The impact of ratio analysis on management decision making in organization

Project Abstract

Ratio analysis is a fundamental tool used by managers in organizations to evaluate financial performance, make informed decisions, and assess the overall health of the business. This research project aims to explore the impact of ratio analysis on management decision-making processes within organizations. The study will investigate how different financial ratios, such as liquidity, profitability, efficiency, and solvency ratios, influence managerial decisions across various industries. The research will employ a mixed-methods approach, incorporating both quantitative analysis of financial data and qualitative interviews with managers to gain a comprehensive understanding of how ratio analysis shapes decision-making. The quantitative analysis will involve calculating and interpreting key financial ratios from company financial statements to assess performance and financial health. These ratios will be used to evaluate trends over time, compare against industry benchmarks, and identify areas for improvement. The qualitative component of the study will involve conducting interviews with managers from different organizational levels to explore how they utilize ratio analysis in their decision-making processes. The interviews will focus on understanding the specific ratios that are most significant to managers, how they interpret and use this information, and the challenges they face in applying ratio analysis to decision-making. The findings of this research project are expected to provide valuable insights into the role of ratio analysis in shaping management decisions. By understanding how financial ratios influence decision-making, organizations can enhance their strategic planning, resource allocation, and overall performance. The research will also highlight best practices in ratio analysis utilization and identify areas where organizations can improve their decision-making processes through better utilization of financial ratios. Overall, this study will contribute to the existing body of knowledge on the impact of ratio analysis on management decision-making in organizations. By shedding light on the importance of financial ratios and how they inform managerial decisions, the research aims to empower organizations to make more informed and effective decisions that drive sustainable growth and success.

Project Overview

<p> <b></b></p><p><b><b>INTRODUCTION</b></b></p><p><b><b></b></b></p><b><b><p><b>1.1 &nbsp; &nbsp; <br></b><b>Background<br>of the study</b></p><p><b></b></p><b><p>In every organization irrespective of its size, ownership,<br>structure, impact of ration analysis on management decision making occupy a<br>crucial position. However given this centrality can be said that behind every<br>successful organization the process in which the management arrive at decision<br>making is very important as far as financial management is concerned in the<br>private sector of the economy and specifically in a banking institution like<br>united bank for Africa (U.B.A). In a nutshell the impact of ration analysis is<br>the most preoccupation of this research work is referred to the manner through<br>which the management of organization takes decision suitable for profit as<br>possible future planning, controlling current performances and future<br>development through and activity analysis. Significance change has taken place<br>in recent years in the size and complexity of both private organization and<br>public organization because of this management is faced with evaluation in<br>technical, social political and economic forces. As a result, the methods of<br>arriving at the decision have become more difficult management especially in<br>accounting activity of the organization. &nbsp;This research is devoted to examination of<br>some major impact of ration analysis in financial institution (united bank of<br>African).</p><p><b>1.2 &nbsp; &nbsp; <br></b><b>STATEMENT<br>OF THE PROBLEM</b></p><p><b></b></p><b><p>The<br>part of ration analysis as a tool for decision-making has following area of<br>concern. 75 ratio analysis useful in investment appraisal.</p><p>1. &nbsp; Whether management rely on ratio<br>analysis for decision making</p><p>2. &nbsp; Does ratio analysis really determine<br>the wealth maximization of shareholder?</p><p>3. &nbsp; It ratio analysis or management tool<br>or technique use in determining the liquidity, stability profitability and<br>efficiency &nbsp; of the organization?</p><p>4. &nbsp; Whether ratio analysis can be used<br>to determine the trend of development and performance of the<br>organization over time</p><p>At the time of choose this topic the<br>above was what the researcher have in mind and therefore pushes to find out<br>what is the need for ratio analysis n banking institution like united bank for<br>African.</p><p><b>1.3<br>OBJECTIVE OF STUDY</b></p><p>The<br>primary objective of this researcher is to find out how efficient and<br>effectiveness does the management evaluate its financial position. Also the<br>performance of the institution on with regards to the financial a quantitative<br>judgment about the institution financial position and its achievement which<br>includes it is further generalized as the following:</p><p>1. &nbsp; To ascertain the effective<br>implementation of traditional function of banking acceptances of deposit to<br>find lending.</p><p>2. &nbsp; To ascertain the efficient financial<br>resource mobilization without inflation money supply expansion for economic<br>development especially &nbsp;when external borrowing is viewed as a last<br>resort.</p><p>3. &nbsp; To ascertain the Increasing sense of<br>commitment and identification with the institution and it’s good by<br>institutional design and activates of people and adopting a participating<br>or democratic style of management.</p><p>4. &nbsp; To ascertain the Maintaining accountability<br>of asset.</p><p><b>1.4 RESEARCH HYPOTHESES</b></p><p><b></b></p><b><p>For<br>the successful completion of the study, the following research hypotheses were<br>formulated by the researcher; </p><p><b>H0:<br></b>&nbsp;there is no application of ratio analysis useful when<br>it comes to decision making in the organization.</p><p><b>H1:<br></b>&nbsp;there is application of ratio analysis useful when it<br>comes to decision making in the organization.<b></b></p><b><p><b></b></p><b><p><b>H02:<br></b>there<br>is no extent ratio analysis help the chief<br>executive of bank in decision making</p><p><b>H2:<br></b>there<br>is extent does ratio analysis help the chief<br>executive of bank in decision making</p><p><b>1.5 SIGNIFICANCE OF THE STUDY</b></p><p><b></b></p><b><p>The<br>significance impact of ratio analysis in financial institution cannot be over<br>emphasized. It is therefore expected that, this research work is bound to be<br>beneficial to the following:</p><p>1. &nbsp; <b>a. &nbsp; Management: </b>Most management decision is based on<br>information from ration analysis. Management planning is also supported by<br>vital information from ratio analysis.</p><p>2. &nbsp; <b>b. &nbsp; Shareholders: </b>For shareholders to determine their<br>wealth maximization, they rely on information from ratio analysis such as<br>stability ratio and leverage ratio.</p><p>3. &nbsp; <b>c. &nbsp; Potential<br>Investor:</b>&nbsp;for<br>potential infestation is and for them to know or ascertain the organization is<br>based on vital information from ratio analysis.</p><p>4. &nbsp; <b>d. &nbsp; Employees: </b>The interest of employee is the<br>organization is how their welfare can be improved. They are able to obtain<br>information for the agitation for improvement on their welfare through ratio<br>analysis such as profitability ratio.</p><p>5. &nbsp; <b>e. &nbsp; Student: </b>It is expected that students mostly<br>undergraduate stand to benefit from this research work because it serve as<br>a sources of ratio analysis.</p><p>6. &nbsp; <b>f. &nbsp; &nbsp;Government: </b>Government also relies on<br>information from ratio analysis in the assessment of the organization for tax<br>purpose such as profitability and liquidity ratios.</p><p><b>1.6 SCOPE AND LIMITATION OF THE<br>STUDY</b></p><p><b></b></p><b><p>The scope of this research work be<br>specially restricted to United Bank for African Plc, Ilorin Branch. The<br>researcher encounters some constrain which limited the scope of the study;</p><p>&nbsp;<b>a)<br>AVAILABILITY OF RESEARCH MATERIAL:</b><br>The research material available to the researcher is insufficient, thereby<br>limiting the study</p><p><b>b) TIME:</b>&nbsp;The time frame allocated to the study does not<br>enhance wider coverage as the researcher has to combine other academic<br>activities and examinations with the study.</p><p><b>c) Organizational privacy</b>:<br>Limited Access to the selected auditing firm makes it difficult to get all the<br>necessary and required information concerning the activities. </p><p><b>&nbsp;1.7 DEFINITION OF TERMS</b></p><p><b></b></p><b><p>The<br>trilogies used in this study are defined below for the better understanding of<br>this work so tat research will not be misinterpreted.</p><p>1. &nbsp; <b>Bank:</b>&nbsp;it is a financial institution<br>which primarily holds out itself to accept deposited from consumers and payout<br>on demands.</p><p>2. &nbsp; <b>Ratio Analysis: </b>Ratio analysis refers to the<br>determination of the significant relationship which exist between firs as show<br>in a firms performance.</p><p>3. &nbsp; <b>Profitability: </b>This measure indicates whether the<br>company is performing satisfactorily. They are used among other things, to<br>measure the performance of management to identify whether a company may be a<br>worthwhile investment opportunity and to determine a company’s performance<br>relative of its competitor.</p><p>4. &nbsp; <b>Management: </b>Management can be described as the<br>art of working particularly through people for the achievement of the board<br>goals of an organization.</p><p>5. &nbsp; <b>Liquidity: </b>Liquidity measures the ability of a<br>business to meet short term obligation on.</p><p>6. &nbsp; <b>Activity: </b>Activity helps assess the efficiency<br>of manager’s actions.</p><p>7. &nbsp; <b>Return on capital employed</b>: this is the yardstick employed to<br>measure the efficiency of the management in utilizing the assents of the<br>business.</p><p>&nbsp;<b>1.8 ORGANIZATION OF THE STUDY</b></p><p><b></b></p><b><p>This<br>research work is organized in five chapters, for easy understanding, as follows</p><p>Chapter one is<br>concern with the introduction, which consist of the (overview, of the study),<br>historical background, statement of problem, objectives of the study, research<br>hypotheses, significance of the study, scope and limitation of the study,<br>definition of terms and historical background of the study. Chapter two<br>highlights the theoretical framework on which the study is based, thus the<br>review of related literature. Chapter three deals on the research design and<br>methodology adopted in the study. Chapter four concentrate on the data<br>collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and<br>recommendations made of the study</p></b></b></b></b></b></b></b></b></b></b></b> <br><p></p>