study will be limited to a
geographical entity known as Nigeria and specifically first bank plc. Anyigba
branch, kogi state of Nigeria.
1.8 LIMITATION OF THE STUDY
There are some limitations
encountered by the researcher in the process of this research which limited the
scope to only first bank plc. Anyigba branch, some of the limitations are as
follows;
i.
Uncooperative attitudes of the respondents; the
researcher could not get some necessary information from the respondents
because of their negative attitude in their response to the oral interview with
the bank officials and the questionnaires.
ii.
Time constraints; despite the time provided, it
was not still enough for the researcher to go all the relevant places like
banks and company etc to get relevant information and due to the combination of
project and academics work.
iii.
Financial constraints; financial constraints is
also another factor that limited the researcher to go to many branches of first
bank and even other banks and organizations. The researcher lacked finance for
transportation, electronic library etc. and as such was limited to only Anyigba
branch of first bank plc.
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