FINANCIAL INFORMATION AS A TOOL FOR APPRAISING PERFORMANCE OF BUSINESS ORGANIZATION IN THE MANUFACTURING SECTOR IN RIVERS STATE
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Abstract
The research work financial information as a tool for appraising performance of business organization in the manufacturing sector in Rivers State, basically aims at ascertaining how financial information has helped in advancing the objectives of business organizations. In carrying out the examination, certain problems were identified. These problems included the fact that some manufacturing companies are managed ineffectively, in their words regardless of the information content of financial statement. Secondly, some business organizations may unknowingly employ Incompetent and unskilled manpower in sourcing financial accounting information. The study obtained its data basically from primary and secondary sources. The primary sources of data collection employed were questionnaire, oral interview and observations, while the secondary sources of data included textbooks, journals. In the analysis of the data collected, the chi-square was used to analyze the responses gathered. The study revealed that financial information has complimented the performance of manufacturing sectors in Rivers State. It was concluded that financial information has a positive impact on the efficiency of manufacturing sector in Nigeria. Some recommendations were made to boost the performance of manufacturing companies in the country.
CHAPTER ONE
INTRODUCTION
- Background of the study
The manufacturing sector of any economy worldwide is reputed to be the engine of growth and a catalyst for sustainable transformation and national development. This is because of its enormous potentials as a tool for creating wealth, generating employment, contributing to the country’s Gross Domestic Product as well as alleviating poverty among the citizenry. The manufacturing sector plays a major role in the economy as they motivate the nation at large. This is because the sector is part of protected and restoration system of an economy and successful operation of the industry can set vigour for other industries and development of an economy (Abate, 2012). Indeed, a well-developed and evolved manufacturing industry is critical to conditions for economic development as it provides long term funds for long term investment for the country.
The importance of financial information for planning, control and performance appraisal in both public and private organization cannot be over emphasized. Financial information gives manufacturing sector data regarding the financial position of the organization, such as; profit and loss, cost and earnings, liabilities and assets, etc. The primary importance of financial information is to record financial transactions systematically in the books of accounts and to find out the profit-loss and financial position of a business. For making the right decision in manufacturing companies, management depends on statistical data and information that accounting provides. Financial information prevents the misuse of assets, increases production and profit, controls costs and helps increase the efficiency of the overall management. The main functions of financial information include ascertainment of profit-loss and financial position, interpretation and analysis of accounts and statements, development of accounting system, a collection of statistical and economic data, and formulation of financial principles and financial planning and controlling results as per plan, etc. (Salehi, 2010).
The primary desire of any firm is to earn more profits and enhance the wealth of its stakeholders. The performance of any organization not only plays the role to increase the corporate value of that particular entity but also points toward the development of the whole sector and the overall success of the economy (Ahmed et al., 2011). In this regards, there should be constant sound financial management including the efforts to improve profitability in order to meet the goal of business owners (Gitman, 2007). However, due to challenges in internal and external environment, most organizations are unable to meet their objectives. In other words, performance is a function of the ability of an organization to gain and manage its resources in several different ways so as to develop competitive advantages (Iswatia and Anshoria, 2007).
Financial information is very important for appraising performance of business organization. Most organization uses financial information to decide their level of success, which makes financial information to be very crucial. Because to make a decision, it has to be based on genuine facts and figures. Therefore, most manufacturing companies cannot make decision without reasonable information for backing it up. Financial information helps business organization by providing information like percentage of profit over the capital, capital investment position, management efficiency in controlling, etc. management uses financial information during the preparation of various budgets which is essential in running the organization successfully. The historical information which is needed in the preparation of the budget is supplied by financial information.
Financial information holds an essential role in evaluating the method of carrying out the investment projects, as well their final profitability (Vatasoiu, Gheorghe, Motoniu & Boca, 2010). Manufacturing companies uses financial information to report every pieces of financial data that go in and out of their business operations that allow both company managers and outside investors and analysts to understand the company’s health and make informed decisions. Therefore financial information is directly involved in providing information for the decisions of investors and creditors that help the organization to efficiently and effectively allocate resources to other partners.
1.2 Statement of the Problem
Most manufacturing companies in Nigeria usually use guesswork or rule of thumb during their financial reporting. This method happens to be outdated and no longer relevance in the 21st century accounting techniques. A vast majority of these companies cannot afford the complexity of a detailed accounting system even if they would have, hence, the existence of single entries in their books and in some cases on incomplete records (Onaolapo et al., 2011). Audits of manufacturing companies have proven to be among the most worrisome for professional accountants because of the inadequacy of the internal controls. Despite the functions of financial information many companies often fail to comprehend fully on the information it intending to pass across, thus their desire are not met. This is due to ambiguous of the financial information where by the volume of data figure mislead the user. In this sense, the need for analysis and interpretation of statement are imperative. Therefore, this present study will bridge this identified gaps by analyzing financial information as a tool for appraising performance of business organization in the manufacturing sectors in River State.
1.3 Objectives of the Study
The primary aim of this study is to examine financial information as a tool for appraising performance of business organization in the manufacturing sectors. The researcher intends to cross examine the following sub objectives;
- To determine the extent at which financial information usage aid manufacturing sector survival in Rivers State.
- To ascertain the extent to which mismanagement of funds affect the financial performance of manufacturing sector in Rivers State.
- To examine the impact of financial information in profit maximization in manufacturing sector in Rivers State.
- To proffer solution to ineffectiveness in financial management of manufacturing sector in Nigeria.
1.4 Research Questions
The following questions were formulated to guide the indebt of this study;
- Does financial information usage aid manufacturing sector survival in Rivers State?
- Does mismanagement of funds affect the financial performance of manufacturing sector in Rivers State?
- Are there any significant impact of financial information in profit maximization in manufacturing sector in Rivers State?
- Is financial information an effective management tool for appraising performance of manufacturing sector in Nigeria?
1.5 Hypotheses
The following hypotheses will be tested in the course of the study;
H0: Financial information usage does not aid manufacturing sector survival in Rivers State.
H1: Financial information usage do aid manufacturing sector survival in Rivers State.
H0: Financial information is not an effective management tool for appraising performance of manufacturing sector in Nigeria
H2: Financial information is an effective management tool for appraising performance of manufacturing sector in Nigeria.
1.6 Significance of the Study
This study findings will be of immense importance to the manufacturing companies who in one way or the other will use it to properly upgrade the performance of their organization. Also it will help to indent the understanding and appreciation of financial information as well as suggest ways that will enhance the effectiveness and efficiency of manufacturing companies in Nigeria. Furthermore, it will be good interest to the manufacturing companies in Rivers State. Importantly, the outcome of this study will broaden the scope of accounting as a discipline and equally serve as a source of information or input for further researches, where student in accountancy would avail themselves with outcome. The result of the findings would provide another source of information for manufacturing companies to adopt in making sound and informed decision in effective realization of organization goals. Finally, this study will make recommendation that would boost the financial performance of manufacturing sectors in Nigeria.
1.7 Scope and Limitation of the Study
The scope of the study covers some selected manufacturing companies in
Ikwerre, Rivers State, the study is limited to only manufacturing sectors as they are the channel of accessing information. Although in the cause of the study the researcher encounters some constraint which limited the scope of the study. Such as;
a) Availability of Research Material: The research material available to the researcher is insufficient, thereby limiting the study.
b) Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
c) Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.
1.8 Operational Definition of Terms
Financial Information: Financial information is data about the monetary transactions of a person or business. This information is use to derive estimates of credit risk by creditors and lenders. From buying inventory and machinery to entering into long-term building contracts, the events that occur in business operations almost always translate into financial information.
Business organization: This is an entity formed for the purpose of carrying on commercial enterprise. Such an organization is predicated on systems of law governing contract and exchange, property rights, and incorporation.
Financial performance: Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues.
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