Financial statement analysis as a tool for investment decisions and assessment of companies’ performance

https://doi.org/10.35912/ijfam.v4i1.852
Published: Jun 13, 2022

Abstract:

Purpose: Financial Statement Analysis (FSA) and Interpretation is a vital instruments for good management decision-making in business. The main objective of this study is therefore to determine how firms could use FSA and its interpretation to aid funding and investment decisions and to avert low profitability or low investment returns.

Research methodology: Data from the annual report of Nestlé Nigeria Plc are utilized for the Analysis and Interpretation of the financial ratio using descriptive statistical analytical tools for presentations.

Result: The study concludes that analysis of FSs is adequate for effective decision making and that firms should pay great attention to the use of FSA to properly equip themselves with this tool and also a combination of different ratios should be used in analyzing a firm's financial performance. Proper use of FSA should be made not only in investment but also in other areas of decision-making.

Limitations: The study is limited to FSs published by Nestlé Nigeria plc between the years 2014 to 2019.

Contribution: The paper serves as an aid to different categories of investors when making critical investment decisions.

Keywords:
1. Decision
2. Financial statement
3. Financial reporting
4. Investment
5. Regulatory bodies
Authors:
Aminu Abdulrahim Olayinka
Accountancy Department, Mai Idris Alooma Polytechnic, Geidam, Yobe State, Nigeria
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Olayinka, A. A. (2022). Financial statement analysis as a tool for investment decisions and assessment of companies’ performance. International Journal of Financial, Accounting, and Management, 4(1), 49–66. https://doi.org/10.35912/ijfam.v4i1.852
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Issue & Section
Vol. 4 No. 1 (2022): June
Articles
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References

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  1. Adebayo, M, Idowo, K.A, Yusuf, B & Bolarinwa, S.A (2013). Accounting Information System as an aid to decision-making in food and beverage companies in Nigeria. Australian Journal of Business and Management Research, 3 (9) 26-33.
  2. Adebimpe, O. U. (2009). Accounting Disclosures and Corporate Attributes in Nigeria Listed Companies. Unpublished PhD Thesis submitted to the Department of Accounting, College of Business and Social Sciences, Covenant University, Ota, Ogun State, Nigeria.
  3. Akinsonyime, A. B. (1990). The Objective of Accounting in a Dynamic Society. Seminar NCAI Jos Nigeria.
  4. Aniefor, S. O., & Oboro, O. G. (2015). Accounting ratio as a veritable tool for corporate Investment Decision: A study of selected organization in Delta State. Journal of Policy and Development Studies, 9(5), 38-49.
  5. Asrizal, E. N., Linzzy, P. P. & Shinta, D. (2018). The effect of debt to equity ratio and total asset turnover on return on equity in automotive companies and components in Indonesia, International Conference on Accounting, Management and Economics, 12 (9), 33 – 44.
  6. Auwalu, M & Ibrahim, M. T (2017). International Financial Reporting Standards and Value Relevance of Financial Information: An Empirical Evaluation of Selected Nigerian Listed Companies. International Journal of Accounting & Finance Review 1(1) 1-11.
  7. Bragg, S. (2012). Financial Analysis: A Controller's Guide, 2nd edition, Wiley, Canada.
  8. Conteh. S, & Akuntansi M (2021) Financial Statement Analysisa tool for Investment Decision Making in the Gambia: Case of Trust Bank Gambia Limited. International Journal of Accounting Review 9(5) 2-9.
  9. Elliot, B & Elliot, J., (2004). Financial Accounting and reporting Prentice-Hall International, UK.
  10. FASB. (2000). SFAC No.7: Using Cash Flow Information and Present Value in Accounting Measurement. FASB, Connecticut.
  11. Francis, J. & Schipper, K. (1999). Have financial statements lost their relevance. Journal of Accounting Research,
  12. Gavtan, U. S. (2005). Accountancy. New Delhi; Vrinda Publications.
  13. Ige O. T. & Adewumi O., (2020). A comparative analysis of the determinants of profitability of commercial and microfinance banks in Nigeria. International Journal of Financial, Accounting, and Management 1(3) 1- 23 https://doi.org/10.35912/ijfam.v1i3.135
  14. Jennins, A.R (2004). Financial Accounting 2 Edition. New York; Thomson learning.
  15. Kapellas, K., & Siougle, G. (2018). The effect of IFRS adoption on investment management: A review of the literature. Technology and investment, 9, 1-23.
  16. Kothari, C. R, (2004). Research Methodology: Methods and Techniques, 2nd Edition, New Age International Publishers, New Delhi India.
  17. Malhotra, N.K. (2007), "Review of Marketing Research", Malhotra, N.K. (Ed.) Review of Marketing Research (Review of Marketing Research, Vol. 3), Emerald Group Publishing Limited, Bingley, pp. v-v. https://doi.org/10.1108/S1548-6435(2007)0000003004.
  18. Mercy A.A, (2014). The role of financial statement in investment decision making; A case
  19. study of First Bank of Nigerian Plc. International journal of accounting information
  20. system (2), 91-105.
  21. Newslove & Gardner 1951 New Age International Publishers, 2nd Revised Editions, 5-236.
  22. Nkuhi, A. H (2015). The role of financial statements in investment decision making a case of Tanga port authority. Published Master of Business Administration Dissertation submitted to Mzumbe University.
  23. Olakunori, O.K. (1997). Successful research theory and practice. Enugu: Computer Edge Publishers.
  24. Omodero, C. O. (2019). Genesis of accountability and its impact on accounting. International Journal of Financial, Accounting, and Management, 1(1), 47-55. https://doi.org/10.35912/ijfam.v1i1.78
  25. Otley, D. (2012). The contingency Theory of Management and Prognosis Accounting organisation and society 194-208.
  26. Pandeg, I. M. (2005). Financial Management, 9th Edition. Vikas Publishing House PVT Ltd New Delhi. India.
  27. Ratu L. & Yoga T. R., (2021). The influence of leverage, sales growth, and
  28. dividend policy on company value International Journal of Financial, Accounting, and Management 3(2) 165-178 https://doi.org/10.35912/ijfam.v3i2.189.
  29. Sanyaolu, W.A., Odunayo, J., Akintan, I.O., & Ogunmefun, G.T. (2020)). Financial statement analysis and investment decision of Nigeria banks. Accounting and Taxation Revieww, 4(4): 32-43.
  30. Security and Exchange Commission. (2000). Rules and Regulations Act, Nigeria Security and Exchange Commission, 1-360.
  31. Staubus, G. J. (1959). The Residual Equity Point of View in Accounting.’ The Accounting Review, 34(1), pp. 3-13.
  32. Suryanto, T. & Thalassinos, I.E. (2017). Cultural ethics and consequences in whistle-blowing among professional accountants: An empirical analysis. Journal of Applied Economic Sciences, 12(6), 1725-1731.
  33. Susan, P. T, Innocent F. I, & Philip A. (2018) Accounting Information System: A Prevailing Tool for Appraising Firm Performance. International Journal of Accounting & Finance Review; 2(2) 15-20.