EVALUATION OF RATIO ANALYSIS IN INVESTMENT DECISION MAKING.

A CASE STUDY OF BLESSED OBIOMA ELECTRONICS NIG. LTD.BAYELSA STATE.

BY .................................................... (AKP/WRR/BMG/FIN/ND2007/0010)

A RESEARCH PROJECT WRITTEN IN THE DEPARTMENT OF ACCOUNTANCY, SCHOOL OF FINANCIAL STUDIES. COLLEGE OF ACCOUNTANCY AND COMPUTER TECHNOLOGY, SUBMITTED IN PARTIAL FULFILMENT FOR THE AWARD OF NATIONAL DIPLOMA (ND) IN ACCOUNTANCY.

NOVEMBER 2009

APPROVAL

We the undersigned hereby certify that this project was carried out by ..................... in the department of

accountancy, school of financial studies. We also certify that the work is adequate in scope and quality in partial fulfilment for the award of National Diploma (ND) in accountancy .

Date Project Supervisor

Center co-ordinator

Date

DEDICATION This project work is dedicated to the Almighty God who gives wisdom for academic excellent, and to my beloved parent who did not deprive me from benefiting and having the light of education.

ACKNOWLEDGMENT

I am most grateful to the Almighty God for giving me life, strength and courage to sail through my educational career despite all odds and obstacles. In writing this project, I am indebted to my people for their contributions; support and encouragement in making this project work a success. I will like to use this opportunity to express my sincere thanks to my parents, brothers and sisters, relatives, friends and loved ones for their prayers, moral and financial support through this program. My profound gratitude goes to my Supervisor Mr

Emmanuel N. Bassey who despite his crowded schedule, sacrificed time to read through the manuscript without

which this project would not have seen the light of the day. My special thanks also goes to my beloved brothers, sisters, uncles and others in the family for their advice,

encouragement and assistance.

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In like manner, I wish to acknowledge the effort of all my lecturers in accounting department for their principal

knowledge imparted on me during my period of study. With special thanks to aunty, my beloved mum and dad for their endless love shown to me during the course of my studies. Finally, thanks to others I cannot remember during the course of the write up, may God reward every effort of kindness and love shown during my academic pursuit.

ABSTRACT

Ratios are highly essential profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering,

leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas.

In this research work, the researcher is evaluation of ratio analysis in investment decision making; a case study of Blessed Obioma Electronics Nig. Ltd. The researcher will consider in chapter one.the introduction of the study which will in turn considers the following topics. The background of the study, the statement of research problem, the objective of the study, significance of the study, the hypothesis and the structure of the work. Chapter two focuses on the literature review; this chapter is where the researcher extract materials from various books, magazines, news papers and internet resources. In chapter three, the researcher deals on research methodology while

chapter four is data analysis and interpretation. The finding, summary and conclusion is in chapter five.

CHAPTER ONE INTRODUCTION

1.1 THE BACKGROUND OF THE STUDY

8

One of the most important long term decisions for any business relates to investment. Investment is the purchase or creation of assets with the objective of making gains in the future. Typically investment involves using financial resources to purchase a

machine/ building or other asset, which will then yield returns to an organisation over a period of time. Ratio analysis is primarily used to compare a

company's financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis, you can identify trends, good and bad, and adjust your business practices accordingly. You can also see how your ratios stack up against other businesses, both in and out of your industry.

1.2

STATEMENT OF THE PROBLEM

Making big investment decisions means that we must allocate substantial amounts of major resources

of people, time, technology, intellectual capital, and, of course, money. A high-quality decision process requires that our choices are doable and well formulated, that

consequences are understood and well explored, that our preferences are included when comparing the full array of costs and benefits of the proposed decisions, and that any actions we take are focused on getting results. We want the best decisions to be made for any and all investment opportunities: research & development investments to improve existing technology as well as create technical breakthroughs that lead to new products and services capital investments in new manufacturing plants and equipment, timed to coincide with market trends marketing investments in the growth of both existing and new businesses human resource investments in new talent and better organizational structures.
10

One of the most important long term decisions for any business relates to investment. Investment is the purchase or creation of assets with the objective of making gains in the future. Typically investment involves using financial resources to purchase a machine/ building or other asset, which will then yield returns to an organisation over a period of time. Key considerations in making investment decisions are:

1. What is the scale of the investment - can the company afford it? 2. How long will it be before the investment starts to yield returns? 3. How long will it take to pay back the investment?

4. What are the expected profits from the investment? 5. Could the money that is being ploughed into the investment yield higher returns elsewhere? 1.3 OBJECTIVE OF THE STUDY

11

The main objective is evaluation of ratio analysis in investment decision making. The subsidiary objective is

Determine Capital investment decisions Apply ratio analysis to determine the strengths and weakness of the firm.

An understanding of the importance of capital budgeting in marketing decision making An explanation of the different types of investment project An introduction to the economic evaluation of investment proposals The importance of the concept and calculation of net present value and internal rate of return in decision making The advantages and disadvantages of the payback method as a technique for initial screening of two or more competing projects

1.4

SIGNIFICANCE OF THE STUDY

In assessing the significance of various financial data for effective investment decision, experts engage in
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financial analysis, the process of determining and evaluating financial ratios. A ratio is a relationship that indicates something about a company's activities, such as the ratio between the company's current assets and current liabilities or between its accounts receivable and its annual sales. The basic source for these ratios is the company's financial statements that contain figures on assets, liabilities, profits, and losses. Ratios are only meaningful information. when Since compared they are with most other often

financial

compared with industry data, ratios help an individual understand a company's performance relative to that of competitors and are often used to trace performance over time.

Financial analysis can reveal much about a company and its operations. However, there are several points to keep in mind about ratios. First, a ratio is a "flag" indicating areas of strength or weakness. One or even
13

several ratios might be misleading, but when combined with other knowledge of a company's management and economic circumstances, financial analysis can tell much about a corporation. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right depends on the perspective of the analyst and on the company's competitive strategy. Third, financial ratios are meaningful only when compared with some

standard, such as an industry trend, ratio trend, a trend for the specific company being analyzed, or a stated management objective.

This research will be of great interest and benefit to the following: 1. The manager and chief executives of the company under consideration. 2. Producers, intermediaries, as well as management, organizations/firms.

14

3. The students of marketing, accounting and business administration. 4. Likewise to aspiring businessmen and entrepreneur. 5. The diverse group of people and the dynamic marketing partners as well as the society at large. The diversified group of people above, must know how to adapt to the marketing strategies, new technologies etc 1.5 LIMITATION OF THE STUDY

This work was carried out under a tight schedule of school pressure and work load which makes it

absolutely necessary to devote limited time to do it, having sleepless night etc. Another problem encountered is finance, the cost of transportation in carrying out the investigation.

Individual differences in responses to questionnaire are also a limitation encountered. The Questionnaire method of primary data collection was limited to the verbal responses of subjects to pre15

arrange questions. It also had limitation that its usefulness depended on the level of education of the subjects. There was the limitation of the problem of memory in remembering past facts. The structured nature of the questionnaire may compel the

respondents to give answers that they do not fully endorse, There was the limitation of the rigidity of the research instrument, which diminishes the amount of information that could be gathered. There was the limitation that the cost of administering the questionnaire was very high due to high

administrative, personnel and traveling costs especially when some of the respondents were initially not on their seats. There was the limitation that the

researcher and the field data collectors were not policemen and so they could not force some of the respondents if they refuse to give answers. There was also the limitation of the scarcity of time and money resources.

16

In nutshell, we want to mellow down this point to the following subtopics Material Procurement There was a lot constraints as to getting information and materials for the job. The researcher made series of consultations and visit to most renowned institutions to acquire the needed information. Most materials used were very difficult to come by, as there is no library within the town. Time Constraints Combining academic work with job is no doubt a thought provoking issue, as it has to do with time. Actually, a lot of time was wasted as the researcher visited the organizations and individuals together with government agencies to obtain valuable information for the project. Financial Constraints The researcher would have obtained more information than what is obtainable here but due to lack of money to visit some of the firms and government agencies
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located a bit farther from the researcher place of resident. 1.6 HYPOTHESIS It is a conjectural statement of the relationships between two or more variables. It is testable, tentative problem explanation of the relationship between two or more variables that create a state of affairs or phenomenon. E,C, Osuola (1986 page 48) said hypothesis should always be in declarative sentence form, and they should relate to them generally or specially variable to variables.

HYPOTHESIS THUS: 1. 2. 3. Explain observed events in a systematic manner Predict the outcome of events and relationships Systematically summarized existing knowledge.

In essence, there exist NULL HYPOTHESIS set up only to nullify the research
18

hypothesis

and

the

ALTERNATIVE HYPOTHESIS for the purpose of the study. For the efficiency of the study, the hypothesis is as follows: NULL HYPOTHESIS (HO) 1. Investment is not the purchase or creation of

assets with the objective of making gains in the future. 2.` Ratio analysis is not primarily used to compare a company's financial figures over a period of time. ALTERNATIVE HYPOTHESIS 1. Investment is the purchase or creation of assets with the objective of making gains in the future. 2. Ratio analysis is primarily used to compare a company's financial figures over a period of time.

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STRUCTURE OF WORK This research work is to be organized in five chapters as follows: 1. Introduction
19

2. Literature Review 3. Research Methods and Producers 4. Data presentation and Analysis 5. Findings, Summary and Conclusion

CHAPTER TWO LITERATURE REVIEW

2.1 THE SCENARIO OF RATIO ANALYSIS

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Ratios are highly essential profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Ratio analysis is primarily used to compare a

company's financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis, you can identify trends, good and bad, and adjust your business practices accordingly. You can also see how your ratios stack up against other businesses, both in and out of your industry. There are several considerations you must be aware of when comparing ratios from one financial period to another or when comparing the financial ratios of two or more companies.

If you are making a comparative analysis of a company's financial statements over a certain period of
21

time, make an appropriate allowance for any changes in accounting policies that occurred during the same time span.

When comparing your business with others in your industry, accounting allow for any material your differences company in and

policies

between

industry norms.

When comparing ratios from various fiscal periods or companies, inquire about the types of accounting policies used. Different accounting methods can result in a wide variety of reported figures.

Determine whether ratios were calculated before or after adjustments were made to the balance sheet or income statement, such as non-recurring items and inventory or pro forma adjustments. In many cases, these adjustments can significantly affect the ratios.

Carefully examine any departures from industry norms.

Ratio Analysis is a useful tool in the following aspects:

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Evaluation of Liquidity: The ability of a firm to meet its short term payment commitments is called liquidity. Current Ratio and Quick Ratio help to assets the shortterm solvency (liquidity) of the firm. Evaluation of Profitability: Profitability ratios i.e. Gross Profit Ratio, Operating Profit Ratio, Net Profit Ratio are basic indicators of the profitability of the firm. In addition, various profitability indicators like Return on Capital Employed (ROCE), Earnings per share (EPS), Return on Assets (ROA) etc. are used to assess the financial performance.

Evaluation of Operating Efficiency: Ratios throw light on the degree of efficiency in the management and utilization of assets and resources. These are indicated by activity or performance or turnover ratios e.g. Stock Turnover Ratio, Debtors Turnover Ratio. These indicate the ability of the firm to generate revenue (sales) per rupee of investment in its assets.
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Evaluation

of

Financial

Strength:

Long-term

solvency strength is indicated by Capital Structure Ratios like Debt-Equity Ratio, Gearing Ratio, Leverage Ratios etc. These ratios signify the effect of various sources of finance e.g. debt, preference and equity. They also show whether the firm is exposed to serious financial strain or is justified in the use of debt funds. Inter-firm and Intra-firm comparison: Comparison of the firms ratios with the industry average will help evaluate the firms position vis--vis the industry. It will help in analyzing the firms strengths and

weaknesses and take corrective action. Trend Analysis of ratios over a period of years will indicate the direction of the firms financial policies. Budgeting: operations. Ratios They are not in mere post-modern future of

help

depicting

financial

positions. Ratios have predictor value and are helpful in planning and forecasting the business activities of a firm for future periods, e.g. estimation of working capital requirements.
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2.2 LIMITATION OF RATIO ANALYSIS (a) Window Dressing: Ratios depict the picture of

performance at a particular point of time. Sometimes, a business can make year-end adjustments in order to result in favorable ratios (e.g. current ratio, operating profit ratio, debt-equity ratio etc.) (b) Impact of Inflation: Financial Statements are

affected by inflation. Ratios may not depict the correct picture. For example, fixed assets are accounted at historical cost while profits are measured in current rupee terms. In inflationary situations, the Return on Assets or Return on Capital Employed may be very high due to less investment in fixed assets. Ratios may not indicate the true position in such situations. (c) Product Line diversification: Detailed ratios for

different divisions, products and market segments etc. may not be available to the users in order to make an informed judgment. For example, loss in one product may be set off by substantial profits in another product line. But, the overall net profit ratio may be favorable.
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(d)

Impact

of

Seasonal

Factors:

When

the

operations do not follow a uniform pattern during the financial period, ratios may not indicate the correct situation. For example, if the peak supply season of a business is between Februarys to June, it will hold substantial stocks on the balance sheet date. This will lead to a very favorable current ratio on that date. But the position for the rest of the year may be entirely different. (e) Differences in Accounting Policies: Different

firms follow different accounting policies, e.g. rate and methods of depreciation. Straight-jacket comparison of ratios may lead to misleading results. (f) Lack of Standards: Even though some norms

can be set for ratios, there is no uniformity as to what an ideal ratio is. Generally it is said that Current Ratio should be 2:1. But if a firm supplies mainly to Government Departments where debt collection period is high, a Current Ratio of 4:1 or 5:1, may also be considered normal.
26

(g)

High or Low: A number by itself cannot be

high or low. Hence, a ratio by itself cannot become good or bad. The line of difference between good ratio and bad ratio is very thin. (h) Interdependence: Financial Ratios cannot be

considered in isolation. Decision taken on the basis of one ratio may be incorrect when a set of ratios are analyzed. From the above discussion, it is felt that, the ratio is a measuring device to judge the growth, development and present condition of a concern. Further, it is found that, Each and every ratio indicates the financial position as well as it is also helpful for taking several management decisions for the future period effectively and efficiently. 2.3 CAPITAL INVESTMENT DECISIONS Capital investment decisions are long-term corporate

finance decisions relating to fixed assets and capital structure. Decisions are based on several inter-related
27

criteria. Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. These projects must also be financed appropriately. If no such opportunities exist, maximizing management Capital shareholder return excess value dictates that

cash to shareholders. thus comprise and an a

investment decision,

decisions a

investment

financing

decision,

dividend decision. The investment decision Management must allocate limited resources between competing known as opportunities capital ("projects") in a this process capital

budgeting.

Making

allocation decision requires estimating the value of each opportunity or project: a function of the size, timing and predictability of future cash flows.

28

Project valuation In general, each project's value will be estimated using a discounted cash flow (DCF) valuation, and the opportunity with the highest value, as measured by the resultant net present value (NPV) will be selected (applied to Corporate Finance by Joel Dean in 1951. This requires estimating the size and timing of all of the incremental cash flows resulting from the project. These future cash flows are then discounted to

determine their present value.

These present values

are then summed, and this sum net of the initial investment outlay is the NPV. The NPV is greatly affected by the discount rate. Thus identifying the proper discount ratethe project

"hurdle rate"is critical to making the right decision. The hurdle rate is the minimum acceptable return on an investmenti.e. the project appropriate discount rate. The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the financing mix.
29

Managers use models such as the CAPM or the APT to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Such an approach may not be appropriate where the risk of a particular project differs markedly from that of the firm's existing portfolio of assets.) In conjunction with NPV, there are several other measures used as (secondary) selection criteria in corporate finance. These are visible from the DCF and include discounted payback period, IRR, Modified IRR, equivalent annuity, capital efficiency, and ROI.

2.4 CAPITAL VERSUS INVESTMENT What is investment? Strictly speaking, investment is the change in capital stock during a period.

Consequently, unlike capital, investment is a flow term and not a stock term. This means that while capital is
30

measured at a point in time, while investment can only be measured over a period of time. If we ask "what is capital right now?", we might get an answer along the lines of N10 trillion. But if we ask "what is investment right now?", this cannot be answered. The quantity of a flow always depends on the period in consideration. Thus, we can answer "what is investment this month?" (and might be told it is N10 million) or "what is investment this year?" (and might be told N1 billion). We can calculate the investment flow in a period as the difference between the capital stock at the end of the period and the capital stock at the beginning of the period. Thus, the investment flow at time period t can be defined as: It = Kt - Kt-1 where Kt is the stock of capital at the end of period t and Kt-1 is the stock of capital at the end of period t-1 (and thus at the beginning of period t).

31

How is the theory of investment different from the theory of capital? If all capital is circulating capital, so that it is completely used up within a period, then no capital built up during the previous period can be brought over into next period. In this special case, the theory of capital and the theory of investment become one and the same thing. With fixed capital, the story is different -- and more complicated as there seems to be two decisions that must be addressed: the amount of capital and the amount of investment. These are different decisions. One is about the desired level of capital stock. The other is about the desired rate of investment flow. The decisions governing one will inevitably affect the other, but it is not necessarily the case that one is reducible to the other. There are effectively two ways of thinking about investment. At the risk of annoying some people, we shall refer to these as the "Hayekian" and "Keynesian" perspectives. The Hayekian perspective conceives of
32

investment as the adjustment to equilibrium and thus the optimal amount of investment is effectively a decision on the optimal speed of adjustment. A firm may decide it needs a factory (the "capital stock" decision), but its decision on how fast to build it, how much to spend each month building it, etc. --

effectively, the "investment" decision -- is a separate consideration. Naturally, the capital decision influences the

investment decision: a firm which has N 10 billion of capital and decides that it needs N 15 billion of capital, therefore requires investment of N 5 billion. But if this adjustment can be done "instantly", then there is really no actual investment decision to speak of. We just change the capital stock automatically. The capital decision governs everything.

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CHAPTER THREE RESEARCH METHODS AND PROCEDURES

3.1 RESEARCH DESIGN

The research method selected for the study is a combination of a survey and an industrial study. The survey research method is described hereunder that: (i) It is a design in which primary data is gathered from members of the sample that represents a specific population;

34

(ii)

It is a design in which a structure and systematic research instrument like a questionnaire or an

interview schedule is utilized together with the primary data; (ii) It is a method in which the researcher manipulates no explanatory variables because they have already

occurred and so they cannot be manipulated; (iii) Data are got directly from the subjects; The subjects give the data the natural settings of their workplaces; (iv) The answers of the respondents are assumed to be largely unaffected of the content in which they are brought; (v) The impacts of the confounding factors are controlled statistically; and (vi) The aim of the research may span from the exploration phenomena to hypotheses testing (stone 1995). The survey research method has some merit, which are to be articulated hereunder: In the survey research
35

method, the sample of the respondents are selected in such a way as to make it low due to the utilization of big sample sizes, which results in generally low sample errors. The survey research method also has the merit that data collection takes place in the natural settings of the workplace rather than an activated laboratory. Data are got directly from the respondents. The advantage that the survey yields data that suggests new hypothesis is very illuminating. There is also the merit that a set of systematic data collection

instruments such as questionnaire interview schedules and observation gadgets

can either be used alone or in

conjunction with other instruments (stone, 1995). 3.2 Sampling Spiegel (1992) observes that sampling theory is a study of the relationship existing between a population or universe and the samples drawn from it. The population in this study is from the senior junior staff of the firms. In order to make conclusions of sample
36

theory and statistical references to be valid, a sample must be selected as to be representative of the population (Spiegel,1992). One way in which a

representative sample may be got, is by the process of stratified random sampling. In this research work, the technique of simple random sampling is used to select the sample of 100 respondents from each group of the personnel, making a total sample size of 200.

The list of all senior and junior staff of the firm is from the personnel department of the company. The

numbers were written on a piece of paper, put in a basket and the papers were folded to cover the numbers and one of the pieces of paper was selected at a time without replacing it and any name

corresponding to the number becomes a number of the sample. This method of sampling without replacement was done until the sample of 100 respondents per group of personnel was arrived at. 3.3 Population
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The population, in this study is the totality of the senior and junior staff of Blessed Obiono Electroniocs Nig. Ltd. Bayelsa State. The sample size is 200 and this number of respondents was chosen from the population. The rationale for studying a sample rather than the population includes that: 1. Most empirical research work in the social science involves studying a sample in place of the population. 2. Statistical Laws reveal that statistics composed from the sample data are usually reasonably accurate. 3. Luckily, it is usually possible to estimate the level of confidence that can be placed on the results. We should note that above is only possible if the probability sample size is large enough. 3.4 Data Collection Questionnaire

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As

earlier

stated,

the

primary

data

collection

instrument in this study is the questionnaire. In the questionnaire method of primary data collection, heavy dependence is placed on verbal reports from the subjects to get information on the earnings per share and standard set. The questionnaire has a lot of merits. It needs less skill to administer. Questionnaire can be administered to a big number of individuals at the same time. Also with a specific research budget, it is usually possible to cover a broader area. The impersonal nature of a

questionnaire, its structure and standardized wording, its order of question, its standardized instructions for recording answers might make one to conclude that it offers some uniformity from one measurement

occasion to another (Selltiz et al, 1976). Another merit of questionnaire is that subjects may have a bigger confidence in their anonymity, and thus feel freer to express views they feel might be

disapproved.
39

Another

attribute

of

the

questionnaire

that

is

sometimes, though not always desirable is that it might place less pressure on the subjects for immediate response (Selltiz et al, 1976). The questionnaire also has some demerits. It has noted that for purpose of giving dependable responses to a questionnaire, respondents must be considerably

educated. Thus one of the demerits of the usual questionnaire is that it is appropriate only for with a considerable amount of education. There is also

demerit that subject may be reluctant and unable. To report on the particular subject matter. Also, if a subject misinterprets a question or give his or her answer in a batting manner, there is often a little that can be done to ameliorate the situation. In a

questionnaire, the information the researcher gets is limited to the fixed alternative answer format, when a specific answer is not available, it can lead to error (Selltiz, 1976).

40

There is also limitation of memory in reporting on past facts. The researcher is not a policeman that can compel answers. That is, the information may not be readily accessible to subject and thus the subject may be reluctant to put forth enough alternative information that he or she is only barely conscious of (Selltiz et al, 1996). In this research project, a structured and undisguised questionnaire is utilized which is made up of two parts namely, the personal data section and the section on the data on the actual subject matter of the work. The questionnaire was undisguised in the sense that the purpose of the data collection which was to collect primary data for writing up the researchers ND project was made know was to the 200 in respondents. the sense The the

questionnaire

structured

questions are logically sequenced and are to be asked to the respondents in the same manner and no follow up questions are to be allowed. Some of the questions are of the fixed alternative answer format type.
41

Ten (10) of the questions have yes or no answers, Ten (10) of the questions have alternative answer for the respondents to tick. The structured questionnaire has the merit that it yields data that is easier to analysis than data produced by an unstructured questionnaire. Also the structured nature diminishes both researchers and research instrument biases. It however has the demerit that the rigidity of the research instrument diminishes the amount of information that could be got. Interview The method of communication of the research

instrument is by means of the personal interview. The method has the merit that it produces a better sample of the population than either mail or the telephone methods. It also has the merit that it gives a very high completion and response rates. It has the merit that the interview has a bigger sensitively

misunderstandings by the respondents and gives a

42

chance for clarification of misunderstood questions. It has the merit that it is a very feasible method (Selltiz et al, 1976). The personal interview method has the demerit that it is more costly than the mail or the telephone methods of communication of a

questionnaire. Observations In addition to questionnaire and face-to face

interviews, observation was also carried out. This was to enable the researcher to witness by herself the officers of this firm and to interact with these people. 3.5 Field Work The researcher and three other field data collectors did the fieldwork. The field data collectors were other classmates also offering the full-time ND program, who have also offered research methodology. They had no problem gaining entrance into the office under

consideration since one of them has a friend working there. They were to be trained by the researcher on
43

how to greet the respondents and how to tick the questionnaire correctly and honestly. 3.6 Description of Data Presentation and Analysis Tools The data presentation tools are simple bar charts, histograms, and pictorial tables. The most important parts of a table include; (a) (b) (c) (d) (e) (f) Table numbers Title of the table Caption Stub or the designation of the rows and columns The body of the table. The head note or prefatory note or explanatory just

before the title. (g) Source note, which refers to the literally or scientific source of the table (Mills and Walter 1995) Anyiwe (1994) has observed that a table has the following merits over a prose information that;
44

(f) (g)

A table ensure an easy location of the required figure; Comparisons are easily made utilizing a table than a prose information;

(h)

Patterns or trends within the figures which cannot be visualized in the prose information can be revealed and better depicted by a table; and A table is more concise and takes up a less space than a prose formation: The data is to be analysed by means of percentage, cross tabulation and the chi-square test of population proportions for testing the two hypothesis. Percentages express the ratio of two sets of data to a common base of 100. The researcher made use of the computer program called SPSS (statistical package for social science) to carry out the computation of the hypothesis testing.

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CHAPTER FOUR DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION
In the previous chapter, the research methods and procedures have been handled. In this chapter the data presentation and analysis are to be done. The data is to be presented by means of tables, two simple bar charts, one histogram and one pie chart to make it amenable for further analysis. By analysis is meant the act of noting relationship and aggregating the set of variables with similar

attributes and also breaking the unit of their components (Mills and Walters 1995). In this research work, the research accepts the contention of Podsakoff and Dalton (1995) that the factual information from the data can be used as a basis for reasoning, calculation and discussion. Apart from the heading above, the other headings in this chapter include: Data Presentation, Percentage analysis

46

Cross-tabulated analysis Hypothesis testing

4.2 DATA PRESENTATION

TABLE 4.1 THE SUMMARY OF THE PERSONAL DATA OF THE RESPONDENTS

47

SEX Male Female Total Marital Status

FREQUENCY 150 50 200 Angles subtended 130 70 200 in degree

Married Single Total AGE 21-30 years

90 90 10 10 200

31-40 years 41-50 years 51-60 years Total HIGHER EDUCATIONAL QUALIFICATION

DIPLOMA OND HND FIRST DEGREE SECOND DEGREE NIM TOTAL

10 30 80 20 40 20 200

18 54 144 36 72 36 360

The marital statuses of the 200 respondents it is found that 130 of them are married while 70 of them are single. For the ages of the 200 respondents they are 21-30 years, 31-40 years, 40-50 years, 51-60 years with frequency of 90,10 respectively. For the educational

48

qualification of the 200 respondents they are diploma, OND, HND, First Degree, Second Degree, NIM. and they have frequencies of 10, 30, 80, 20, 40 and 20 respectively.

Figure 4.1 below shows the simple bar chart of the data on the sex of the respondents.

FIGURE 4.1: THE SIMPLE BAR CHART OF THE DATA ON THE SEX OF THE RESPONDENTS

160 140 Frequency 120 100 80 60 -

GENDER OF THE RESPONDENTS

40

TABLE 2.
20

GENDER OF THE FEMALE MAIL RESPONDENTS

Gender

49

Frequency MAIL FEMALE Total 150 50 200

percentage 75.0 25.0 100.0

Valid Percent 75.0 25.0 100.0

Cumulative Percent 75.0 100.0

Source: from data in table 1 (generated from SPSS) statistical package for social science. From figure 4.1 above, it is shown that male respondents have the modal frequency of 150 out of the 200 respondents while the female respondents have the frequency of 50 of them. Figure 4.2 below shows the simple bar chart of the data on the marital
140 statuses of the respondents.

FIGURE 4.2: THE SIMPLE BAR CHART OF THE DATA ON THE MARITAL 120 STATUSES OF THE RESPONDENTS
100

Frequency

80

60

40

20

50
MARRIED

Marital status

SINGLE

TABLE 4.3. Status MARRIED SINGLE Total

MARITAL STATUS OF THE RESPONDENTS Percentage 65.0 35.0 100.0 Valid Percent 65.0 35.0 100.0 Cumulative Percent 65.0 100.0

frequency 130 70 200

From figure 4.2 above, it is shown that the married respondents have the modal frequency of 130 out of the 200 respondents while the
100 0 20 40 60 80

single respondents have the frequency of 70 of them. FIGURE 4.3: THE HISTOGRAM OF THE DATA ON THE AGES OF THE RESPONDENTS.

AGES OF THE RESPONDENTS

Frequency

51

1.02.0

Age group

3.0

4.0

TABLE 4. AGES OF THE RESPONDENTS

Categories Frequency (years) 21 TO 30 90

Percentage

Valid Percentage

Cumulative Percent

45.0

45.0

45.0

31 TO 40

90

45.0

45.0

90.0

41 TO 50

10

5.0

5.0

95.0

SOURCE: From the data in Table 1.

From figure 4.3 above, it is shown that the age classes limit are 20.5-30.5 years, 30.5-40.5 years, 40.5-50.5 years and 50.5-60.5 years with frequencies of 90, 90, 10, and 10 out of 200 respectively. This shows that this is bi-modal distribution as the age classes of 20.530.5 years and 30. 5-40.5 years have a frequency of 10.
52

Figure 4.4 below shows the pie chart of the data on the highest educational qualifications of the 200

respondents.

FIG.4.4

THE PIE CHART OF THE DATA ON THE HIGHEST EDUCATIONAL QUALIFICATIONS OF THE 200 RESPONDENTS

OND 5% SECOND DEGREE 15% 10% 20% 80% FIRST DEGREE 10%
OND

DIPLOMA
FIRST DEGREE

HND

TABLE 4. 5 EDUCATIONAL QUALIFICATION OF THE RESPONDENTS SOURCE: from the data in table 1.
Educational level DIPLOMA OND HND FIRST DEGREE SECOND DEGREE NIM Total Frequency Percentage Valid Percentage 5.0 15.0 40.0 10.0 20.0 10.0 100.0 Cumulative Percentage 5.0 20.0 60.0 70.0 90.0 100.0

10 30 80 20 40 20 200

5.0 15.0 40.0 10.0 20.0 10.0

53

100.0

From figure 4.4 above, the Educational Qualifications are Diploma, O.N.D, First Degree, Second Degree and NIM and the subtended angles in degrees are equal to 180, 540, 1440, 360, 720 and 360 and respectively at the center of the circle.

4.3 CROSS-TABULATED ANALYSIS Table bellow show the analysis of the statuses of the 200 respondents
TABLE 6. CROSS- TABULATION 1
Investment is the purchase or creation or assets With the objective e of making gains in the future

YES

NO

DONT KNOW

NO 2 ANSWER

Total

12 19 91

DIPLOMA OND HND FIRST DEGREE SECOND DEGREE NIM Total

6 19 60 31 21 100

2 31 10

26 31 21 200

43

11

39

The

above

table

showsanalysis is primarily used to compare a companys 100 that the total of Ratio
10 10

939

respondents (out of 200 said YES. This proved that

DIPLOMA

YES Financial figures over a period of time NO DONT NO Total KNOW ANSWER

investment is the purchase or creation of assets with

OND 19 14 30 47 the objective of HND making gains in the future. FIRST

19

91

TABLE 7. Cross-tabulation 2 DEGREE 10

SECOND DEGREE NIM Total

19

54

40 21 104 40 47 9

40 21 200

The above table indicates that ratio analysis is not primarily used to compare a companys financial figures over a period of time. 104 respondents out of 200 said yes. While 40 did not agree with the fact. 4.4 HYPOTHESIS TESTING

In

attempting

to

arrive

at

decisions

about

the

population, on the basis of sample information, it is necessary to make assumptions or guesses about the population parameter involved. Such an assumption is called statistical hypothesis, which may or may not be true. The procedure, which enables the researcher to design on the basis, is sample regards whether a
55

hypothesis is true or not is called test of hypothesis or test of significance. The null hypothesis asserts that there is no significant difference between the statistics and the population parameters and what ever is observed difference is there, is merely due to fluctuations in sampling from the same population. Null hypothesis is thereby

denoted by the symbol H0. Any hypothesis, which contradicts the H0, is called an alternate hypothesis and is denoted by the symbol H1. The researcher used chi-square analysis.
CHI-SQUARE TEST

The c is one of the simplest and most widely used nonparametric test in statistical work. It makes no

assumptions about the population being sampled. The quantity c describes the magnitude of discrepancy between theory and observation i.e. with the help of c test we can know whether a given discrepancy

between theory and observation can be attributed to chance or whether it results from the inadequacy of the
56

theory to fit the observed facts. If c is zero, it means that the observed and expected frequencies completely coincide. The greater the value of c the greater will be the discrepancy between observed and expected

frequencies. The formula for computing chi-square is c =(O-E)2/E Where,O=Observed frequency E=Expected or theoretical frequency 4.5 SOFTWARE USED FOR DATA ANALYSIS: For the data analysis and the interpretation, the researcher has adopted advanced version of SPSS (statistical package for social science). This application software has facilitated the researcher to construct the frequency table, various types of charts and to find out the valid percentage responses from the sample. By this automated data analysis it has minimized the researchers time constraints and reduced human error and gives also accurate outlay of information.
57

Chi-Square Test (1)

Investment is the purchase or creation of assets with the objective of making gains in the future.

Observed F YES NO DONT KNOW NO ANSWER Total 18 200 39 100 43

Expected F 50.0 50.0

Residual

Decision

50.0 -7.0

Accept Reject

50.0 50.0

-11.0

Reject

-32.0

Reject

Chi-Square Test (2)

Ratio analysis is primarily used to compare a companys financial figure over a period of time.

58

Observed F YES NO DONT KNOW NO ANSWER Total 9 200 47 104 40

Expected F 50.0 50.0

Residual

Decision

54.0 -10.0

Accepted Rejected

50.0

-3.0

Rejected

50.0

-41.0

Rejected

Residuals

The observed value of the dependent variable minus the value predicated by the regression equation, for each case. Large absolute values for the residuals indicate that the observed values are very different from the predicted values. SOURCE: From the questionnaires administered.

The formulated hypothesis that is subject to statistical test is at 5% level of significance in testing hypothesis, the calculated value of the test statistics is usually compared with tables of
59

value. The critical values of the test statistics serve as criterion value. It afforded the basis for rejecting the null hypothesis is a function of the value of the tested statistic. Reject the null hypothesis if the calculated value of the test statistic is greater than the critical value. Accept the null hypothesis if the calculated value of the test statistic is less than the critical value.
TEST STATISTICS
Ratio analysis is primarily used to compare a companys financial figure over a period of time.

Investment is the purchase or creation of assets with the objective of making gains in the future.

Chi-Square df

73.880 3

94.120 3

note: df = degree of freedom

4.6 SUMMARY OF RESULT Level of significance.0.05

60

Critical value43.0 Calculated value73.880 From the above analysis, it could be seen that in the first test, Investment is the purchase or creation of assets with the objective of making gains in the future. the calculated value is greater than the critical value so we reject the hypothesis. In the second test which state that Ratio analysis is primarily used to compare a companys financial figure over a period of time. , the level of significance is 0.05, the critical value is 44 while the calculated value from the test statistics table is 94.120. Looking the data above, it shows very clear that the calculated value is greater than the critical value so we reject the hypothesis.

CHAPTER FIVE 61

FINDINGS, SUMMARY AND CONCLUSION

5.1

FINDINGS

Through this research work, the researcher was able to discover that Ratios are means for presenting numerical

relationships between items or groups of items. A ratio is determined by dividing one item in a relationship with the other. Generally, financial ratios are computed from financial statements and so ratios developed for an analysis of a firms performance and financial

position are subject to the same limitations, which are present in the accounting statements

themselves.

Ratios are used in the analysis of financial of a business in order to reveal

statements

underlying economic trends in its activities and to

62

discover its STRENGTHS AND WEAKNESSES as compared with the trends of sister companies.

Capital

investment

decisions

are

long-term

corporate finance decisions relating to fixed assets and capital structure.

Making big investment decisions means that we must allocate substantial amounts of major resources of people, time, technology, intellectual capital, and, of course, money.

5.2 SUMMARY Investment is the purchase or creation of assets with the objective of making gains in the future. Typically investment involves using financial resources to

purchase a machine/ building or other asset, which will then yield returns to an organisation over a period of time.

5.3

CONCLUSION are long-term corporate

Capital investment decisions

63

finance decisions relating to fixed assets and capital

structure. Decisions are based on several inter-related criteria. Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. These projects must also be financed appropriately. If no such opportunities exist, maximizing management Capital shareholder return excess value dictates that

cash to shareholders. thus comprise and an a

investment decision,

decisions a

investment

financing

decision,

dividend decision. A positive investment decision can only be taken the application of ratio analysis.

64