Abstract

The research topic of this study is “The role of financial statement in investment decisions” – a study of FINASDDEE CREDIT Line Limbe. The purpose is to identify the relationship between financial statement and investment decisions, and the impact of financial statement in investment decision making and also to know if investment decisions depends solely on financial statement. The study population is 16 persons who are the member of staff of the FINASDDEE CREDIT Line Limbe. Random sampling was used as sampling technique.

The researcher also made use of primary methods of data collection which included questionnaires and observation. Also, the secondary methods of data collection used are library research of relevant materials and existing documents from the selected banks. Results showed that almost all the staff were aware of the role financial reporting has on investment decisions. It is of importance because financial reporting will influence the institution’s growth in the long run, together with other aspects

The researcher recommends that banks in Enugu metropolis should consult the financial statement before making investment decisions, and also it is recommends that all interested parties to financial statement should use Results showed that almost all the staffs aware of the role financial reporting has on investment decisions. It is of importance because financial reporting will influence the institutions growth in the long-run, together with other aspects required financial ratio analysis for decision making.

CHAPTER ONE

INTRODUCTION

1.0 Background of the study

Every business prepares a profit and loss Account or income statement to ascertain the net result of the financial working of the business whether it has earned some income or profit or sustained any loss. It also prepare a balance sheet to find out the financial position of the business. Profit and loss accounts or income statements retained earnings statements and balance sheets are known as financial statements.

A financial statement refers to a summary explaining or providing a picture of the financial position of a business performance (Attill and Mclaney 2015) and or activities of a business during a certain period. Generally accepted accounting principles (GAAP) require a company to prepare a full set of financial statements that conform to regulatory guidelines and should be accurate.

Gautam (2005) sees financial statement as financial information which is the information relating to the financial position of any firm; when presented in a concise and capsule form. Besides profit and loss account and balance sheet, some other statements are also prepared for deriving certain conclusions.

A schedule of current assets and current liabilities of two years may be prepared to know the changes in working capital. Similarly a fund flow statement and cash flow statement may also be prepared to ascertain the future estimate of cash receipt and payment. Thus, financial statement include: profit and loss Account, income statement and balance sheet along with certain schedules and statement. 13 Ezeamama (2010) is of the opinion that rational decisions have to be taken to manage modern business successfully and for this rational decision to be taken in line with the firms’ objective.

Some analytical tools ought to be available and used based on the strengths and weakness of the firms. Thus, the financial strengths and weaknesses of a firm are revealed in its financial statement. The nature of financial statement is that financial statement is that financial statements always relate to a past period and hence they are called historical documents.

Financial statements are expressed in monetary terms and it indicates profit abilities of the business through balance sheet. Financial statement are analyzed in order to use the information in financial statements to ascertain the profitability and financial soundness of the firm, to Judge the managerial efficiency for inter form comparison of similar nature and to make valuable for costs.

According to Remi Aborode (2006), financial statement need to be interpreted for better understanding and analysis and it can thus be interpreted using individual items contained in financial statement or/ and using ratios computed from items contained in financial statement (Ratio analysis). The essentials of financial statements range from the fact that financial statements should disclose correct information about profitability and financial 14 position of a business.

The information disclosed should be presented in such a manner that it can be easily compared with the figures of the previous year or with those of other similar firms. The information so provided in financial statement should be that which can be verified from the relevant and prepared within a reasonable time after the end of accounting period. The information provided by financial statement should also be easily understood by the interested parties. Such as investors, creditors, lender and Bankers, customer’s employees, government and other agencies, the public and stock exchange. It can therefore be seen that financial information is very effective and essentials in making investment decisions in an organization be it private or public. Thus the role of financial statements in investment decision in some selected banks in Enugu metropolis will be critically evaluated

(Benedict & Elliott 2011) that indicates cooperation’s operating data during a period or its economic standing at a giving period.

Financial statement preparations in a company are usually done by internal accountants, who are directly influenced by the management of the company. Companies make certain decisions based on information from financial statements. Thus, a fraudulent or an erroneous financial statement implies a risk possibility which can cause wrong investment decisions making in an organization. Financial statements of companies are prepared either using generally accepted accounting principles (GAAP), defined by the law on accounting and the law on financial statements, or using international financial reporting standards (IFRS) and international accounting standards (IAS), issued by the international accounting standards board.

These standards are not enforceable together; therefore, companies choose one of them for reporting purposes. Investment decisions can be explained as the determination made by directors or management body as to when and how much capital can be spent on investment opportunities. The decision often follows research on financial statements.

1.2 Problem Statement

As a current situation in the society of Cameroon, investment decisions in FCL Limbe have been very slow due to the negligence in the use of financial statements and other important financial records. Most organizations are still ignorant of the benefits of financial statements, thereby limiting their knowledge about their financial position and above all their ability to use financial statements to make important investment decisions.

For this reason, it was very important for the researcher to carry out a proper study and research on this issue, to point out the alarming signal on the impact of the financial statement in investment decisions in an organization. Incidentally, bookkeeping as a practice is a necessary pointer of strength and weakness in a business entity, however, the level of business management expertise and financial reporting skills necessary for sound decision making has been way below the conventional standards expected.

Also, most Micro finance institutes(MFI) complying with the bookkeeping principles have 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 unraveling the future of MFIs as an integral driver of economic growth and development in low-income economies. Despite the use of financial statements in FCL Limbe, the institution is still unaware of the importance in the frequency and manner of presentation of these statements as far as investments are concerned. Having in mind the fact that financial viability is quite important, what therefore is the role of financial statements in investment decisions case study FCL Limbe?

1.3 Research Objective

1.3.1 Main Objectives

The main objective of this study is therefore to examine the effect of financial statements on investment decision-making.

1.3.2 Specific objective

In order to achieve this goal, there are some objectives that needed to be addressed in the study that enabled the progress of the investigation.

1. To examine the role of financial statements as analytical tools to aid prospective investors in assessing the financial position of the corporate business.
2. To evaluate the performance of a company for investment decision-making from a financial statement.
3. To appraise the fundamental use of financial statement information.

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