CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF STUDY 

With the continuous growth of various businesses in Nigeria; the needs for good accounting ratios as a tool to measure financial performance of an organization continue to increase. Most organizations in Nigeria prepare profit and loss account so as to enable them know the net result of their financial activities of the business but for the organization to be able to understand the financial position of their business there must be a need for a balance sheet. The term financial statement is the particular form that contain the profit and loss, the income statement, retained earnings and balanced sheet. According to Gautam (2005) in his research stated that financial statement is also known as financial information; still on that note stated that financial information is that information relating to the financial position of any firm; when they are presented in a concise and capsule form. Apart from profit and loss account and balance sheet, there are some other financial statements which are also prepared for deriving certain conclusions. A proposed current assets and current liabilities of two years can be prepared to provide information on the changes in working capital. Another similar case is in a fund flow statement and cash flow statement can be prepared to predict the future estimate of cash receipt and payment. Financial statement includes the following: 

1.  Profit and loss Account

2.  income statement 

3.  Balance sheet along with certain schedules and statement. 

 According to Ezeamama (2010) said he is of the opinion that rational decisions have to be taken to manage modern business very effectively and for this an effective rational decision is to be taken in accordance with the objectives of the firm in concern. Some analytical tools are available and used based on the strengths and weakness of the firms. Thus, the financial strengths and the Weakness of most organizations in Nigeria is mostly visible through its financial statement. These statements are usually expressed in monetary terms and it indicates the profitability and losses of the business through the balance sheet prepared. According to Remi Aborode (2006), financial statement need to be interpreted to gain a better understanding and analysis; it can then be interpreted by individual items that are contained in the financial statement and the use the ratios computed from items contained in the financial statement which is known as the ratio analysis. The importance of financial statement can be derived from the fact that financial statements should disclose correct information about profitability and financial position of a particular business. The information that is provided in the financial statement should be that which can actually be verified from the relevant and prepared within a reasonable time after the end of accounting period. The information provided by financial statement should also be easily understood by the interested parties. Such as investors, creditors, lender and Bankers, customer’s employees, government and other agencies, the public and stock exchange. It can therefore be seen that financial information is very effective and essentials in making investment decisions in an organization be it private or public. The study will thus use first bank of Nigeria plc as a case study to look at the critical analysis of the use of accounting ratios to measure financial performance of an organization using data from 1998 to the year 2015.

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