CHAPTER ONE
INTRODUCTION
- BACKGROUND OF THE STUDY
Recent researchers have been shown that one of the main causes of indigenous business failure in this country is failure to maintain proper financial records. Many business have been operated with merely a single entry memorandum record of transactions and others with no records whatever, except possible cheque stubs. As a result, business decisions are based on guesses and intuition. Ola (1985).
In today’s economy information and accountability have assumed a larger role in our society. This is why it is statutory company and allied matte decree (1990), for all registered companies in the country to prepare and present financial statements in accordance to the relevant accounting regulations.
Business organizations have to analyze their financial statements or accounts by way of interpretation, simplification and transaction of facts and data contained in the financial statement.
The essence of this is to draw relevant conclusions, make inference as to the business operations financial positions and future prospects of the organizations.
In the assessment of the performance of an organization, an important area of management control is post factor assessment of financial results of the organization as a whole, that is the examination in retrospect of the financial effects of earlier decisions to invest. Management must regularly commit resources for both long term and short term purposes and because the commitment will always involve risk, or carful assessment of the anticipated results of any project on the financial position should be made before a decision is taken, and before resources are irrevocably committed.
A periodic evaluation is needed, after resources have been invested, to report what has been achieved, to examine amount of the profit, or the extent of the loss, and to consider the effect of implementing the plan on the financial statement of the business, in particular to note whether financial stability has been maintained or alternatively the extent to which it has been impaired. Information on all these aspect of the finances of the business is needed to permit management to assist the quality of past decisions at strategic level and the effectiveness with which they have been implemented. Finally, it is important that informed base of financial knowledge should be developed from which future activities can be planned.
An important purpose of the appraisal of results is to confirm whether or not the project has produced the expected cash flow.
The main function of the financial account of a business however is to measure the results in terms of profitability and it is on the basis of success or failure measured in these terms that management will be jugged.
In carrying out an analysis of accounts, a number of issues must be considered and conclusion formed thereon.
These includes:
- Profitability of the business operation, particularly in relation to the capital employed.
- Solvency of the firm: the ability of the business to pay its creditors, the adequacy of its working capital and the current liabilities.
- the business trend: the analysis of the point term of business over a time to determine whether profit are rising or falling and the implication for future performance .
- The financial stability of the business, particular attention being paid to the firm’s limit of borrowing power, available resources to finance expansion and the volume of earnings.
- the gearing and the cover which is an assessment of the adequacy of profit to meet up with interest payments, pay dividends to share holders and provide sufficient safety to share holders investment.
- STATEMENT OF PROBLEMS:
In Ghana today most business are facing hard times which is a reflection of the bad shape of the economy. Government on its own has been making different efforts aimed at reviving the economy. Among the government efforts are the encouragement of the growth of small and medium term industries and also for people to invest in some of the public enterprises that have been stated for either full or partial privatization or commercialization.
Unfortunately, business cannot grow reasonably under a crude business practice as most business men and investors in our society are yet to understand the need for financial statements probably, this is one of the reasons why some businesses are operating without even a book-keeper not to talk of an accountant. Decisions are taken based on intuition dereferences made only to their cash box perhaps they feel that this is a way of safe wording their business secret.
Secondly is the problem of loan securing. Most businesses operate with a very poor capital. This makes growth difficult, if not impossible. Instead of growing they are declining as the result of their poor capital base :& so as there is non-existent of financial statements, they are not qualified for bank loan.
Thirdly is the some investors and business operators can not understand the interpretation technique of the financial statements, because of this problem, they try to do without it, as if it its not important.
Fourthly is the problem of high cost of consultancy services. Since most businesses are small or medium term in size, it becomes hard for them, judging their capital base to rely on the services of the consultancy firms for their financial statements need. The implication of this is that business decisions are bound on luck even in some cases, people resort to Native sectors to help make their businesses grow.
- OBJECTIVES OF STUDY
The objectives of this study includes the following:
- To examine the ways the financial statements can help in the growth of businesses.
- To examine how the financial statement are interpreted.
- To analyze how the financial statements are used for performance evaluation.
- To examine the importance of the financial statements for investment purposes.
- To examine the level of reliance placed on the financial statements by investors.
- SIGNIFICANCE OF THE STUDY
This study is very essential to various classes of people in the area of business.
Firstly, the study will go a long way in helping both the existing and potential entrepreneurs and management of business organization towards the undertaking and the knowledge of the uses of the financial statements for the expansion of their businesses.
Secondly, this will be an opportunity to the creditors financials and suppliers, to study the usage of the financial statements in estimating the risk of entering into bad debts in their transactions with business organization.
Thirdly, in a free economy oriented society like Ghana, this study will help investors to know the basic factors in the financial statements that will help them to decide on whether to invest or disinvest.
Fourthly, is the corporate lawyer and Bankers. By this study they can understand more about the statement of affairs of business entities.
Finally, the students both the undergraduate and the post graduate students of Business Administration are in better position to benefit not just per academic exercise, but at least, to be able to understand the interpretation of the financial statement.
- SCOPE AND LIMITATION OF TH STUDY
This study is restricted to only the analysis of the principal statements of manufacturing, trading and profit making organizations &. This research work would have been given a wider converge if not for some constraints imposed on the researcher by the availability of the time and fund.
HISTORICAL BACKGROUND OF THE FIRMS UNDER STUDY
1.6 GUARANTEE TRUST BANK GHANA PLC
Guaranty Trust Bank (Ghana) Limited is a subsidiary of Guaranty Trust Bank Plc, Africa’s foremost financial institution in Nigeria with a Triple A rating, and the first indigenous and sub-Saharan bank to be quoted on the London Stock Exchange.
Presently, Guaranty Trust Bank (Ghana) Limited’s shareholder’s funds is in excess of GHS236 million, thus, providing the Bank with a competitive advantage in terms of business capacity and the readiness to handle relatively big-ticket transactions.
The Bank operates from 33 branches spread across the lengths and breaths of the country, with 443 permanent and 349 contract staff members, including two Nigerians..
It presently has over 50 ATMs dotted across Ghana.
Notwithstanding stiff competition in the Ghanaian financial services sector, GTBank Ghana has won the most coveted Bank of the Year Award two years consecutively, in 2009 and 2010.
2004
Guaranty Trust Bank (Ghana) Limited was registered in Ghana.
2006
On 23rd February, 2006, the Bank obtained its universal banking license from the Bank of Ghana, thereby paving the way for the commencement of operations.
On 13th March, 2006, the Bank officially opened its 1st branch, the Head Office located at 25A Castle Road, Ambassadorial Area, Ridge, Accra to the business community in Ghana.
2007
The Bank opened its 2nd and 3rd branches in Airport Residential Area and Tema Community 1.
2008
In its quest to expand, GT Bank in 2008 opened eight more branches in Ghana; namely Osu, Spintex, Labone, Graphic Road, Ashaiman, Kumasi Main and Takoradi branches as its 4th, 5th, 6th, 7th, 8th, 9th and 10th branches.
2009/2010
The Bank opened its 11th, 12th, 13th, 14th, 15th, 16th, 17th, 18th, 19th and 20th branches in Tudu, Madina, Achimota, NIA, Tema Community 6, Opera Square, Tarkwa, Techiman, Lapaz Main and Aflao.
Within these two years, Guaranty Trust Bank (Ghana) Limited was adjudged Bank of the Year for the two consecutive years in 2009 and 2010.
In recognition of GT Bank’s robust IT infrastructure and customized e-banking products and services, it was also awarded the Best Bank in IT / Electronic Banking consecutively in 2009 and 2010.
Apart from the Bank of the Year Award conferred on the Bank in both years, it emerged tops also in the following major category Awards:
- Best Bank, IT / Electronic Banking
- Best Bank, Retail Banking
- Best Bank, Short Term Loan Financing
- Best Bank, Medium Term Loan Financing
- Best Bank, Product Innovation
- Best Bank, Advisory Services
- Best Growing Bank, and1st Runner Up, Best Bank-- Customer Care
Again, the Bank was also named by the International Finance Corporation (IFC) as the Most Market Responsive Global Trade Finance Program (GTFP) Issuing Bank in Africa for 2010.
The Bank also made it to the Ghana Club 100 list of Most Prestigious Companies in the country.
2011
The Bank opened its 21st and 22nd branches in East Legon and Tamale.
The Bank won the following awards during the year:
- Best Bank - Product Innovation
- 1st Runner-up: Best Bank - Customer Care
- 1st Runner-up: Best Bank - Advisory Services
- 1st Runner-up: Best Bank - Competitive Pricing
- 2nd Runner-up: Best Bank - Retail Banking
2012
The 23rd branch was opened at Dome for operations.
In a KPMG Customer Satisfaction Survey (conducted in the banking industry in Africa 2012), GTBank was named the Most Customer focused Bank in Ghana.
2013
The Bank opened its 24th, 25th and 26th branches in Makola, Ring Road and Baatsona.
At the 2013 Ghana Banking Awards ceremony held in Accra, Guaranty Trust Bank (Ghana) Limited emerged the Best Bank in Mobile Banking and Co-Winner, Trade Finance Deal of the Year Award.
2014
The Bank opened its 27th, 28th, 29th and 30th branches in Lapaz II, GPHA, Cape Coast and Adum.
In November 2014, Guaranty Trust Bank (Ghana) Limitedat the 13th Ghana Banking Awards ceremony achieved the following:
- Best Bank in Product Innovation
- 1st Runner Up - Most Active Ezwich Bank
- 2nd Runner Up - Best Bank in Competitive Pricing – Enterprise Banking.
GTBank is currently the Technology Advance Bank in Ghana as adjudged by the organizers of the prestigious 2014 Ghana Telecoms Award.
2015
The Bank opened its 31st, 32nd and 33rd branches at One Airport Square, Alabar and KNUST.
Guaranty Trust Bank (Ghana) Limited’s superiority in technology and electronic banking was once again endorsed at the 5th edition of the Ghana Telecoms Awards 2015, where for the second time running, the bank was adjudged Technology Advanced Bank of the Year. The bank was also named as the winner of the eBanking Service of the Year award.
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility is a key component of our business activities. We believe that giving back to the less privileged in our host communities is a prerequisite for the overall development of the country. Our key intervention areas are Health, Education, Sports, Arts and Culture.
In line with our Orange Rule No.7 which enjoins us to face our responsibilities, the following are some of the major CSR activities undertaken within the ten years of our operations:
Renovation of Ridge Hospital Maternity Theatre
The Bank contributed funds to support the renovation of the Maternity Theatre of the Ridge Hospital through the Ghana International Women’s Club. The theatre has been completed and is in operation, providing quality healthcare to mothers.
Sickle Cell Project
The Bank sponsored a project organized to educate and create awareness on the health and longevity issues relating to sickle cell disease.
Renovation of Korle Bu Teaching Hospital
The Bank has pledged a 5-year support to the Amenity Ward, Accident Centre of the Korle Bu Teaching Hospital to restructure their old wooden walls into aluminium structures, and donating medical equipment and other items such as air conditioners, door signs and basins to the ward.
Ghana Developing Communities Association
The Bank has also made a donation for leadership training organized by the Ghana Developing Communities Association, a civil society in the Northern Region which seeks to support communities rise above poverty and empower them in the areas education, food security, youth empowerment and governance.
GTBank Super Zonal Soccer Championship
Acknowledging the need to nurture various talents in the youth, GTBank has adopted, for four years, the Greater Accra Super zonal Soccer Championship, an annual soccer tournament held for second cycle institutions in the Greater Accra Region. Aside providing sets of jerseys and training kits to competing schools, GTBank also awarded the winning zone with cash prizes.
Donation towards security on Kwame Nkrumah University of Science and Technology Campus
Being concerned with the security of staff, students and residents of the Kwame Nkrumah University of Science and Technology in Kumasi, Guaranty Trust Bank purchased and presented 10 brand new motorbikes for the security outfit of the university. This was to aid security officers work better.
Other key CSR activities include:
- Contribution toward Otumfuo Osei Tutu II Education Fund
- Donation to the KNUST Needy Students’ Fund
- Donation toward the creation of autism awareness in Ghana
- Joyce Tamakloe Memorial Cancer Foundation
- Donation toward Breast Cancer Awareness
- Contribution to NADMO to help Ashaiman Flood victims
- Donation toward water and sanitation in rural communities
- etc
Economic Development – Project Financing
Tema Port Expansion Project
Seeking to deepen its contribution towards the economic development of Ghana, GTBank contributed millions of dollars towards the expansion project at the Tema Port, for the design and construction of an unloading jetty at the Tema Port to help increase the number of shipping vessels that can berth at any one time.
Within its 10 years of operations in Ghana, GTBank has evolved to become a reference point in the financial services industry and a role model in the Ghanaian business community.
- DEFINITION OF TERMS
1. Net liquid funds:
cash at bank and in hand and cash equilalent (example, other borrowings or investment held as current assets) less bank overdraft and other borrowings repayable within one year of the accounting data.
2. LIABILITIES:
Existing financial obligations which the firm intends to meet at some time in future. Such obligation arise from legal or managerial consideration and impose restriction on the use of assets by the firm for its own purposes.
3. PROVISION FOR LIABILITIES AND CHARGES:
This is defined by the companies Act as an amount retained a reasonably necessary for the purpose of providing for any liability or loss which is either likely to be incurred, but uncertain as to the amount or as to the date on which it will arise.
4. CONTINGENCY:
A condition which exist at the balance sheet data, the outcome of which will be confirmed only be the occurrence or non-occurrence of one or mor future events.
5. DEPRECIATION:
The measure of wearing out, consumption or other cost of value of a fixed asset, whether arising from use, of flue of time or obsolesce through technology and market changes.
6. REPLACEMENT COST:
The cost at which an identical asset could be purchased or manicured.
7. LIQUIDATING PROFIT:
Any profit paid out of the retained profit or earning is called liquidating profit or return of capital to shareholders.
8. FICTITIOUS OR NOMINAL ASSETS:
They are non-true assets or debt balances resulting from expenditure of an exceptional or extra ordinary nature which is not represented by present value and have not been written off.
9. FIXED ASSETS:
These are assets acquired for retention in the business and not for conversion into cash or resale. Their life span usually extend over some years and are portioned in a consistent and systematic manner over accounting period of their life span.
10. DEPLETING ASSETS:
There are assets meant for earning revenue gradually depleted or exhausted or consumed in the process. Example, mine; coal, gold etc.
11. CURRENT ASSETS:
These are assets acquired for resale and consist of assets in their various stages of conversion, hence they are called gloating or circulating assets.
12. LIQUIDATION:
It is the winding up and settlement of the affairs of a company by a person called the liquidator who collects all asset and discharges the liabilities.
13. DEBENTURE:
This is a certificate of indebtedness given by a company which usually forms a fixed charge on time or on being drawn for redemption or notice.
14. APPROPRIATION ACCOUNT:
It is an account into which the net profit of a company are carried, and which shows him the profits are disposed of.
15. FINANCIAL LEVERAGE OR TRADING ON EQUITY:
It is the used of the fixed charges sources of funds, such as debt and preference capital along with the owners equity in the capital structure.
16. NET BOOK VALUE:
It is the amount whether historical cost or valuation at which an asset is carried in the box less the related accumulation depreciation.
17. FARE VALUE:
This is the amount for which an could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arms length transaction.
18. USEFUL-LIFE:
The useful- life of an asset is the shorter of.
- The predetermined physical life.
- The economic life, during which it could be profitably employed in the operation of the enterprise.
NOTES
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International Auditing Practices committee, “Understanding financial
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Internation Federation of Accountant Publication
P.F. Drucker Managing for results, Newyork Haper and Rom
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C.M. Baumbacki, “Environmental Analysis for Corporate Planning,
Business Honzons Publication
C.M. Baumback (93), Basic Small Business Management
Englewood Clygs, M.J. Prentice Hall, Inc.
P.C. Unamka and U.J.F, Ewurum, Business Administration
Enugu, Precision Printers and Publishers
Company and Allied Matter Decree (1990), “Disclosure (19) Requirement
of Company’s Financial Statements”, Schedule 11.
