Impact of Accounting Ratios on Profitability Of Manufacturing Companies in Nigeria

Reference code: c030

ABSTRACT

The study examines the Impact of Accounting Ratios on the Profitability of manufacturing companies in Rivers State with special emphasis on Pabod Breweries Nigeria Limited. Purpose of finding whether Accounting ratios impact on profitability of manufacturing companies. Data on the finances of the company was collected from the published accounts of the company. Three hypotheses were specified and tested using multiple regression on SPSS. The findings were as follows: that accounting ratios have a strong and positive relationship with profitability, Accounting ratios affect efficiency and productivity. Based on our findings, we concluded that: Return on asset and return on equity are good indicators of the financial health and strength of the firm. Thus, it is necessary for manufacturing companies in Port Harcourt to pay close attention to their accounting and financial ratios. We also conclude that investment decision made by companies which is based on accurate accounting ratios (all thing being equal) are bound to lead to enhanced financial returns. Finally, we recommend that: Manufacturing companies should endeavor to maintain quality accounting records from which accurate ratios can be extracted for enhanced financial decision making. There is need for manufacturing companies to employ the services of qualified accountants and financial managers who understand not only the importance of keeping good accounting records but how to use such records investment decision making. There is need for manufacturing companies to closely monitor the liquidity ratio levels of the company. This is because keeping liquidity ratio that is either too high or too low will have adverse consequences for the financial health of the company.

INTRODUCTION

.................. Accounting has been broadly conceived as the measurement and communication of economic information relevant for decision-making.  The communication function of accounting is performed via the preparation and issuance of financial statements.  The basic financial statements include the balance sheet, the income statement and the funds statement.  The primary purpose of financial statements is to assist users make informed and better economic decisions.

Thos who use financial statements to make economic decisions are of two broad groups, namely:  the internal decision makers which constitute the management, and the external decision makers which comprise primarily the present and potential investors, short term and long term creditors, investment analysts, labour, government and its agencies, and the public at large.  While the internal decision makers make use of the financial data derived from management accounting, the external decision makers rely on financial data from financial accounting and external financial statements.

According to ICAN, (2006), financial ratio is defined as the relationship between two accounting figures expressed mathematically.  Ratio analysis is a powerful tool of financial analysis.  Pandey, (2001) define a ratio as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things.  In financial analysis, a ratio is used as an index or yardstick for evaluating the financial position and performance of a firm.

Therefore, the fundamental objectives for using financial data generally include principally:

i. To measure past performance of a business by monitoring such items as turnover, net .............. 

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TABLE OF CONTENTS

CHAPTER ONE:INTRODUCTION
1.1 OVERVIEW OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.4 PURPOSE OF THE STUDY
1.4 RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESES
1.7 SIGNIFICANCE OF THE STUDY
1.7 DEFINITION OF TERMS
1.8 SCOPE OF THE STUDY
1.9 LIMITATIONS OF THE STUDY
1.10 ORGANISATION OF THE STUDY
REFERENCES

CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 INTRODUCTION
2.2 ANALYSIS OF FINANCIAL STATEMENTS
2.2.1 FINANCIAL RATIO ANALYSIS
2.2.2 TYPES OF FINANCIAL ANALYSIS
2.2.3 KEY FINANCIAL RATIOS
2.2.4 TYPES OF FINANCIAL ACTIVITIES
2.2.5 PROFITABILITY RATIO
2.2.6 LIQUIDITY RATIOS
2.2.7 LONG-TERM SOLVENCY OR DEBT RATIO
2.2.8 SHAREHOLDERS INVESTMENT DECISION RATIO OR ACTIVITY RATIO
2.2.9 STANDARD OF COMPARISON OF RATIOS FOR THE PURPOSE OF FINANCIAL STATEMENT ANALYSIS
2.3         COMPUTATION OF RATIOS
2.3.1 PROFITABILITY AND EFFICIENCY RATIOS
2.3.2 LIQUIDITY AND SHORT-TERM SOLVENCY RATIOS
2.3.3 DEBTORS TURNOVER
2.3.4 LONG-TERM STABILITY
2.3.5 ACTIVITY OR SHAREHOLDERS INVESTMENT RATIOS
2.4        PURPOSE OF FINANCIAL STATEMENTS INFORMATION
2.5        FINANCIAL ANALYSIS USING RATIOS AS TOOLS FOR INVESTMENT DECISION MAKING
REFERENCES

CHAPTER THREE: RESEARCH METHODOLOGY
3.0 INTRODUCTION
3.1 RESEARCH DESIGN
3.2 SAMPLE PROCEDURE AND DATA COLLECTION METHOD
3.3 OPERATIONAL MEASURES OF VARIABLES
3.4 DATA ANALYSES TECHNIQUES
3.4.1 MODEL SPECIFICATION
REFERENCES

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.0 INTRODUCTION
4.1 DATA PRESENTATION
4.2 DATA ANALYSES AND INTERPRETATION OF RESULTS
4.3 HYPOTHESES TESTING

CHAPTER FIVE: DISCUSSION OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.5 INTRODUCTION
5.6 DISCUSSION OF FINDINGS
5.7 CONCLUSION
5.8 RECOMMENDATIONS
BIBLIOGRAPHY
APPENDICES

Reference code: c030
Reference code: c030
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93 Pages

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