1.1 Introduction
Financial statement provides important information for a wide variety of decision, investors draw information from the statement of the firm in whose security they contemplate investing. Decision makers who contemplate acquiring total or partial ownership of an enterprise expect to secure returns on their investment such as dividends and increase in the value of their investment. Both dividends and increase in the value of shares of company depends on the future profitability of the enterprise. So investors are interested in future profitability. Past income dividend data are used to forecast returns from dividend and increase in share prices.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
First bank of Nigerian Plc. was established in 1894 as the first bank in Nigeria, a premier in West African and the leading financial service solution provider in Nigeria. From being the only bank for decades, weathered the banking exposure of the 1930,s to 1950s followed by the era of government ownership and control to a flurry consolidations and then gradual growth in number banks up to the early 1980s, then yet another industry growth spurt in early 1990s when the banking sector was deregulated, leading to an industry shake-up in the late 1990s, which reduced the number of banks from 126 to 77. At later resuscitation and growth to 89 banks leading al through the seasons, first bank plc has remained resilient dependably dynamic and truly the first (Wikipedia, 2021).
Financial statements according to Nigeria accounting standard Board (NABS) are the areas of communicating to interested parties information on the resource obligations and performances of the reporting entity. Corporate organizations owe a duty to fully disclose matters concerning their operations so as to aid investors in making investment decisions. Both large and small organizations in addition to satisfying the legislating requirement tend to retain existing investors and to attract potential ones through the publication of their financial statements where the capital stock of a corporation is widely held and its affairs are of interest to general public relations. The discussions and illustrations of the study will be centered on the financial statement presented to shareholders and also available for potential investors, bond holders and trade creditors as a tool of information for investment decision. Financial statement based on result on past activities are analyzed and interpreted as a basis for predicting future rate of returns and assessment of risk.
Damodaran (2013) points out that, when evaluating a company’s profitability and potential return in investment, there are several questions that the financial statement when used in conjunction with one another answers. Thus, the amount of debt the business has or can take, the operating cash the business has, and the value of its products and investment can all be found in the balance sheet, income statement, and cash flow. However to some extent, since managers are shareholders or owners of organization, the preparation of financial statements is very important for investment decisions.
Therefore, in First Bank Plc in Ekiti State where the research was carried out, the activities that was conducted is to know the Role of Financial Statements in Investment Decisions.
1.3 Statement of Problems
Investigation reveals the problems of the Role of Financial Statements in Investment Decisions which entails that both investors and managers of business organizations who are either not aware of the importance of interdependence relationship that exist between investors and business organizations. Such problems include;
- How analytical tools are set to aid prospective investors in accessing the financial position of the corporate organization.
- Evaluation of performance of a company in investment decision making.
- How to determine the profitability of a company.
The above listed problems are the problems to look into in this research work. The problems analyzed tend to scare away both existing and potential investors. The reason of this study is to adequately look into the above problems and suggest possible solution to any of them. Nevertheless this research will find possible key factors to solving these problems because financial statement in investment decision making in Nigeria is the life blood of every organization to the potential investor.
1.4 Aim and Objectives of Study
The aim of the study is to scrutinize the Role of Financial Statements in Investment Decisions using First Bank Plc in Ekiti State as a case study. In achieving this aim, the following specific objectives were laid out as follows:
- To examine how a set of analytical tools will aid prospective investors in assessing the financial position of the corporate organization.
- To evaluate the performance of a company for investment decision making.
- To determine the profitability of the company.
- To appraise the fundamental use of financial statement information, this is to provide information for investment decision making.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- To what extent is financial statements used in the investment decision making in a company?
- Are financial statements useful for forecasting company’s performance?
- Do financial statements determine the profitability of an organization?
- Do financial statement projects new investors?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Financial statements are not useful for forecasting company’s performance.
- H1: Financial statements are useful for forecasting company’s performance.
Hypothesis Two
- H0: Financial statement does not determine the profitability of a company.
- H2: Financial statement determines the profitability of a company.
Hypothesis Three
- H0: Financial statements are not used to be relied upon in investment decision making in a company.
- H3: Financial statements are used to be relied upon in investment decision making in a company.
1.7 Significance of Study
This study will be of immense benefit to banks by improving the banking performance financial analysts, investors, companies and financial organizations. This is because the study intends to help these stockholders in decision making.
