ROLE OF FINANCIAL STATEMENT IN INVESTMENT DECISION MAKING. (A CASE STUDY OF FIRST BANK OF NIGERIAN PLC)

CHAPTER ONE


1.0 INTRODUCTION


                 Corporate organizations owe a duty to fully disclose matters

concerning their operations so as to aid investors in making investment

decisions. Both large and small organizations in addition to satisfying

the legislating requirement tend to retain existing investors and to

attract potential ones through the publication of their financial

statements where the capital stock of a corporation is widely held and

its affairs are of interest to general public relations. The discussions and

illustrations of the study will be centered on the financial statement

presented to shareholders and also available for potential investors,

bond holders and trade creditors as a tool of information for

investment decision. Financial statement based on result on past

activities are analyzed and interpreted as a basis for predicting future

rate of returns and assessment of risk.


            Financial statement provides important information for a wide

variety of decision, investors draw information from the statement of

the firm in whose security they contemplate investing. Decision makers

who contemplate acquiring total or partial ownership of an enterprise

expect to secure returns on their investment such as dividends and

increase in the value of their investment [capital gain]. Both dividends

and increase in the value of shares of company depends on the future

profitability of the enterprise. So investors are interested in future

profitability. Past income dividend data are used to forecast returns

from dividend and increase in share prices.


 
1.1 HISTORICAL BACKGROUND


    For the purpose of this research, first bank plc. Anyigba branch

kogi state is selected as a case study for academic purpose


      According to google.com [electronic library] first bank of Nigerian

Plc. was established in 1894 as the first bank in Nigeria, a premier in

West African and the leading financial service solution provider in

Nigeria. From being the only bank for decades, weathered the banking

exposure of the 1930,s to 1950s followed by the era of government

ownership and control to a flurry consolidations and then gradual

growth in number banks up to the early 1980s, then yet another

industry growth spurt in early 1990s when the banking sector was

deregulated, leading to an industry shake-up in the late 1990s, which

reduced the number of banks from 126 to 77. At later resuscitation and

growth to 89 banks leading al through the seasons, first bank plc has

remained resilient dependably dynamic and truly the first.


      Based on the researchers’ oral interview with the bank officials,

the Anyigba branch of first bank plc. was established in the then kwara

state in the 1978. They render other services than safe keeping of

money like giving loan to their customers and hire purchase. The

branch presently has about 288 customers.


1.2 STATEMENT OF THE PROBLEM


    It is observed that the role of financial statements in investment

decision making in Nigeria has some problems to both investors and

managers of business organizations who are either not aware of the

importance of interdependence relationship that exist between

investors and business organizations. Such problems include;
i. How analytical tools are set to aid prospective investors in

      accessing the financial position of the corporate organization.

ii. Evaluation of performance of a company in investment decision

      making.

iii. How to determine the profitability of a company.


  The  above  listed  problems  are  the  problems to  look  into in  this

research work. The problems analyzed tend to scare away both existing

and potential investors. The reason of this study is to adequately look

into the above problems and suggest possible solution to any of them.

Nevertheless this research will find possible key factors to solving these

problems because financial statement in investment decision making in

Nigeria is the life blood of every organization to the potential investor.


1.3 OBJECTIVE OF THE STUDY


      The  general  objective  is  to  ascertain  the  role  of  financial

statement  in  investment  decision  making.  The  specific  objective  is  as

follows;


i. To  examine  how  a  set  of  analytical  tools  will  aid  prospective

      investors  in  assessing  the  financial  position  of  the  corporate

      organization.

ii. To  evaluate  the performance  of  a  company  for  investment

      decision making.

iii. To determine the profitability of the company.

iv. To  appraise  the  fundamental  use  of  financial  statement

      information, this is to provide information for investment decision

      making.

 
1.4 RESEARCH HYPOTHESE


      Hypothesis  according  to  the  English  dictionary  is  an  unproved

theory, proposition sent forth as an explanation of something, often as

the  basis  for further  investigation.  Hypothesis  is  the  guides  for  the

investigators in the entire process of research endeavor and they keep

the  researcher  on  the  main  line  of  the  study,  in  this  research,  the

following hypothesis are formulated for the study;


Ho;  financial  statements  are not used  to  be  relied  upon  in  investment

decision making in a company.


H1;  financial  statement  are  used  to  be  relied  upon  in  investment

decision making in a company.


Ho;  financial  statements  are  not  useful  for  forecasting  company’s

performance.


H2;  financial  statements  are  useful  for  forecasting  company’s

performance.


Ho;  financial  statement  does  not  determine  the  profitability  of  a

company.


H3; financial statement determines the profitability of a company.


Ho; financial statement does not project new investors.


H4; new investors are projected by financial statement.


1.4 RESEARCH QUESTIONS


      According  to  Uzoagulu  [1998;  96],  research  questions  guide  the

researcher in constructing the questionnaires. Therefore the researcher

raised the following research questions to guide her in constructing her
questionnaire which are instruments in the study. The questions are as

follows;


i. To  what  extent  is  financial  statements  used  in  the  investment

      decision making in a company?

ii. Are  financial  statements  useful  for  forecasting  company’s

      performance?

iii. Do  financial  statements  determine  the  profitability of  an

      organization?

iv. Do financial statement projects new investors?

 

1.6 SIGNIFICANCE OF THE STUDY


      This study will be of immense benefit to banks by improving the

banking  performance  financial  analysts, investors, companies  and

financial organizations. This is because the study intends to help these

stockholders  in  decision  making.  The  study  will  help  in  widening

knowledge  financial  statement  in  investment  decision  making,  it  will

also  make  the  organization  to  appreciate  the  importance  of  sound

financial  statement  in  the  provision  of  information  necessary  for

decision  making.  It  will  review  the  improvement  in  the  organization

handling  the  financial  statement  and  show  equally  the  ways  through

which  improvement  could  be  accomplished  finally  this  research  will

equally  serve  as  a  reference  to  students  in  this  noble  institution  and

other  school  who  may  be  interested  to  embark  on  a  further  research

study  of  this  nature  and  above  all,  report  of  this  study  shall  definitely

add to existing knowledge in research methodology.


 


 
1.7 SCOPE OF THE STUDY


      This  study  will  be  limited  to  a  geographical  entity  known  as

Nigeria  and  specifically  first  bank  plc.  Anyigba  branch, kogi  state  of

Nigeria.


1.8 LIMITATION OF THE STUDY


      There are some limitations encountered by the researcher in the

process of this research which limited the scope to only first bank plc.

Anyigba branch, some of the limitations are as follows;


i. Uncooperative attitudes of the respondents; the researcher could

    not  get  some  necessary  information  from  the  respondents

      because  of  their  negative  attitude  in  their  response to  the  oral

      interview with the bank officials and the questionnaires.

ii. Time  constraints;  despite  the  time  provided, it  was  not  still

      enough for the researcher to go all the relevant places like banks

      and  company  etc  to  get relevant  information  and  due  to  the

      combination of project and academics work.

iii. Financial  constraints;  financial  constraints  is  also  another  factor

      that  limited  the  researcher  to  go  to  many  branches  of  first  bank

      and  even  other  banks  and  organizations.  The  researcher  lacked

      finance for transportation, electronic library etc. and as such was

      limited to only Anyigba branch of first bank plc.