Financial Analysis And Decision-Making

The basis of financial planning analysis and decision making is the financial information. Financial information is needed to predict, compare and evaluate a firm’s earning ability. It is also required to aid in economic decision making investment and financing decision making. The financial information of an enterprise is contained in the financial statements.

Financial Statements have been widely defined in the extant literature by scholars and experts. According to the Companies and Allied Matters Act 1990 (CAMA), financial statements consists the basic statement of accounts used to convey the quantitative information of financial nature about a business to shareholders, creditors and others interested in the reporting company’s financial

The type of information a specific user requires from the financial statements depends upon the kind of decision that, that person must made. This it is said that financial statement is user oriented.

The various user of financial statement can be grouped into two broad divisions, internal and external users. The internal users are the:

• MANAGEMENT TEAM: This is the management of the entity itself. They are concerned with the overall financial worth of the enterprise. Management has the overall responsibility to see that the resources of the firm are used most effectively and efficiently and that the firm’s financial position is always sound. They need the financial statement for planning, controlling and decision making on the day to day operations and long range (strategic) plan of the organization.

• EMPLOYEES: Employees and trade union are more concerned about long term survival and profitability of the firm, as such its ability to pay higher wages, salaries, bonus and better working conditions.

The external users are persons or agencies outside the organization and they

To this extent a sound accounting system that communicate economics measurement and information about the resources and performance of the reporting entity, useful to those having reasonable rights to such information becomes highly important and should have peculiar characteristics.

Some important attributes of an ideal financial statement are;

 RELEVANCE: For information that is disclosed in the financial statement to be useful at all, it is legally relevant. That is, it must be associated with the decisions it is designed to aid and facilitate. What is relevant for one group of financial statements users may not be relevant for another group of financial statement users, thus, there is no such thing as all-purpose financial statement in the context.

 CAPABLE OF VERIFICATION: Financial statement should disclose information which can be verified from the records of the company. Qualified individuals working independently of one another should be able, upon examination of the same data or to derive similar