Full Project – A critical analysis of the use of financial statement in assessing the performance of an organization

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CHAPTER ONE

INTRODUCTION

• Background to the Study

The banking industry plays a vital role as channel through which economic and financial resources flow into the economy. It’s therefore imperative to continually evaluate their performance status with a view to ensuring that banks remain sound, stable and safe in order to continually support sustainable economic growth and development. Financial statements are critical reports used for assessing and evaluating the performance of an organization. These statements are prepared by management to reflect an organization’s health and position over a period of time. Furthermore, financial statements provide a summary of accounts of an organisation, the statement of financial position indicating the liabilities, capital and assets, as well as the statement of comprehensive income depicting the outcome of operations over a timeframe. (Meyer, 2019).

There is a high premium placed on financial statements as a veritable source of information for assessing performance and decision making, the onus therefore is to ensure that the facts obtained from financial statements exhibit the highest level of reliability, accuracy and relevance. Financial statements analysis enables the ascertainment of the soundness, stability and safety of banks using various methodologies and techniques. Banks in Nigeria are statutorily required to obtain the Central Bank of Nigeria approval before publication of their audited financial statements. This is to enable the monetary authority ascertain the soundness, stability and safety of the banks as well as provide assurance on the accuracy and reliability of the statements of financial information.

The objectives of analysing financial statements are largely attributed to examining financial data (past and present) so as to evaluate the financial performance of a company and facilitate efficient assessment of potential shortcomings (Woelfel, 2018). It was observed that from a study by Saoud, (2020), that Financial statement analysis could be defined as a technique of analysing and reviewing an organisation’s financial statements in an attempt to determine or scale its past, present or projected future performance, which enables more efficient economic decision making.

Financial performance is a monetary assessment of organization’s financial and economic activities. When evaluating financial performance, cash flow statements, income statement, and financial position are relevant reports, as they are reliable sources of useful information concerning the health of an organization. It also provides detailed justification to stakeholders’, owners and analysts on changes in a company’s cash balances over an accounting period. It is pertinent to note that financial ratios are useful in obtaining information for determining financial performance of banks. Furthermore, by analysing financial ratios companies operating efficiency and financial performance could be assessed. Therefore, enabling factors such as solvency and efficiency to be viewed objectively. It is imperative to note that Deposit Money Banks (DMBs) have been inundated by globalization, macroeconomic distortion, new technology, supervisory challenges, stiff competition and highly risky business environment.

Banks must continually evolve and adopt new strategies to overcome the onerous challenges and improve. Banks contribute significantly to economic development and greater attention must be placed on their performance. Although, significant progress had been achieved by the Nigeria banking industry, continuous effort is still required to keep pace with domestic and global macroeconomic development, technological innovations and pro-active regulatory and supervisory policy options.

• Statement of the Problem

This research work evaluates the extent to which analyses of banks financial statement are used in assessing their performance and the reliance on the result of the analysis for decisions making purpose by the various stakeholders. The cogency of financial statements has attracted diverse opinions from financial analysts, tax authorities, potential investors, the general public shareholders, and creditors. They argue that the financial reports are not an accurate representation of the reflection of business activities, hence meaning that it is not a suitable means of performance evaluation. for example, the idea of stating assets at their historical cost do not take cognizance of the effect of inflation though the real value of such assets might have been eroded or the fact that financial statements do not cover variables that are relevant in determining the overall performance of banks such as: customer satisfaction, risk, etc. This study probes further into the relationship between financial statements and performance evaluation mainly focusing on financial system using selected banks.

• Objectives of the Study

The main objective of this study is to determine a critical analysis of the use of financial statements in assessing the performance of an organization. Therefore, the study tents to achieve the objectives:

1. To examine how financial statements reflect the performance of financial institutions with focus on Union Banks Bali.
2. To evaluate the use of financial statements in performance improvement of Union Banks Bali.

• To determine the decision-support role of financial statements in Union Banks Bali.
  • Research Questions

The above research objectives motivate the following research questions.

1. How do financial statements reflect the performance of financial of Union Banks Bali?
2. Are financial statements useful in supporting performance improvement in Union Banks Bali?

• What are the financial statements support decision-making in Union Banks Bali?
  • Research Hypothesis

Following the research questions and objectives of this study, the following working hypotheses are formulated:

H o1: Financial statements do not adequately capture the performance of financial in Union Banks Bali

H 02: Financial statements are not useful in supporting performance improvement of Union Banks Bali

H 03: Financial statements do not support decision-making in Union Banks Bali

• Significance of the Study

Bank Management

Without financial reporting, it’s difficult to understand how well a company is performing from a financial standpoint. Not only are financial reports crucial for management or investors to assess a business’s financial stability, but they are required by law for taxes and standard accounting practices.

            Futures Researchers

This study will be a benefit to the future researchers, this is because the study will serve as relevant material on researcher conducting related study.

Customers

Succinctly, financial statements are important because they provide reliable, unbiased information on a company’s performance, its assets, its obligations and debts to others, and its cash flows, which allow users to evaluate ways to improve these metrics, and/or whether to invest.

Policy Maker

Financial statements provide a snapshot of a corporation’s financial health, giving insight into its performance, operations, and cash flow. Financial statements are essential since they provide information about a company’s revenue, expenses, profitability, and debt.

• Scope of the Study

This study is on critical analysis of the use of financial statements in assessing the performance in an organization, a case study of Union Bank Bali, branch in order to assess their financial statement and workers performance/efficiency.

• Limitation of the Study

Like any human endeavors the study is faced with some problems that are why certain things have to be summarized in the analysis of the subject matter, these include:-

• Time constraint because of the time limit, the time is not enough for me to examine and explain all the relevant data I have at hand.
• Finance is considered as one of the major problem towards limiting this work. This is because it is found financially difficult to gather and analyse the information required
• Enormous amount was spent for collection of data, typing, binding and other expenses incurred for the effective completion of the work.

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Full Project – A critical analysis of the use of financial statement in assessing the performance of an organization