TABLE OF CONTENTS
Table of Contents
List of Tables
List of Figures
CHAPTER ONE: Introduction
- Background of the Study
- Statement of the Problem
- Research Objectives
- Research Questions
- Research Hypothesis
- Scope of the study
- Significance of the study
- Definition of the key terms
CHAPTER TWO: Literature Review
2.2 Conceptual Issues
2.3 Theoretical Framework
2.4 Empirical Literature
2.4 Synthesis of empirical literature
2.5 Gaps in Literature
CHAPTER THREE: Research Methodology
3.2 Research Design
3.3 Nature and Sources of Data
3.4 Model Specification
3.5 Model Justification
3.7 Estimation of Techniques
CHAPTER FOUR: Data Presentation Analysis
4.2 Data Presentation
4.3 Data Analysis
4.4 Test of Hypotheses
4.5 Discussion of Findings
CHAPTER FIVE: Summary, Conclusion and Recommendations
5.2 Summary of Findings
5.5 Contribution to knowledge
Area of future study
The topic is “financial ratios as a management strength in an organization (a case study of all insurance firms in Nigeria). Financial ratios are used almost universally by companies of all size to provide numerical information on the profitability, health and direction of the business. Financial ratios provide useful analysis and can help drive management towards making better decisions if they are interpreted correctly. A ratio analysis is a quantitative analysis of information contained in a company’s financial statements. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency. Financial ratios are measureable values that present how a company is achieving its key business objectives. The study applied several theories such as the framework on financial ratio, performances and evaluation; ratio analysis. The study used secondary data analysis make use of both primary source of data in the write up refers to data and information. Data was sourced from the audited financial statement of Aiico Insurance Plc, on the financial ratios. This study applied DuPont Equation on the DuPont methods for assessing a company’s return on equity (ROE). The management are advice to make use of financial ratio in analyzing financial positions of the firms, they should be concern about activities that will improve the company’s trading performance. The management are advice to make use of financial positions of the firms, they should be concern about activities that will improve the company’s trading performance. Based on the findings of the study, it can be concluded, the relevant accounting standards was stated on its objective of finance which stipulated that “financial report should provide information useful to present to the shareholders and potential investors, creditors and other users in making rational investment, credit and economic decisions.”
- Background of the Study
This is the expression of one figure in terms of another figure in order to find out the relationship between them.
Financial ratio or financial information to a unprofessional can be said to mean the information that is given or revealed by accountants.
Accounting information, according to statement of accounting standards No. 2 which are the means of communicating to interested parties information on the resources, obligations, and performances of the reporting entity or enterprises.
The meaningful information can be gathered collated and presented in different forms. The financial position of a company is very important and essential. It states the position of a company as at a particular data. The reason is that the firm has to know they are making expected returns and maintaining a sustainable growth on shareholder’s investments. Accounting information will assist all users to assess the financial liquidity, profitability and viability of a company.
This is the reason why they need to be disclosed to the users. Financial ratios are one of the most common tools of managerial decision making. A ratio is a comparison of one number to another mathematically, a simple division problem.
Financial ratio involves the comparison of various figures from the financial statements in order to gain information about a company’s performance. It is the interpretation, rather than the calculation that make financial ratios a useful tool for business managers. Ratios may serve as indicators, clues, or red flags regarding noteworthy relationship between variables used to measure the firm’s performance in term of profitability, asset utilization, liquidity, leverage, or market valuation
- HISTORICAL BACKGROUND OF INSURANCE FIRMS IN NIGERIA AS A WHOLE.
It is important to know industry of insurance in Nigeria. The birth of modern insurance in Nigeria is closely associated with the arrival of British trading companies. These companies facilitated inter-regional trade in the country. These foreign companies, therefore, needed to deal with some of their risks at a local level. This changed the shaped of the insurance sector in Nigeria.
These trading companies were given insurance agency licenses by their foreign authorities from abroad. The licenses allowed the firms to facilities claims supervision and issue.
The first comparison indigenous to Nigeria was African Insurance Company limited. This was established in 1958 on October 1, 1960. The country gained independence from the British at the time of independence there were twenty five insurance companies in Nigeria only four of these companies were directly own by Nigerian. The insurance industry in Nigeria has been steadily growing ever since.
The development of insurance took place long before Nigeria became the independent country. Since that period, Nigeria has overcome a long path filled with different charge. As years went by the evolution of insurance became more invisible, though in comparison with other world countries insurance in Nigeria is developed quite poorly. The reason for this come not only from insurance services but also from economic sector.
Evolution of Insurance Beginning: The pre-requisites of the current situation with insurance were born in the colonial period. Until the1960s, the leading role in the Nigerian insurance market was played by European companies. They insured goods sent to centers of the empire. After colonies gained political independent, African Branches of these companies were nationalized, the government tried to form their own insurance markets to avoid currency outflows abroadand they manage to do this with the support of the UN.
- STATEMENT OF THE PROBLEM
Financial ratios are used almost universally by companies of all sizes to provide numerical information on the profitability, health and direction of the business. Financial ratios provide useful analysis and can help drive management toward making better decisions if they are interpreted correctly. However, there are some draw backs to relying on these metrics.
Lack of comparability between companies
Financial ratios are a useful tool to track charges in business overtime. For example, if a liquidity ratio is lower this year than last, there may be a problem that needs further investigation.
No indication of cause of changes
Ratios tell a business owner what happened but they do not tell him why it happened. Business owners must dig deeper into the numbers to determine why ratios are charging from period to period.
Ratios based on book value
This is one of the largest problems with relying on financial ratio. Because the financial statements are prepared based on book value (largely historical costs) they do not reflect current reality in the business.
No measurement of management quality
One of the key determines of business success is the quality and experience of the management team.
- RESEARCH OBJECTIVES
The objectives of a study simply means the reason why the study or the research is being carried out. The objectives of this study are:
- To investigate the extent to which financial ratios are used to determine the financial position of a firm
- To determines if the proper accounting policies and concepts are followed.
- To highlight the important of the financial ratio to users of accounting information.
- Financial ratio are important in analyzingthe performance of a firm.
- Financial ratios are very important in decision making at the top management level.
- Ratio analysis are based on the financial analysis for measuring profitability and liquidity in a company.
- RESEARCH QUESTIONS
Financial ratios are important tool to help understand a firm’s financial condition. Ratios can be derived from published financial statements and used to compare to the performance within a company over time. Based on the research objectives which are stated above the research questions are as follows:
- To what extent do financial ratios determine the financial position of a firm.
- To what extent accounting policies and concept are followed.
- What is the importance of the financial ratio to users of accounting information.
- Does your company use financial ratios to analyze its performance?
- To what extent do financial ratio is important in decision making at the top management level.
- Ratio analysis are based on the financial analysis or measuring profitability, viability and liquidity in a company.
- RESEARCH HYPOTHESES
Research Hypotheses are as follows:
- H0:To a large extent financial ratios determine the financial position of insurance firms in Nigeria.
H1:To a large extent financial ratios do not determine the financial position of insurance firms in Nigeria.
- H0: Proper accounting policies and concept are followed in the preparation of financial reports of insurance firms in Nigeria
H1: Proper accounting policies and concepts are not followed in the preparation of financial reports of insurance firms in Nigeria
- H0: The use of financial ratio in analysis financial statements of insurance firms in Nigeria important to users of such financial statements.
H1: The use of financial ratio in analysis of financial statement of insurance for firms in Nigeria is not important to users of such financial statements.
- H0: Your company does not use financial ratio to analyze its performance.
H1: Your company uses financial ratio to analyze its performance.
- H0: Financial ratio are not important in making decision at the top management level.
H1: Financial ratios are important in making decision at the top management level.
- H0: Ratio analysis are not based on the financial analysis for measuring, profitability, viability and liquidity in a company.
H1: Ratio analysis are based on the financial analysis for measuring, profitability, viability and liquidity in a company.
- SCOPE OF THE STUDY
This research will be limited to all insurance firms in Nigeria, and majorly focus on Aiico Insurance Plc which covers 2016 and 2015 the relevance information provided therein.
The study is structured in a way to explain the actual uses of accounting information by both the private and public sectors for analyzing the financial position of a firm
- SIGNIFICANT OF THE STUDY
The finding of this study redound to the benefit of insurances firms considering that financial ratio plays an important role in the insurance firms and other organization as at today.
The greater demand for the users of the financial statement of accounting information should be thoroughly explained and also to analyze their growth and financial positions, accounting period for the purpose of revenue and costs recognition. The study will enable them uncover critical areas in the insurance firms through financial statement.
- DEFINITION OF THE KEY TERMS
The following terms will be used in the course of writing this project
- RATIO: This is an arithmetic expression of the relationship between two or more variables. The two variables must be significantly related to produce meaningful results. Is the relationship between two amounts determined by the number of the times one continues the other.
- RATIO ANALYSIS: Is a systematic methods of examining accounting statement based on the calculation of numbers of ratios and statistics. It is also the arithmetic relationship between two figures in a set of financial statement.
- FINANCIAL ANALYSIS: Is a basically a process of x-raying the financial data of a business form with a view to having an insight into meaning and significance of the figures to enable the performance of the form to appraisal there form.
- RATIONAL DECISION: Taking a rightful decision at the appropriate time after taking into consideration all the necessary factors
- AUDITING: Is the independent examination of, and expression of opinion on, the financial statement of a company by an appointment and in compliance with
In connection with financial statements, an audit is an examinationof accounting records and other supporting, evidence of an organization for the purpose of expressing an opinion as to whether financial statements of the organization present fairly its position as at a given date and results of its operations for the period ended on that date in accordance with generally accepted accounting principles
- SOLVENCY:This determine ability of the business to services its indebtedness. Ratio which throw light on the debt servicing ability of the businesses in the long run. The company’s ability to meets its debt and financial obligation as at when due.
- EARNING:This is the one of the most important and widely used measures in the financial analysis of companies share. It helps a great deal in making comparison between the competing enterprises and provides useful information to the present and prospective investors in the financial analysis. These are money gotten as a reward from business or trading activities.
- STOCK:It determines number of times stocks is turned over on an average during the period under consideration. As stock is recorded t cost and not selling price, it expresses the relationship between the cost of goods sold and stock of goods. Money lend to a business in return for interest.
- LIQUIDITY: This is determines the ability of the business to pay the amount due as per commitment to stakeholders. Situation where the company’s assets can easily be converted into cash.
- DIVIDEND: This payout ratio provides better information about earning for equity shareholders. Periodically payment of interest on a loan, share of profit to share holder of revenuer and costs recognition of a company.