THE IMPACT OF RATIO ANALYSIS ON MANAGEMENT DECISION MAKING IN AN ORGANISATION (A CASE STUDY OF ZENITH BANK PLC, ILORIN BRANCH)
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THE IMPACT OF RATIO ANALYSIS ON MANAGEMENT DECISION MAKING IN AN ORGANISATION
(A CASE STUDY OF ZENITH BANK PLC, ILORIN BRANCH)
TABLE OF CONTENT
Table of Content v
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 4
1.3 OBJECTIVE OF THE STUDY 5
1.4 RESEARCH QUESTION 6
1.5 SIGNIFICANCE OF THE STUDY 7
1.6 SCOPE OF THE STUDY 8
1.7 LIMITATION OF THE STUDY 9
1.8 DEFINITION OF TERMS 9
2.1 PREVIEW 12
2.2 CONCEPTUAL FRAMEWORK OF RATIO ANALYSIS 12
2.3 APPROACHES TO USE OF RATIOS 14
2.4 CLASSIFICATION OR TYPES OF RATIOS 15
2.5 PLACE OF RATIO ANALYSIS IN AN ORGANIZATION
OR FINANCIAL INSTITUTION 22
2.6 EXPECTED ROLE OF MANAGERS IN RATION TO
RATIO ANALYSIS 23
2.7 CONTRIBUTIONS OF INVESTORS TO
ADMINISTRATIVE PERFORMANCE IN TERMS
OF FINANCIAL RATIO ANALYSIS 24
- CONTRIBUTION OF RATIO ANALYSIS IN
DECISION MAKING IN AN ORGANIZATION 25
3.0 RESEARH METHODLOGY 30
3.1 PREAMBLE 30
3.2 POPULATION SIZE 30
3.2 SOURCE OF DATA 31
3.3.1 PRIMARY SOURCE 31
3.3.2 SECONDARY SOURCE 31
3.4 RESEARCH INSTRUMENT 33
3.5 DATA ANALYSIS PROCEDURE 35
4.0 DATA PRESENTATION ANALYSIS AND INTERPRETATION 36
4.1 INTRODUTION 36
4.2 DATA PRESENTATION AND ANALYSIS 37
4.3 COMPUTATION OF SOME SELECTED RATIO USING
THE ZENITH BANK STATEMENT OF ACCOUNT AS
BELOW BALANCE SHEET AS AT DISMEMBERS 31st
4.4 SUMMARY OF FINDINGS 49
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 SUMMARY 51
5.2 CONCLUSION 52
5.3 RECOMMENDATION 52
1.1 BACKGROUND OF THE STUDY
In every organizing irrespective of its size, ownership, structure, impact of ration analysis on management decision making occupy a crucial position.
However, given this centrality, it can be said that behind every successful organization, the process in which the management arrive at decision making is very important as far as financial management is concerned in the private sector of the economy and especially in a banking institution like ZENITH BANK.
In a nutshell, the impact of ration analysis on management decision making which is the most preoccupation of this research work is referred to the manner through which the management of organization takes decision suitable for profit as possible, future planning, controlling current performance and future development through liquidity analysis, leverage analysis and activity analysis.
Significance change has taken place in recent years in the size and complexity of both private organization and public organization because of this management is faced with evaluation in technical, social political and economic forces. As a result, the methods of arriving at the decision as become more difficult to management especially in accounting activity of the organization.
This research is devoted to examination of some major impact of ratio analysis in financial institution (ZENITH BANK OF AFRICAN).
Zenith Bank was established in May, 1990. It became a Public Limited Company in July, 2004, and had an initial public offering on the Nigerian Stock Exchange (NSE) on October, 21 of that year. Also in 2004, credit rating agency fetch ratings identified its credit as AA on their long-term scale. The Bank has been in a series of controversies regarding its labor practices. The bank developed a penchant for mass terminations of staff employment without regard to due process. A series of court cases instigated against the bank by ex-employees adds credence to this view. In 2010, the Bank was defrauded of about
N7.5Billion by a staff and was made to make provisions for it by Nigeria’s Reserve Bank.
Jim Ovia is the company’s pioneer Chief Executive Officer, Pter Amangbo is the Managing Director, Adaora Umeoji, Ebenezer Onyeagwu and Sola Oladipo are Executive Directors. Jim Ovia is Chairman of the Board. The company has a total of 3,911 employees in January, 2010 the Board of Directors of the Bank announced a change. The Board of Zenith Bank Plc announced the appointment of Peter Amangbo as Managing Director/Chief Executive Officer designate of the Zenith Bank.
2007: African Bank of the Year (Awarded by African Investor Magazine)
2007: Quoted Company of the Year (Awarded by Nigerian Stock Exchange)
2007: Socially Responsible Bank of the Year (Awarded by African Banker Magazine)
2005: Most Respected Bank in Nigeria (Awarded by Price water house Coopers)
2005: African Bank of the Year (Awarded by the Banker Magazine)
1.2 STATEMENT OF THE PROBLEM
The part of ratio analysis as a tool for decision making have the following area of concern. 75 ratio analysis useful in investment appraisal?
- Whether management relies on ration analysis for decision making?
- Do ration analysis really determine the wealth maximization of shareholder? Or
- It ratio analysis or management tool or technique use in determining the liquidity, stability profitability and efficiency of the organization?
- Whether ratio analysis can be used to ascertain the strength, weakness, opportunity and treat of the organization.
- Whether ration analysis can be used to determine the trend of development and performance of the organization over time.
At the time of chooses this topic the above was what the researcher have in mind and therefore pushes to fine out what is the need for ratio analysis in banking institution like ZENITH BANK PLC
1.3 OBJECTIVE OF THE STUDY
The primary objective of this researcher is to fine out how efficient and effectively does the management evaluate its financial position. Also the performance of the institution with regards to the financial analysis or ration analysis in making a quantitative judgment about the institution financial position and its achievement which include. It is further generalized as the following:
- The effective implementation of the traditional function of banking acceptance of deposit to find lending.
- Efficient financial resource mobilization without inflationary money supply expansion for economic development especially when external borrowing is viewed as a last resort.
- increasing sense of; commitment and identification with the institutional and it’s good by institution a design and activities of people and adopting a participating or democratic style of management
- Maintaining accountability of assets.
1.4 RESEARCH QUESTION
For the purpose of this study, the following question is raised to enable the researcher find possible solution to the identified problem if properly answered.
- How is the application of ratio analysis useful when it comes to decision making in the organization?
- In what way is the application of ratio analysis useful in evaluating the financial performance of the organization?
- How do interested parties in ZENITH BANK PLC apply and use ratio analysis in evaluating the bank before taking their decision?
- How is ratio analysis of importance when it comes to granting of loan and advances to customer?
- To what extent does ratio analysis help the chief executive of the back in decision making?
- How is ratio analysis of importance to the balance sheet of the bank
1.5 SIGNIFICANCE OF THE STUDY
The significance of impact of ratio analysis in financial institution cannot be over emphasized. It is therefore expected that, this research work is bound to be beneficial to the following;
- Management; most management decision are based on information from ratio analysis. Management planning is also supported by vital information from ratio analysis.
- Shareholders; for shareholders to deter mine their wealth maximization, they rely on information from ratio analysis such as stability ratio and leverage ratio.
- Potential investors; for potential investors to embark on investment in an organization, the need to know how reliable the organization is and for them to know or ascertain the viability of the organization is based on vital information from ration analysis.
- Employees; the interest of employees in the organization is on how their welfare can be improved. They are able to obtain information for the agitation for improvement on their welfare through ratio analysis such as profitability ratio.
- Students; it is expected that students mostly undergraduates stand to benefit from this research work because it will serve as a source of ratio analysis.
- Government; government also rely on information from ratio analysis in the assessment of the organization for tax purpose such as profitability and liquidity ratios
1.6 SCOPE OF THE STUDY
The scope of this research work will be specially restricted to Zenith Bank Plc Ilorin Branch; with regards to its accounting ratio which will help in;
- The assessment of profitability
- Assessment of liquidity
- Assessment of activity
- Assessment of failure
1.7 LIMITATION OF THE STUDY
In search of data, problems were faced by the researcher despite all the explanation of the purpose of the study
- In the first place respondent did not react to the question sent to them this lead to insufficient data.
- Also cost and time lad a great impact on the study since no adequate means were available and time under consideration was short.
1.8 DEFINITION OF TERMS
The terminologies used in this study are defined below for the better understanding of this work so that research will not to be misinterpreted.
i. BANK; it a financial institution which primary holds out itself to accept deposits from consumers and payout on demands.
ii. RATIO ANALYSIS; refer to the determination of the significant relationship which exist between figures as show in a firms performance.
iii. PROFITABILITY; these measures indicate whether the company is performing satisfactorily. They are used among other things, to measure the performance of management to identify whether a company may be a worth while investment opportunity and to determine a company’s performance relative of it’s competitors.
iv. MANAGEMENT; management can be describe as the art of working particularly through people, for the achievement of the broad goals of an organization.
v. LIQUIDITY: liquidity measure the ability of a business to meet short term obligation.
vi. ACTIVITY; help assess the efficiency of managers actions.
vii. RETURN ON CAPITAL EMPLOYED: this is the yardstick employed to measure the efficiency of the management in utilizing the assets of the business.