RATIO ANALYSIS AS A STRATEGY FOR PREDICTING FAILURES IN NIGERIAN BANKS (A CASE STUDY OF FIRST BANK PLC AND DIAMOND BANK PLC ABAKALIKI)
ATTENTION:
BEFORE YOU READ THE
PROJECT WORK, PLEASE READ THE INFORMATION BELOW. THANK YOU!
TO GET THE FULL
PROJECT FOR THE TOPIC BELOW PLEASE CALL:
08068231953,
08168759420
TO GET MORE PROJECT
TOPICS IN YOUR DEPARTMENT, PLEASE VISIT:
RATIO
ANALYSIS AS A STRATEGY FOR PREDICTING FAILURES IN NIGERIAN BANKS
(A
CASE STUDY OF FIRST BANK PLC AND DIAMOND BANK PLC ABAKALIKI)
ABSTRACT
This project focuses on ratio analysis
as a strategy for predicting failures in Nigeria banks. The project work was
set out to highlight and analyze the importance of ratio analysis as a strategy
for predicting failure in the Nigerian banks. The objectives of study includes,
examining the meaning and uses of ratio analysis, the users of financial ratio
analysis as well as the standards for comparing ratios. The role of ratio
analysis, the significance and the limitations of ratio analysis. Data were
collected for the study using questionnaires and interviews. The data collected
were analyzed tabulated and presented using simple percentages and T test. The
major findings made in the course of this study were that ratio analysis is a
good financial tool for predicting failures and provides the framework or
planning and control. The study also reveals that ratio analysis is very useful
in evaluating the efficiency and effectiveness of the Nigerian banks thereby
determining the level of their performance. It was recommended that banks,
business firms and organizations should adopt ratio analysis and apply it as a
good financial tool for predicting business failures.
TABLE OF CONTENT
CHAPTER ONE
Introduction
1.1
Background of the study
1.2
Statement of the problem
1.3
Purpose of the study
1.4 Scope
of the study
1.5
Research questions
1.6
Limitation of the study
1.7
Definition of terms
CHAPTER TWO
Literature Review
2.1
Meaning of Conflict
2.2 Types
of Conflict
2.3
Sources of Organizational Conflicts
2.4
Management conflicts
2.5
Impact of conflict
2.6
Importance of conflict in an organization
CHAPTER THREE
3.0
Research Methodology
3.1
Research design
3.2 Area
of study
3.3
Population of study
3.4
Sample and sampling procedure
3.5
Instrument of data collection
3.6
Reliability of the instrument
3.7
Method of data collection
3.8
Method of data analysis
CHAPTER FOUR
4.0 Data
presentation and analysis
4.1
Presentation and analysis
4.2 Test
of hypothesis
4.3
Summary of findings (Result)
CHAPTER FIVE
5.0
Discussions, Recommendations and Conclusions
5.1
Discussion of findings (Result)
5.2
Implication of the research findings
5.3
Conclusions
5.4
Suggestion for further studies
Bibliography
Appendices
CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
Ratio analysis is a
very important tool of financial analysis. Financial analysis is the process of
evaluating accounting data in order to determine the operational performance as
well as the financial position of the firm. Financial analysis provides
information as to the financial strength and weakness of a firm and this helps
in building up the framework for future plans of the firm. Hence financial
analysis is the first in making plans as it clears ground for sophisticated
forecasting and actual planning activities since a good understanding of the
past is a pre-requisite for future predictions.
Udeh (2006. P 251) defined ratio analysis as quotient of two mathematical
expressions and or as the relationship between two or more items expressed in
figures. A ratio is used in financial analysis as a yardstick for evaluating
the financial positions and performance of a firm as the absolute figures
contained in the financial statements do not provide meaningful information on
the performance and financial position of a firm.Ratio analysis is a very
useful tool in raising relevant questions on a number of managerial issues and
provides dues to investigate those issues in details.
The financial sector with special reference to banking has come under the
search light in recent years not only because of its strategic role as mediator
of funds between the surplus and the deficit units but also as a result o the
problem rocking the industry in terms of failure and eventual death
(bankruptcy).
Although, the sector serves as the nerve center of every modern economy being
the repository of peoples wealth and supplier of credits which lubricates the
engine growth of the entire economic system. The failure experienced in the
sector over the years can be captured by the number of failed banks, the debt
and extent of required capitalization, the proportion of non performance
creditors, loss of depositors funds and the general impact on the economy all
of which underscores the importance of the sector.
While the target and result of banking business are to be achieved through
adherence to laid down rules and regulations, the causes of the unhealthy
deviation from set rules have been discussed at various times to indulge
inadequate supervision, weak management and offensive government policies.
Ogunteye (2002) classified the cause of banks failure into institutional
economic and political factors as well as regulatory and supervisory
inadequacies. While Ebhodaghe (1995) attributed bank failure to economic
downturn, inhibitive policy environment and management problems.
The impact of ill health in the banking sector left nobody untouched ranging
from the government, the regulatory authorities, the bankers as well as the
general public. It is in this spirit that predicting the potential of failure
and remedies in the banking sector becomes imperative of these actor players
are to be rightly guided in their decision making ventures.
In
beavers Univariate study of 30 ratios he concluded that cash flow to what debt
was the best single ratio predictor. In a subsequent study he found that
changes in prices of common stock as if investors rely upon ratios as
predictors of failure. Recently, Altman extended Beavers analysis by developing
as discriminate function which combines ratios in multivariate’s analysis.
Altman found that this five ratios outperformed beavers cash flow to total debt
ratio.
Building upon Altmans discriminate analysis, blam Incorporated trend and
volatility measures constructed from ratios, in all of these studies, the
statistical fits were quite good supposedly justifying the practical value of
ratio analysis for predicting firm failure prior to the date of failure.
Hence this research work would be handled as follows:
-
Meaning o ratio analysis
-
Uses of ratio analysis
-
Users of ratio analysis
-
Standard for comparing ratios
-
Significance of ratio analysis
-
Limitation of ratio analysis
-
The role of capital ratio in banking analysis and supervision
-
The relationship between ratios and bank failures.
1.2
HISTORY OF FIRST BANK PLC AND DIAMOND BANK PLC
This research work is
using first bank of Nigeria plc, Abakaliki and Diamond bank Plc Abakaliki
respectively as its case study.
According to Nduka
(2010), First bank of Nigeria Plc (First bank )established in 1894 is a premier
bank in west Africa and the leading financial service solution provider in
Nigeria. The bank has international presence through its subsidiary, FBN Bank
(UK) Limited in London with a branch in Paris and its representative office in
Johannesburg and Beijing with 1.3milion shareholders globally. First bank is
quoted on the Nigerian Stock Exchange (NSE), where it issued paid u share
capital as at March 31 2009 was 24.89 billion units. First bank also has an
unlisted Global depository receipt (GDR) programmes.
As the global
operating environment evolve over the decades, first bank has kept pace
responding satisfactorily to the increasingly dynamic needs of its customers,
investors, regulatory authorities, host communities, employees and other
stakeholders. Through a sustained strategy, with a trans generational relevance
approach, the bank had continuously boosted its essential customers base of
both individual and institutions which cut across all segments in terms of
size, structures and sect oral affiliations leveraging experience that
spans over a century of what services.
First bank has
continued to build relationship and alliance with key sectors of the economy
that have been strategic to the well being, growth and development of the
country. With its huge asset base and expansive branches network as well as
continuous re-inventing first bank has created one of Nigeria’s strongest
banking franchise and remains a market leader in the Nations financial service
industry. Delighted returns and superior value, the 2005 consolidation of
the financial services industry in Nigeria as anticipated boosted first banks
performance indices as accompanying opportunities yielded an unbeatable
response to market dynamics.
Today, the bank
remains one of the most profitable financial groups in Nigeria which Abakaliki
branch is one of the branches in Nigeria. As discussed by Nduka (2010), in
repositioning the bank for both domestic and global competition, it hand
recourse to raising additional capital the hybrid offer popularly called the
“BIG OFFER” set an unprecedented landmark with a subscription in excess of 75%
and was lauded as the biggest and most successful in the history of public
offer in Nigeria. The banks epoch making achievement was again reinforced when
it become the first quoted company oil Nigeria to achieve the feat of hitting
the trillion naira mark in market capitalization, the clearest evidence of
market estimation of its worth till date and deposit the down turn in the stock
market, the bank remains the most capitalized stock on the floor of the
Nigerian Stock exchange (NSE).
Diamond bank –
Wikipedia the free Encyclopedia (2011), Diamond bank Plc began as a private
limited liability company on march 21, 1991 ( the company was incorporated on
December 20, 1990). Ten years later in February 2001,it became a universal
bank. In January 2005, following a highly successful private placement share
offer which substantially raised the banks equity base diamond became a public
limited company. In may 2005, the bank was listed on the Nigerian stock
exchange. Moreover in January 2008, diamond banks global depository receipts
(GDR) was listed on the professional securities the first bank in Africa to
record that feat.
Today, Diamond bank
is one of the leading banks in Nigeria respected for its excellent service
delivery, driven by innovations and operating on the most advanced banking technology
plat form in the market. Diamond bank has over the years leveraged on its
underlying resilience to grow its asset base and to successfully retain its key
business relationship. And like a diamond, our strength makes use ever more
value and valuable. Diamond bank has been several awards including the
prestigious most improved bank of the year”. This day Newspaper, Best bank in
Nigeria acquisition. We have retained excellent banking relationship with a
number of well known international banks allowing us to provide a bouquet of
world class banking services to suit the business need of our clients.
International harmony partners includes Citibank, HSBC bank, ANZ banking group,
ING BHF banks AG, standard chartered bank belgolaise bank S.A Deusthe
bank, commerz bank and Norden bank plc (www.diamond bank.com 2011.)
Diamond bank
continues to develop and to build on its core competencies. By continually from
the rough they have improved their services and the banking facilities.
1.3
OBJECTIVES OF THE STUDY
As discussed by ogunleye (2002.p24)
bank liquidation does not happen in a day ,its always preceded by one form of
performance or the other whether obvious or obscured. In this spirit, this
study therefore, evaluates the bankruptcy states of Nigerian banks using first
bank plc and diamond bank plc with a view to determining their probability of
failure and remedies in Nigeria commercial banks. It also assesses the stock
market performance investor ratio of these banks within a period of 5 years
covered between 2006 and 2010.
For the objectives of
the study to be successfully achieved, the following objectives will be noted.
-
T give meaning of ratio analysis
-
To examine the uses of ratio analysis
-
To examine the users of financial ratio analysis.
-
To give the standards for comparing ratio
-
To examine the significance of ratio analysis
-
To identify the role of capital ratios in bank analysis and supervision.
-
To identify the role of capital ratios in bank analysis and supervision
-
To identify the limitations of ratio analysis.
-
To examine the relationship between ratio and bank failure.
1.4
STATEMENT OF HYPOTHESIS
Ho: Ratio analysis is not a strategy
for predicting failure in
Nigerian banks
Hi: Ratio analysis is a strategy for
predicting failure in
Nigerian banks
Ho: There is no adequate confidence in
using ratio analysis
for decision making.
Hi: There is adequate confidence
in using ratio analysis for
decision making.
1.5
RESEARCH QUESTION
-
Could the staff and management of first bank plc and diamond bank plc be able
to give the meaning of ratio analysis?
-
Could the staff and management of first bank plc and Diamond bank plc be able
to identify the uses of ratio analysis?
-
Could the staff and management of first bank plc and Diamond plc be able to
mention the users of financial ratio analysis?
-
Could the staff and management of first bank plc and Diamond plc be able
to discuss the standards for comparing ratios?
-
Could the staff and management of first bank plc and Diamond plc be able to
discuss the importance of ratio analysis
-
Could the staff and management of first bank plc and Diamond plc be able to
identify the limitations of ratio analysis?
-
Could the staff and management of first bank plc and Diamond plc be able to say
that ratio analysis is a strategy for predicting failures in Nigerian banks?
1.6
SIGNIFICANCE OF THE STUDY
The researcher believes that this
research will be very significance in various ways when completed thus;
It would add to the knowledge reservoir in the library. It would form
reference material to other students in the field of study. It would create
awareness of ratio analysis as a strategy for predicting failures in Nigeria
banks. It would guide investors and shareholders in investing and carrying out
business.
1.7
SCOPE OF THE STUDY
This study is basically aimed at
finding the usefulness of ratio analysis as a strategy for predicting failures
in Nigeria banks.
This study is obviously delimited to
such areas as
Meaning of ratio
analysis user of ratio analysis.
Users of financial
ratio analysis.
Standard for
comparing ratios.
Significance of ratio
analysis.
Limitation of ratio
analysis.
The role of capital bank analysis?
supervision and the relationship between ratios and bank failures.
1.8
DEFINITION OF TERMS
1.
Ratio: ratio expresses the relationship
between two or more figures in the financial statement. Ratios are useful tolls
of financial statement analysis because they conveniently summarize date in a
form that is easily understood, interpreted and compared (Dicionary 1995)
2.
Ratio Analysis: it is defined as quotient of two
mathematical expressions and or as the mathematical relationship between two or
more items expressed in figures (Udeh,2006)
3.
Strategy: According to Hornby, (2000) it is a
plan that is intended to achieve a particular purpose.
4.
Predicting: To say or forecast that something
will happen in the future (Horn by S.A (20000 Oxford advanced learners
dictionary 5th edition).
5.
Failures: According to Horn by (2000) it is
defined as lack of success in doing or achieving something.
6.
Remedies: A way of dealing with or improving
unpleasant or difficult situation. (Horn by S.A (2000) advanced learners
Dictionary 5th edition)
7.
Bankruptcy: According to Merriew (2010),it
is the state of being bankrupt i.e without enough money to pay what you owe.
8.
Banks: According merrier (2010), it is store
depository, reservoir, stock collector, pool, stock pile.
9. Global
Depository Receipt / GDR: This is a certificate issued by depository bank,
which purchase shares. Or a bank certificate issued in more than on country for
shares in a foreign company. The share are held by a foreigner.
AFFILIATE LINKS:
Comments
Post a Comment