A STUDY OF THE USE OF FINANCIAL RATIOS FOR THE ASSESSMENT OF THE PERFORMANCE AND THE profitability OF A firm
A STUDY OF THE USE OF FINANCIAL RATIOS FOR THE ASSESSMENT OF THE PERFORMANCE AND THE PROFITABILITY OF A FIRM
This research paper, “The study of the use of financial ratios for the assessment of a firm's performance and profitability,” covered every important area of ratio analysis.
Furthermore, it recognised the many types of ratios, their applications, those who profit from such analysis, and the constraints associated with the notion of financial ratio analysis.
However, this study demonstrated the importance of financial ratio analysis to the publics of an organisation, specifically the equity holder, short-term creditors, long-term creditors, management, customers/clients, and the tax authority.
A lending banker can also use ratio analysis to examine the viability of a borrowing firm in order to decide whether or not to extend loans.
The researcher used secondary sources of data to assess this research effort, as advised. This requires reviewing related literature written by well-known and important authors of textbooks, journals, periodicals, and newspapers, as well as other publications.
This research is critical for both students and individuals working in agriculture. It is recommended reading for agricultural practitioners.
The researcher wants to produce a paper titled “A study of the use of financial ratios for assessing a firm's performance and profitability.”
Most lending bankers are currently confronted with the problem of loan default as a result of insufficient research or evaluation of the borrowing firm's financial statements using financial ratio analysis.
As a result, the suggested study objective is to identify the numerous ratios, functions, and issues associated with the use of financial measures in measuring the performance and profitability of a borrowing organisation.
However, the researcher also plans to collect data through secondary sources, which includes a review of relevant textbooks, journals, periodicals, and so on.
Furthermore, the researcher aims to emphasise or confine her issue to the aspect of bank lending in relation to the application of financial ratio analysis to examine a borrowing firm's performance and profitability.
Finally, in terms of the review of relevant literature, the researcher wishes to expand on the notion of financial ratios, various types of financial ratios, their uses and relevance, as well as constraints on their use or application.
1.1 BACKGROUND OF THE STUDY
The importance of Financial Rationing and its analysis cannot be overstated. According to Iloh (2001), good financial planning for any functional organisation must be tied to the organization's existing strengths and weaknesses.
In order to identify the aforementioned criteria, it is important to assess the organization's performance over a specific time period. As a result, financial ration analysis is one of the approaches used to determine an organization's level of performance.
It is defined as the approaches for reducing aggregate financial data into meaningful quotients that can then be compared to other financial data.
However, the researcher became interested in this area in order to determine the impact of financial ratio analysis, particularly on lending bankers. This is because credit extension is a difficult and technical operation;
one of the prerequisites for successful lending is an examination of a borrowing firm's financial statements. This is accomplished through the use of ratio analysis.
Furthermore, an examination of such financial statements will allow a lending lender to assess the borrowing firm's viability in terms of liquidity, profitability, and the nature of its funding.
Finally, having a thorough understanding of the ideas discussed above through Financial Ration analysis, the lending banker will be able to make an informed judgement on whether to accept or reject a certain loan proposal or request.
1.2 STATEMENT OF THE PROBLEM
Loan defaults are becoming increasingly common in Nigerian banks. Most banks have been affected, specifically their capital sufficiency, which has inevitably resulted in hardship and failure.
Manipulation of accounting records by borrowers, as well as incorrect evaluation and analysis of the borrower's financial accounts, are among the reasons of loan default and bad debt, according to Orjih (1996).
That is, it allows fund borrowers to diverge from the payment or payback terms of funds borrowed from the lending institution.
For several years, most banks have been in crisis and failure as a result of irresponsible lending and improper financial statement analysis. As a result, the researcher seeks to discover the required procedures that may be implemented to repair this dire scenario.
1.3 AIM AND OBJECTIVES OF THE STUDY
The purpose of this research endeavour (the use of Financial Rations by a lending banker to measure a borrower's performance and profitability) is to obtain.