EVALUATION OF

RATIO

ANALYSIS IN

INVESTMENT

DECISION

MAKING.

1
 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

2
 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

3
 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.

4
 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.

5
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

6
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

7
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

9
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

12
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 when compared with other

financial information. Since they are most often

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 pre-

15
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

17
 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. Explain observed events in a systematic manner

2. Predict the outcome of events and relationships

3. Systematically summarized existing knowledge.

In essence, there exist NULL HYPOTHESIS set up only

to nullify the research hypothesis and the

18
 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.

17 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

20
 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, allow for any material differences in

accounting policies between your company and

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:
22
 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 short-

term 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.

23
 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 firm’s ratios with the industry average will help

evaluate the firm’s position vis-à-vis the industry. It

will help in analyzing the firm’s strengths and

weaknesses and take corrective action. Trend Analysis

of ratios over a period of years will indicate the

direction of the firm’s financial policies.

Budgeting: Ratios are not mere post-modern of

operations. They help in depicting future 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.
24
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.

25
(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 shareholder value dictates that

management return excess cash to shareholders.

Capital investment decisions thus comprise an

investment decision, a financing decision, and a

dividend decision.

The investment decision

Management must allocate limited resources between

competing opportunities ("projects") in a process

known as capital budgeting. Making this capital

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 rate—the project

"hurdle rate"—is critical to making the right decision.

The hurdle rate is the minimum acceptable return on

an investment—i.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.

33
 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

37
 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

38
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 researcher’s ND project

was made know to the 200 respondents. The

questionnaire was structured in the sense the

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 researcher’s 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) Table numbers

(b) Title of the table

(c) Caption

(d) Stub or the designation of the rows and columns

(e) The body of the table.

(f) 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) A table ensure an easy location of the required figure;

(g) 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.

45
 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
 1 SEX FREQUENCY

Male 150

Female 50

Total 200 Angles

Marital Status subtended

2 Married 130 in degree

Single 70

Total 200

AGE

21-30 years 90

3 31-40 years 90

41-50 years 10

51-60 years 10

Total 200

HIGHER

EDUCATIONAL

QUALIFICATION

4 DIPLOMA 10 18

OND 30 54

HND 80 144

FIRST DEGREE 20 36

SECOND DEGREE 40 72

NIM 20 36

TOTAL 200 360

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

GENDER OF THE RESPONDENTS

160
-

140
-
Frequency

120
-

100
-

80

--
60
-

-
40

TABLE 2. GENDER
MAIL OF THE FEMALE
RESPONDENTS
20 Gender

-
0

49
 Frequency percentage Valid Cumulative
Percent Percent

MAIL 150 75.0 75.0 75.0

FEMALE 50 25.0 25.0 100.0

Total 200 100.0 100.0

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

statuses of the
140 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 SINGLE
Marital
0 status
 TABLE 4.3. MARITAL STATUS OF THE RESPONDENTS

Status frequency Percentage Valid Cumulative

Percent Percent

MARRIED 130 65.0 65.0 65.0

SINGLE 70 35.0 35.0 100.0

Total 200 100.0 100.0

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

single respondents have the frequency of 70 of them.

100

FIGURE 4.3: THE HISTOGRAM OF THE DATA ON THE AGES OF THE

80

RESPONDENTS.
60

AGES OF THE RESPONDENTS

40
20
0
Frequency

51

1.0 2.0 3.0 4.0

Age group
 TABLE 4. AGES OF THE RESPONDENTS

Categories Frequency Percentage Valid Cumulative

Percent
(years) Percentage

21 TO 30 90 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 20.5-

30.5 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 DIPLOMA
FIRST DEGREE
5%
15% OND
SECOND DEGREE 10%

20%
HND

80%
FIRST DEGREE 10%

TABLE 4. 5 EDUCATIONAL
SOURCE: from the data QUALIFICATION
in table 1. OF THE RESPONDENTS

Educational Frequency Percentage Valid Cumulative

level Percentage Percentage

DIPLOMA 10 5.0 5.0 5.0

OND 30 15.0 15.0 20.0

HND 80 40.0 40.0 60.0

FIRST DEGREE 20 10.0 10.0 70.0

SECOND 40 20.0 20.0 90.0

DEGREE

NIM 20 10.0 10.0 100.0

Total 200
53 100.0 100.0
 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

NO 12
YES NO DON’T 2
ANSWER Total
19
KNOW
91

DIPLOMA 6 2 7 26
2
OND 31
19
HND
60 31 21
FIRST
- 9 200
DEGREE 10 9
SECOND 31
DEGREE 21
NIM 100 43 11
Total

39
939
The above table shows that
Ratio analysis the
is primarily totala company’s
used to compare of 100
YES Financial figures over a period of time NO
NO DON’T Total
respondents (out of 200 said YES. This proved that KNOW ANSWER
DIPLOMA 10 10

investment is the purchase or creation of assets with

OND 19 19

the objective of HND

making gains
14 in the
30 future.
47 91

FIRST

TABLE
DEGREE 7. Cross-tabulation
10 2 9 19

SECOND

DEGREE
54 40 40

NIM 21 21

Total 104 40 47 9 200

 The above table indicates that ratio analysis is not primarily used to

compare a company’s 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 non-

parametric 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

researcher’s 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 Expected Residual Decision

F F

YES 100 50.0 50.0 Accept

NO 43 50.0 -7.0 Reject

DON’T

KNOW 39 50.0 -11.0 Reject

NO 50.0

ANSWER 18 -32.0 Reject

Total 200

Chi-Square Test (2)

Ratio analysis is primarily used to compare a company’s financial

figure over a period of time.

58
 Observed Expected Residual Decision

F F

YES 104 50.0 54.0 Accepted

NO 40 50.0 -10.0 Rejected

DON’T

KNOW 47 50.0 -3.0 Rejected

NO

ANSWER 9 50.0 -41.0 Rejected

Total 200

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
Investment is the compare a
purchase or creation company’s
of assets with the financial figure
objective of making over a period of
gains in the future. time.

Chi-Square 73.880 94.120

df 3 3

note: df = degree of freedom

4.6 SUMMARY OF RESULT

60
Level of significance……….0.05

Critical value………………………43.0

Calculated value……………………73.880

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 company’s 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.

61
 CHAPTER FIVE

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 firm’s 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

statements of a business in order to reveal

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

63
Capital investment decisions are long-term corporate

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 shareholder value dictates that

management return excess cash to shareholders.

Capital investment decisions thus comprise an

investment decision, a financing decision, and a

dividend decision. A positive investment decision can

only be taken the application of ratio analysis.

64