T H E D E V E L O P M E N T O F F I N A N C I AL R A T I O S I N N I G E R I A - I N D U S T RY A V E R A G E S
T H E D E V E L O P M E N T O F F I N A N C I AL R A T I O S I N N I G E R I A - I N D U S T RY A V E R A G E S
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Date
1983
Authors
BUNDUNG, Baturiya Caroline
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Abstract
Financial ratios constitute a most popular, easy,
and useful analytical tool. Analysts often have
pre-determined targets with which to compare the
performance and judge the financial condition of an
organization. In ratio analysis one of such targets
is industrial averages. Noting that empirical research
has proved the utility of ratios, the study has attempted
to develop local industrial averages, by computing
the aggregates of individual firm's ratio.
The literature review discusses extensively:
financial ratios and firm failure prediction,
consequently, most of the ten ratios computed are also
recommended by researchers on firm failure. Traditionally,
the ten ratios fall into - liquidity, profitability,
valuation, leverage, and growth ratios. A five point
criteria was employed in the choice of ratios:-
1. Representation - that the ratio has a high loading
on the factor it represents.
2. Recommendation - that the Nigerian Stock Exchange
with its wealth of knowledge of local conditions
recommends it.
3. Popularity - the ratio or its inverse is recommended
in financial literature.
4. Past performance - that prior studies found the
ratio helpful; and
5. Interpretation - that the ratio easily indicates
a certain trend in performance.
Thirty-five companies (about one third) quoted
on the Nigerian Stock Exchange were examined over a
five year period: 1978 - 82. With petroleum companies
extracted to form a seperate group, five industrial
classifications resulted.
Computed ratios indicated that sample companies
recorded eratic performance with ratios rising and
falling indiscriminately. The sales growth ratio
indicates that sample companies experienced growth
over the period. Finally, the averages agree with
financial literature that what is considered
optimal elsewhere does not necessarily obtain
locally.
Description
Submitted to the Postgraduate School, Ahmadu
Bello University, Zaria in Partial fulfillment
of the requirements for the Master's Degree
in Business Administration.
Keywords
DEVELOPMENT,, F I N A N C I AL,, R A T I O S,, NIGERIA, I N D U S T RY,, A V E R A G E S