ACCOUNTING RATIOS AS A MEASURE OF MANAGEMENT EFFICIENCY,

ACCOUNTING RATIOS AS A MEASURE OF MANAGEMENT EFFICIENCY, ( A CASE STUDY OF NIGERIAN, BREWERIES PLC)

ABSTRACT

The project work was carried out to examine “Accounting ration as a measure of management efficiency using Nigeria Breweries Plc as a study. Chapter one deals with the background of the study, statement of the problem, purpose of the study, significance of the study, research question, research hypothesis, scope of the study and definition of terms. Chapter two involves mainly on literature review which focuses on the review of related literature and overview the types of ratio that can be used as a basis for measuring management efficiency and the comparison of one company and another. Chapter three explains the methods carried out in the research, which involves design of the study, area of the study, population of the study, area of the study, population of the study, 10 numbers of sample collected out 15 of the study, instrument of data collection, validation of the instrument, distribution and retrieval of the instrument. Chapter four explains how data are presented, interpreted and analyzed through testing of the hypothesis and getting the result. Chapter five deals with the summary of findings, the researcher arrived at the conclusion that accounting ratio should be used as a powerful tool to measure management effectiveness and efficiently because it out scores other tools of financing analysis.

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

According to Ubaka C.E (1998) Accounting can be defined as the measurement and communication system used to provide economic and social information about an entity to permit users to make sound judgements and decisions leading to maximum allocation of resources and the accomplishment of the company’s objectives. This means the act of preparing and reporting the performance of business entity over a specified period of time (Monthly, quarterly, semiannually or yearly) through financial statement and reports.

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The objectives behind the preparation of the financial statement by an accountant will not be accomplished or justifies if the users of the statement cannot read meaning into the statement so prepared. Therefore, financial statement should be prepared in such a way as to allow different category of users interpret the information and data outlined in the statement for the purpose of making decisions.

Financial statement could be analyzed through the use of:

  1. Rations Analysis
  2. The fund flow statement
  3. Straight forward criticism

We are concerned with the use of accounting rations as a measure of management efficiency. Rations analysis is one of the tools use for the interpretation of company’s performance. Unlike other tools of financial analysis used by management, rations are derivation of the historical information, which are fundamental to the business.

In using accounting rations the analysis must be capable of giving interpretation to the ratio computed and understood the effect of materials changes overtime. The focus of this study therefore is on accounting ratios as a measure of management  efficiency with Nigeria Breweries Plc as a study area.

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1.2  STATEMENT OF THE PROBLEM

It is surprising that in may case of performance evaluation in business enterprises, there is always an expression of dissatisfaction because:

  1. Ratio analysis normally uses financial data that are not adjusted for change in the level of general prices, which can distort the analysis.
  2. Ration analysis uses historical data and there is question as to whether or not this data provides a relevant basis.
  3. Comparison between companies is difficult because of different accounting practices adopted.
  4. Financial ratios are expressed in precise figures and this may be misleading unless one remembers that figures upon which they are based are different figures, which could also have been worked out legitimately.

1.3  PURPOSE OF THE STUDY

The study is embarked upon to enable the researcher gain an insight into the uses of accounting rations as a measure of management efficiency.

  1. To ascertain the predictive power in business by giving a picture of the financial conditions and performance of the firm over time and reveal the direction of future trends.
  2. To examine the usefulness of the ratios as a yardstick frequently used to establish and present the relationship and trend inherent in the financial statement.
  • To establish the use of eh ratios as a good guide for measuring management performance and efficiency and shows the firms strength and weakness.
    • SIGNIFICANCE OF THE STUDY

The relevance of this research work cannot be overemphasized. This is because it will try as much as possible to highlight accounting ration as a measure of management efficiency.

The significance of this study will also borders on.

  1. Decision-making that will affect the long-run performance of the company are made by the trop management. The study of accounting ratios as a measure of management efficiency will give us the opportunity to see that particular ratios begin used by the top management in their decision making and how effective those decisions are when the actual results of the company are calculated for one period are compared with their previous performance and that of another company within the same industry.
  2. This study will also serve as a measure of management efficiency by computing some important ratios from financial statement of a company  (Nigerian Breweries Plc) for some years to enable us  carry out internal comparison and industrial comparison.
    • FORMULATION OF HYPOTHESIS

The following hypothesis are formulated for elucidation of this study.

HYPOTHESIS

Ho: Accounting ratio is not a powerful tool for  measuring the performance of management.

Hi:  Accounting ratio is not a powerful; tool for measuring the performance of management.

HYPOTHESIS TWO

Ho:  The main objective of accounting ratio is to discover the strength or weakness of a company and discover the causes, which have contributed there to.

Hi: The main objective of accounting ratio is not discover the strength or weakness of a company and discover the causes, which have contributed there to

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HYPOTHESIS THREE

Ho: Accounting ratio serves as a guide for planning and control of a company.

Hi: Accounting ratio does not serve as a guide for planning and control of a computer.

  • SCOPE OF THE STUDY

The research attempts to give an insight into accounting ratios in brewery industries, a case study of Nigeria Breweries plc. It discusses the need to use and interpret ratio for public and management purpose.

The project shall critically examine the various classifications of accounting ratio and discuss briefly on the different types of ratios under such classes of accounting ratios.

Essentially, this research work shall emphasize on the form of classification of accounting ratio being operated in Nigerian Breweries Plc that are  closely related t o the measures of management effieiciency6 and makes recommendation on whether  such ratios are of relevance to the measures of management efficiency. The critical to be satisfied by accounting ratio are also examined. However, the computation of accounting ratio and their analysis and the study in general shall be limited to Nigerian Breweries Plc. The ratios computed are used for internal comparison over some years. Some incontrollable elements (factors) limiting the  scope of our study are as follows.

  1. The request of some companies to give out copies of their financial statement and report for some years were not granted.
  2. The request of some questionnaires from companies were delayed.
  • This study is limited number of Financial ratios used by the company. Thereby making if impossible for the researchers to collect first hand information.
  • A BRIEF HISTORY OF NIGERIAN BREWERIES PLC.

Nigerian Breweries Plc was incorporated on 16th Novembers 1946, under the companies ordinances cap 38, as Nigerian Breweries limited. On 7th January 1957, the name of the company was changed to  Nigerian Breweries Limited. In 1990, when the companies and Allied Matters Act of  that year was further changed to Nigeria Breweries Plc. Nigeria Breweries Plc is subsidiary of Heineken NV Group, which has a 54.10 % interest in the  equity of Nigeria Breweries Plc, a public company quoted on the Nigeria stock Exchange. The principle activities of the company remained the brewing marketing and sales of lager, stout and Non- alcohol Malt Drinks.

  • DEFINITION OF TERMS

Assets: According to Ubaka C.E (1998) Assets are properties of a business Balance Sheet, According to Ubaka C.E (1998), a document that shows the assets, liabilities and proprietors interest at a point in time. Generally. Enterprises present their balance in the  form of assets and claims against those assets by creditors and owners.

Capitals:  According to Ubaka C.E. (1998) Capital means the initial; investment which is increased by that portion of his periodic income which he has not consumed.

Current Asset: According to Ubaka C.E. (1998), these are assets, which  are intended to be exhausted in the income earning operations of the next accounting periods, and these include their availability for meeting current liabilities.

Deterioration: make or become less in value or worse in  quality.

Equity: Ordinary shares which are not bearing any fixed interest.

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Fixed assets: According to  Ubaka C.E (1998), a long term whose usefulness in the operation of the firm is likely  to extend beyond one accounting period. It is not intended for resale, so that its value depends upon the future sale, which it intended to generate.

Fund: Resources in the form of money Gearing ratio: the relationship between the equity capital, and debt capital structured of a company.

Inventory: Detailed list of item of stock or materials.

Leverage Ratio: The relationship between the returns on the assets employed and the fixed interest paid on dept capital.

Liabilities: Is the claim against the assets of a company. That is a claim, which can outsider who has a contractual relationship with a company hold against it.

Liquidity: State of being able to raise funds easily by selling assets.

Obsolesces: Becoming out dated, passing out fashion.

Security: Document, certificate etc showing ownership of properties especially bonds, stocks and shares.

Shares: The interest of share holders in the company for the purpose of liability in a limited liability company in the first place and of mutual covenants entered into by all the share holders. It is also a unit of ownership in a company.

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