Chapter one

Introduction

1.1Background of the study

Business enterprises are in operation basically to provide goods and services which will satisfy the needs and desires of customers at a lower cost and in return will maximize their profit effectively on the services rendered by them. It is the responsibility of the management of a business enterprise to make sure that the activities being carried out by their enterprises are properly and documented.

The recording of the business operation should be prepared in monetary term in a manner that the various interested party to the company’s financial statement will have the opportunities to determine whether the business is performing well in its functions or otherwise. The management is totally responsible for the” planning, organizing, coordinating as well as controlling and making corrective decision that seeks to the progress and advancement of the business organization.

Decision making is a managerial function. It requires the assessment or analytical study of past, present operation future prospects and the probable outcome of decision which could be made. One important instrument which has helped business over the years in this area is the financial ratio analysis.

Financial statement in order to gain insight into the financial position and performance of a business enterprise. It is the relationship between financial data in the financial statement to aid in the evaluation of the business strength and weaknesses. It also provide us with information that is useful for investment decisions such as “should we acquire ABC corporation or otherwise? It encompasses a variety of accounting ratios that reflect on a particular events, results or existing conditions.

The financial statement is an accounting statement showing the profit and loss account of a business firm for a particular year, also the balance sheet, showing the financial position of the company. Various users include specific interest and needs.

The users include the following bodies such as; the management, shareholders, creditors, government employees, customers, financial analysts and advisers as well as competitors. It is from this statement drawn their conclusion the company’s performance, its managerial ability and competence as well as the future prospect of the business under consideration.

Investment decision is the allocation of a firms capital finds to investment proposal to yield future benefit that will meet up the expectation of all investors in a company.

This research work therefore, intends to find out the impact of financial ratio analysis on investment decision in a multinational organization, using GUINNESS NIGERIA PIc located in Ikeja as a case study.

1.2 STATEMENT OF THE PROBLEM

Investment decision is one of the most critical and crucial decision of an organization. It is a very important decision for the growth and survival of most organization in Nigeria.

The problem of this research study shall centers on the reason why business fail to prosper in the function. (i.e. achieving their objective of profit making) enterprises fails to achieve their targeted goals due to wrong choice of investment decision taken which may result from the followings:

Inadequate fact data or information about the project being under taken.

The wrongly analysis of the technique use for company’s evaluation and performance.

Insufficient availability of investment analyst and expert that can give “advice on what, where and how to invest one’s resources.

Difficult to decide on a proper basis for comparison because organization ratio have meaning only when they are compared with some standards.

There is inherent assumption that the historical data used for ratio analysis are inviolate fixed and applicable under all situations, however the dynamic of political and economic factors may prove such data as out of date”.

1.3 OBJECTIVE OF THE STUDY

The general purpose of this study is to examine and analysis the impact of financial ratio analysis on investment decision in a multinational organization (GUINNESS NIGERIA PLC). These are:

To examine the commitment of resources with the expectation of realizing future benefit over a reasonable long period in the future.

To determine how matters relating to dividend policy affect the organization stability.

To examine how Investment decision affect the future profitability either by way of increase in revenue or cause an increase in efficiency and reduction in cost.

To examine” the factors that determines the growth and survival of the organization over-time

To make recommendation to the management, shareholders and investors on how to execute their investment plans.

1.5   RESEARCH HYPOTHESIS

HYPOTHESIS 1

Ho: Commitment of resources does not lead to realization of company’s objectives.

Hi:  Commitment of resources lead to realization of company’s objectives.

HYPOTHESIS 2

Ho: Investment decision does not affect the future profitability and cost reduction.

Hi:  Investment decision affects the future profitability level, efficiency and cost reduction

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