Abstract

Financial statements variables employed in the study were the Balance Sheet and the Income Statement while performance was measured in terms of profitability. Secondary data was collected from marketmix.com for the institution under study for a period of eleven years (2004 to 2014) and was analysed using both descriptive and inferential statistics.

Descriptive statistics was done in the form of time series charts, and lines fit plots. Inferential statistics made use of the Multiple Linear Regression with the help of the General Least Square Model (GLM). The results indicated that about 53.16% of variations in the performance of CamCCUL can be explained by variations in financial statement analysis.

The Balance Sheet analysis has a positive and significant impact on the performance of CamCCUL. Income statement analysis has a positive and significant impact on performance while Cash flow statements have a positive and insignificant impact on performance

The study therefore concluded that financial statements analysis has a significant impact on the performance of CamCCUL and recommends that CamCCUL should employ more financial analyst to enable her constantly prepare and analyze her financial statements while increasing on the reliability as the employees will not work under pressure to catch up with time.

CHAPTER ONE

INTRODUCTION

1.0 Introduction

This project titled “Assessing the Impact of Financial Statement Analysis on the Performance of CamCCUL” is aimed at assessing the problems associated with financial statement analysis in CamCCUL and equally to determine the impact of financial statement analysis on the overall performance of CamCCUL.

It is structured into five interrelated chapters; Chapter one is the introductory chapter where we have the problem statement, research questions, objectives, hypothesis, scope and the significance of the study. In chapter two, the study shall be reviewing related literature on a similar topic. There, we will be structuring the related literature into the conceptual, theoretical and empirical framework respectively.

Chapter three which is the Methodology chapter shall seek to examine the background of the study area, the research design and the sources and methods of data collection. The chapter shall end with the methods of data analysis and the functions of the model. On the fourth chapter, we shall be analyzing and discussing the collected data in other to attain the objectives of the study. On the fifth and final chapter, we shall conclude on the major findings and make possible recommendations.

1.1 Background of the Study

The concept of financial statements is not a new concept since small, medium and large organizations need to know the financial status of their organization. More so, some large organizations owe the legal obligation to prepare and report on their financial statements since happiness from wealth comes from gains from wealth than it comes from levels of wealth. The penalties of financial ignorance have never been so stiff, Michael C. E (2013).

Financial institutions (banks and other lending companies) use financial statements to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term loan or debentures) to finance expansion and other significant expenditures. It is therefore of paramount importance to carry out a proper analysis of financial statements so as to ascertain the performance of the organization.

Corporate organizations owe a duty to fully disclose matters concerning their operations so as to aid investors in making decisions. Both small and large 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 statements presented to members and also available for potential investors, bond holders and trade creditors as a tool of information for decision making. 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.

The microfinance sector has evolved over the past three decades. It came to importance in the 1980s, although subsidized credit programs to target communities date back to the 1950s and early experiments in Bangladesh, Brazil and a few other countries began in the 1970s. The important difference of microfinance sector was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery and by focusing on client groups whose alternative source of credit was the informal sector.

It is clear that no institution except the church can be so good for people than credit unions; these institutions are cooperative organizations made of group of people having a common bond in accordance of promoting thrift amongst members, and creating a source of provident and productive purpose.

This study comprehensively evaluates the strategies involved in analyzing the financial statements so as to boast the performance of MFIs during particular periods in time. According to Myres, “financial statements analysis is largely a study of the relationship amongst the various financial factors in a business as disclosed by a single set of statement and a study of the trend of these factors as shown in a series of statement”.

Generally, financial statements analysis cannot be done without financial ratios which are useful tools for mapping a firm’s economic wellbeing and uncovering aspects of its performance and financial position. Therefore, it shows the risk, the growth, profitability as well the firm’s health. As we proceed, we will see that financial statement analysis is interpreted mainly to determine financial and operational performance of the business concern using techniques such as ratio analysis, comparative analysis, trend analysis, common size analysis, funds flow statement and cash flow statements.

1.2 Problem Statement

As a current situation in the society of Cameroon, Performance in Micro Financial Institutions have been relatively slow due to negligence on the analysis of financial statements. Most organizations are still very ignorant of the benefits of analyzing financial statements thereby limiting their knowledge about financial viability and above all the use of financial statement analysis as a measure of performance. For this reason, it is very important for the researcher to assess the impact of financial statement analysis on the performance of MFIs. Incidentally, bookkeeping as a practice is a necessary pointer of strengths and weaknesses in a business entity.

However, the level of business management expertise and financial reporting skills necessary for sound decision making has been far below the conventional standards expected. Also, most MFIs complying with the bookkeeping principles has fallen short of living up to the laid down standards, but to satisfy the mandatory and statutory requirement. Subsequently, this has further raised the urgency to provide technical support and management training needs to the operators in this sector to cope with the ever- growing demand for new and existing players in the industry because of competition, creativity, and innovation.

Financial statements hold the potential of unravelling the future of MFIs as an integral driver of economic growth and development in low income economies. Despite the use of financial statements in MFIs and CamCCUL in particular, the institution is still unaware of the importance of analyzing these financial statements as far as performance measurement is concerned.

Considering the fact that CamCCUL is a network of credit unions which are mostly made up of the poor, and regarding the fact that these credit unions have as mission to improve the living standards of their members.

An improper analysis of the financial statements of CamCCUL will not only lead to the collapse of the institution but the institution and her affiliates which will mostly affect the poor and less privilege citizens in rural areas, it is therefore paramount to assess the impact of financial statement analysis on the performance of CamCCUL. Having in mind that financial viability is of supreme importance, the study therefore seeks to answer the following questions:

1.3 Research Questions

 

1. What is the impact of financial statement analysis on the performance of CamCCUL?
2. What are the problems associated with financial statement analysis in CamCCUL?
3. What is the impact of income statement, balance sheet and cash flow statement analysis on the performance of CamCCUL?
4. What can be done to minimize the problems associated with financial statement analysis in CamCCUL?

1.4 Objectives of the Study

The main objective of this study is to assess the impact of financial statement analysis on the performance of CamCCUL.

Specific objectives

1. To identify the problems associated with financial statement analysis in CamCCUL.
2. To examine the impact of the income statement, balance sheet, and cash flow statement analysis on the performance of CamCCUL
3. To propose possible measures that can help minimize the problems associated with financial statement analysis in CamCCUL