Relevance of Financial Ratio Analysis in the Appraisal of Small Scale Business

Relevance of Financial Ratio Analysis in the Appraisal of Small Scale Business

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Chapter one on Relevance of Financial Ratio Analysis in the Appraisal of Small Scale Business

INTRODUCTION

BACKGROUND OF STUDY

Financial ratio analysis assumes that there is a relationship between certain aspects of the activities of the firm as revealed in the income statements, Accounting figures reported in the financial statement do not provide Profit and loss account and the balance sheet, which established a pattern of behaviour. The information contained in the financial statement of a company is connected with the financial well being and performance of the reporting entity, organized to enable users of financial statement to draw a conclusion meaningful understanding of the performance of the financial position of a firm, except the figure are analyzed with other relevant information through the use of financial ratio analysis. Having established the fact that a ratio is useful and reliable in measuring the relationship between two things, this then gives rise to the need to study the relevance of the financial ratio in the appraisal of small scale business.

STATEMENT OF THE PROBLEM

The study is beset by a lot of problems which include:

– Problems of non-challant attitude on the use of financial ratio in the interpretation of accounting records of small scale business.

– Lack of available ratio for measuring the state performance of a company.

– Lack of competent management.

– Obsolete use of data.

 OBJECTIVES OF THE STUDY

The main purpose of this study is to identify and consequently analyze the relevance of financial ratios in the appraisal of small scale companies in Cross river state. In view of the above, the researcher intends to find the following: 
– To establish the extent to which accounting ratio can be use to interpret accounting records of small scale business. 
– To identify the available ratio for measuring the state of performance of a company.
– To established the eect of ratio analysis on the users of financial statement. 
– To ensure current data‟s are use in small scale business. 

 RESEARCH QUESTIONS 

The study will examine the following questions: 
– Dose non-challant attitude in the use of financial statement acts small scale business?
– Is ratio analysis a measure of quality into consideration when measuring the performance of the firm? 
– Does obsolete use of data act small scale business? 
– Is ratio analysis a dependable tool of financial analysis? 

RESEARCH HYPOTHESES 

Based on the problems and objectives, the following hypotheses are formulated for study. 
Hypotheses one
H0: nonchalant attitude in the use of financial statement does not act small scale business 
H1: nonchalant attitude in the use of financial statement acts small scale business. 
Hypotheses two
H0: Obsolete use of data does not act small scale business 
H1: Obsolete use of data acts small scale business 
Hypotheses three
Ho: Lack of competent management does not act small scale business. 
H1: Lack of competent management act small scale business. 

SIGNIFICANT OF THE STUDY 

This research work will help in determining how the performance of a company can be measured through the use ratio as a tool of financial analysis. The study will help in reflecting a qualitative relationship between financial statement of a different period and different firms. It will serve as a reference to other researchers with the mind of having in depth insight about ratios and its performance measuring abilities. 

SCOPE OF THE STUDY 

This study as the case may be covers the relevance of financial ratio analysis in the appraisal of small scale business with particular reference to Mr. Biggs incross river state. The study takes a holistic approach in its research to unveil the relevance of financial ratio analysis in the appraisal of small scale businesses. 

LIMITATION OF THE STUDY 

The limitations involved in this research work include: 
-Hostility and non cooperation on the part of the respondents. 
-The levels of ignorance on ratios and illiteracy were very high e.g some business officials refused to answer questions as they felt they would be indicated.
-Also financial implications were soaring high and this imposed certain restrictions 
-Finally, the constraint of time was a limiting factor as all the areas of interest were not covered by the researcher. 

HISTORICAL BACKGROUND OF THE CASE STUDY 

The company study Mr. Biggs plc. The research will delve into the relevance of financial ratio maintain in those organization in order to access the element the contain the role they play to interested parties both within and outside the organisations. Mr. Biggs plc Mr. Biggs a division of U.A.C Nigeria plc, which is regarded as one of the fastest growing quick service restaurants. It was founded in 1986 and since then, has restaurant services. Mr. Biggs is Nigeria first chain of fast food restaurant owned by conglomerate UAC of Nigeria plc. There are currently around first drive through restaurant, with another four locations in Ghana. The restaurant is styled aer mc Donald‟s and is known for its red and yellow colour scheme. Mr. Biggs history begins with coee shop inside Kingsway Department stores in the 1960‟s. In 1973, these shops were re-branded as Kingsway Rendezvous, which became Mr. Biggs in 1986.The chain rapid expansion aer becoming one of the first Nigerian companies to sell franchises to investors. Mr.Biggs specialty is the meat pie. a common lunch might also include scotch egg, a sugared donot, chicken and a so drink. Whilewestern fare such as hamburgers are served. Nigeria delicacies such as jollof rice and moi-moi are more popular. Birthday cakes are also a popular product and Mr. Biggs bakery oers cake and pastries.

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