THE IMPACT OF RATIO ANALYSIS ON MANAGEMENT DECISION MAKING IN ORGANIZATION

THE IMPACT OF RATIO ANALYSIS ON MANAGEMENT DECISION MAKING IN ORGANIZATION

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CHAPTER ONE

INTRODUCTION

1.1      Background of the study

In every organization irrespective of its size, ownership, structure, impact of ration analysis on management decision making occupy a crucial position. However given this centrality 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 specifically in a banking institution like united bank for Africa (U.B.A). In a nutshell the impact of ration analysis 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 performances and future development through 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 have become more difficult management especially in accounting activity of the organization.  This research is devoted to examination of some major impact of ration analysis in financial institution (united bank of African).

1.2      STATEMENT OF THE PROBLEM

The part of ration analysis as a tool for decision-making has following area of concern. 75 ratio analysis useful in investment appraisal.

1.   Whether management rely on ratio analysis for decision  making

2.   Does ratio analysis really determine the wealth maximization of shareholder?

3.   It ratio analysis or management tool or technique use in determining the liquidity, stability profitability and efficiency   of the organization?

4.   Whether ratio analysis can be used to determine the trend of development and performance of the organization over time

At the time of choose this topic the above was what the researcher have in mind and therefore pushes to find out what is the need for ratio analysis n banking institution like united bank for African.

1.3 OBJECTIVE OF STUDY

The primary objective of this researcher is to find out how efficient and effectiveness does the management evaluate its financial position. Also the performance of the institution on with regards to the financial a quantitative judgment about the institution financial position and its achievement which includes it is further generalized as the following:

1.   To ascertain the effective implementation of traditional function of banking acceptances of deposit to find lending.

2.   To ascertain the efficient financial resource mobilization without inflation money supply expansion for economic development especially   when external borrowing is viewed as a last resort.

3.   To ascertain the Increasing sense of commitment and identification with the institution and it’s good by institutional design and activates of people and adopting a participating or democratic style of management.

4.   To ascertain the Maintaining accountability of asset.

1.4 RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher; 

H0:  there is no application of ratio analysis useful when it comes to decision making in the organization.

H1:  there is application of ratio analysis useful when it comes to decision making in the organization.

H02: there is no extent ratio analysis help the chief executive of bank in decision making

H2: there is extent does ratio analysis help the chief executive of bank in decision making

1.5 SIGNIFICANCE OF THE STUDY

The significance 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:

1.   a.   Management: Most management decision is based on information from ration analysis. Management planning is also supported by vital information from ratio analysis.

2.   b.   Shareholders: For shareholders to determine their wealth maximization, they rely on information from ratio analysis such as stability ratio and leverage ratio.

3.   c.   Potential Investor: for potential infestation is and for them to know or ascertain the organization is based on vital information from ratio analysis.

4.   d.   Employees: The interest of employee is the organization is 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.

5.   e.   Student: It is expected that students mostly undergraduate stand to benefit from this research work because it serve as a sources of ratio analysis.

6.   f.    Government: Government also relies on information from ratio analysis in the assessment of the organization for tax purpose such as profitability and liquidity ratios.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of this research work be specially restricted to United Bank for African Plc, Ilorin Branch. The researcher encounters some constrain which limited the scope of the study;

 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) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities. 

 1.7 DEFINITION OF TERMS

The trilogies used in this study are defined below for the better understanding of this work so tat research will not be misinterpreted.

1.   Bank: it is a financial institution which primarily holds out itself to accept deposited from consumers and payout on demands.

2.   Ratio Analysis: Ratio analysis refers to the determination of the significant relationship which exist between firs as show in a firms performance.

3.   Profitability: This measure indicates 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 worthwhile investment opportunity and to determine a company’s performance relative of its competitor.

4.   Management: Management can be described as the art of working particularly through people for the achievement of the board goals of an organization.

5.   Liquidity: Liquidity measures the ability of a business to meet short term obligation on.

6.   Activity: Activity helps assess the efficiency of manager’s actions.

7.   Return on capital employed: this is the yardstick employed to measure the efficiency of the management in utilizing the assents of the business.

 1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study


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