ANALYSIS OF FINANCIAL RATIOS AS AN AID TO ECONOMIC ANALYSIS.
CHAPTER ONE
1.1 BEGINNING
Management should be particularly interested in recognizing the firm’s financial strengths in order to maximize their usage and in identifying the firm’s financial weaknesses in order to take appropriate corrective steps. Thus, before applying complex forecasting and budgeting processes, economic analysis is the beginning point for formulating plans.
The firm’s strengths and weaknesses must be identified so that the firm can achieve balance by utilizing its strengths. to proper advantage and taking corrective action against any observed or reigned shortcoming
Despite the fact that the emphasis is on exterior users such as creditors and owners, management is conscious that their performance will be evaluated by these external parties as well as for other reasons. The basic financial accounts, for example, are used to measure management’s success in planning and controlling operations, as well as for decision-making.
Management also acknowledges that the analysis of basic statements reveals a strong beginning point for future operations and acts as an important tool of reviewing previous performance as well as forecasting and planning future performance.
The published financial figures are appropriately targeted toward long-term earning power. Short-term creditors, such as large suppliers or banks, are frequently more concerned with a company’s capacity to meet its commitments when they come due.
In the case of union banks, financial ratios are primarily used to forecast future performance.
This project was started primarily to provide a general understanding of how to use financial ratios to aid in economic analysis. It also intends to highlight some flaws linked with it, as well as the perspectives of many persons who work at Union Bank of Nigeria PLC Enugu.
As a result, this project has been separated into chapters, each of which discusses a key subject or element.
The first chapter focuses mostly on the study’s purpose, aims, significance, and limits. It will aid in highlighting issues about ratios and their use.
The next chapter is simply a study of financial ratios. It is the project’s literature review. It shows us what many authors have said about this topic as well as their points of view on the subject.
Chapter three is a belief narration on how this project’s study was carried out, the problems experienced, and the type of facts and sampling on which I founded this project.
The remaining two chapters, on the other hand, are pre-detailed examined data obtained from Union Bank of Nigeria PLC, Enugu.
I was able to draw some conclusions and extrapolate facts from this, which were all summarized in the last chapter.
This project has been made possible through a variety of sources.
1.2 PROBLEM STATEMENT
The significance of financial ratios cannot be overstated. This role is greatly aided by the effective use of financial ratios. Despite this fact, I’ve discovered that many people in the banking industry are unaware of financial ratios. Its functions and how it can help with economic analysis and decision-making.
In an underdeveloped economy like ours, the necessity for certain ratios is critical if the economy is to improve.
Another issue with the usage of ratios is that they are useless unless they are evaluated over time. Temporary alterations in the ratios may occur at any time. This issue can be handled by examining the trend of ratios through time. This is a significant economic difficulty or setback. It is apparent that the use of financial rations is in jeopardy if nothing is done immediately. It could be gradually eroded.
1.3 STUDY OBJECTIVE
The goals of this project are to give a thorough examination of financial ratios and to shed more light on their significance in the business world.
Also, to demonstrate how financial ratios and statements assist long-term investors by supplying them with the firm’s long-term earning capability.
Again, to demonstrate how creditors form, financial ratios are used to determine the firm’s liquidity buffer.
1.4 QUESTIONS FOR RESEARCH
This question will serve as a guide for gathering data.
Can financial ratios be used to assess the state of the economy?
How frequently do individuals and businesses use ratios to inform economic decisions?
What are the implications of financial ratios?
What are the constraints of financial ratios?
What are the answers to these constraints?
1.5 HYPOTHESIS OF RESEARCH
The following hypothesis will be tested through this project.
THE PRIMARY HYPOTHESIS
Due to ignorance, financial ratios are not generally employed as a guide to investing decisions, particularly by people.
HYPOTHESIS SUBSTITUTION
1. Bank employees’ lack of understanding of ratio application.
2. Future confidence in the application of ratios.
1.6 THE STUDY’S SIGNIFICANCE
This research will help bankers and other businesses make decisions. It also enables them to take corrective actions when deficiencies or weaknesses exist. Before making any short or long-term loan, bankers conduct proper ratio analysis.
This study also benefits investors and creditors because the subject matter provides an overall image of the firm. They are dealing with, as well as the firm’s ability to meet its responsibilities.
We may determine the following using ratios:
The firm’s capacity to meet its current obligations
The extent to which the firm has borrowed capital to leverage its long-term solvency.
The effectiveness with which the company uses its numerous assets to generate sales revenue and profits.
The firm’s overall operational efficiency and performance.
1.7 STUDY LIMITATIONS OR SCOPE
This project is focused on financial ratios. A thorough investigation of this subject is not possible since interviews and questionnaires must be limited because just a small portion of the population uses the ratio.
Another significant factor is time. Due to time constraints, no one appears to have time to complete our questionnaire. Also, juggling this project with my other academic work has been difficult, and interviews have been postponed at times due to my work load and time constraints.
During the data collection process, another crucial element emerges. You discover that people are unwilling to discuss any issue with a bank. They tend to believe that any information provided will somehow implicate them. As a result, most people try as hard as they can to paint a rosy picture of the entire industry, even though this is not always the case.
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ANALYSIS OF FINANCIAL RATIOS AS AN AID TO ECONOMIC ANALYSIS.
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