TABLE OF CONTENTS

Title page        -           -           -           -           -           -           -           -           -           -           i

Declaration      -           -           -           -           -           -           -           -           -           -           ii

Certification    -           -           -           -           -           -           -           -           -           -           iii

Approval Page            -           -           -           -           -           -           -           -           -           -           iv

Dedication      -           -           -           -           -           -           -           -           -           -           v

Acknowledgement      -           -           -           -           -           -           -           -           -           vi

Table of contents        -           -           -           -           -           -           -           -           -           vii

Abstract          -           -           -           -           -           -           -           -           -           -           ix

CHAPTER ONE: INTRODUCTION

1.1       Background to the Study       -           -           -           -           -           -           -           1         

1.2       Statement of the Problem       -           -           -           -           -           -           -           4

1.3       Objective of the Study           -           -           -           -           -           -           -           6

1.4       Research Hypotheses  -           -           -           -           -           -           -           -           6

1.5       Significance of the Study       -           -           -           -           -           -           -           6

1.6       Scope of the Study     -           -           -           -           -           -           -           -           7

1.7       Definitions of Key Terms       -           -           -           -           -           -           -           7

CHAPTER TWO: LITERATURE REVIEW

2.1       Introduction    -           -           -           -           -           -           -           -           -           12

2.2       Concept of Financial Ratio     -           -           -           -           -           -           -           12

2.3       Ratio Analysis and Evaluation of Corporate Performance     -           -           -           14

2.4       The Altman Model      -           -           -           -           -           -           -           -           21

2.5       Limitations of Altman Model             -           -           -           -           -           -           25

CHAPTER THREE: RESEARCH METHODOLOGY

3.1       Introduction                -           -           -           -           -           -           -           -           27

3.2       Research Design         -           -           -           -           -           -           -           -           27

3.3       Population and Sample Size of the Study      -           -           -           -           -           27

3.4       Sources of Data                      -           -           -           -           -           -           -           28

3.5       Methods of Data Analysis      -           -           -           -           -           -           -           28

3.6       Justification of the Methods Used                 -           -           -           -           -           29

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1       Introduction    -           -           -           -           -           -           -           -           -           31

4.2       Brief History of Dangote Sugar Refinery Plc, Ashaka Cem Plc and Flour

            Mills of Nigeria Plc     -           -           -           -           -           -           -           -           31

4.3       Data Presentation and Analysis          -           -           -           -           -           -           36

4.4       Test of Hypotheses     -           -           -           -           -           -           -           -           42

4.5       Discussion of Findings                       -           -           -           -           -           -           44

4.6       Summary of Findings -           -           -           -           -           -           -           -           47

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1       Summary         -           -           -           -           -           -           -           -           -           48       

5.2       Conclusion      -           -           -           -           -           -           -           -           -           49

5.3       Limitations of the Study         -           -           -           -           -           -           -           51

5.4       Recommendations      -           -           -           -           -           -           -           -           51

            REFERENCES          -           -           -           -           -           -           -           -           54

ABSTRACT

Global business failure especially in developing countries have made it mandatory for investors and other capital providers to carefully assess the financial position of businesses in order to predict its viability and survival prospect for informed decision making. It is against this, the study examined theeffect of Altman model on manufacturing firms’ financial position in Nigeria using secondary data which was subsequently using financial ratios based on Altman model. This is because the Altman model suggests a more effective way of diagnosing corporate insolvency in which it used the multivariate analysis technique to calculate bankruptcy ratio. Finding reveal that Altman’s Z-score can be used not only in assessing and predicting corporate bankruptcy but other areas such as business credit evaluating, internal control procedures and investment guidelines. It is recommended that firms should be objective in financial reporting in accordance with ethical and professional standards.

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Prolonged economic recession occasioned by the collapse of the world oil market from the early 1980 and the attendant sharp fall in foreign exchange earnings have adversely affected economic growth and development in Nigeria. Other problems of the economy include excessive dependence on imports for both consumption and capital goods, dysfunctional social and economic infrastructure, unprecedented fall in capacity utilization rate in industry and neglect of the agricultural sector, among others. These have resulted in fallen incomes and devalued standards of living amongst Nigerians. Although the structural adjustment programme (SAP) was introduced in 1986 to address these problems, no notable improvement has taken place.

 From a middle income nation in the 1970s and early 1980s, Nigeria is today among the 30 poorest nations in the world. Putting the country back on the path of recovery and growth will require urgently rebuilding deteriorated infrastructure and making more goods and services available to the citizenry at affordable prices. This would imply a quantum leap in output of goods and services.The path to economic recovery and growth may require increasing production inputs - land, labour, capital and technology.

The production input in terms of capital (fixed assets and  current assets) has ever since been inadequate for the manufacturing companies in Nigeria to function at full capacity as a result of low investment in the sector. Lack of funds has made it difficult for firms to make any significant achievement in terms of productivity and improving competition. Banks and other capital providers perceive manufacturing business as a high risk venture traced largely to their unwillingness to make credits available to manufacturers, owing partly to the mis-match between the short-term nature funds and medium to long-term nature funds needed by the manufacturing companies.

Every business organization is involved in financial management decision making. These decisions are about financing decision, investment decision, and dividend decision (Vanhorne: 2004 and Weston & Copeland: 1998). More also, corporate organizations seek to grow. To achieve such growth objective an expansion of their activities become a very crucial factor. One way of funding the activities of any business is through external sources of funds; and external sources of funds could be either through loans/issues of debentures or additional issue of  shares of any kind. Whatever is the composition of a firm’s sources of capital, it has associated implications, measured interms of the cost of capital of that particular firm.

It is also worthy of note that investors, whether individual or institutional and other providers of capital, invest their resources in anticipation of returns. However, while pursuing this objective, the security of investments and loan become a serious concern of the investors and creditors. To evaluate the viability of a business organisation that provides reasonable returns in future, it becomes necessary to measure the past and present performance of the firm. Such measurements enable the decision makers to easily predict the future outcome of the organisational profitability and survival.  Where the firm is found not to be profitable and/or the chance of its survival is highly uncertain, most investors will distance themselves from investing in such a firm. 

One way of assessing the viability of a business organisation for informed decision making by interested parties is to express some figures in the financial statements of the organisation in terms of other figures. These expressions of some financial data in terms of others are known as the financial ratios. Another way for assessing the business viability is done through multiple discriminant analysis (Altman model) which allowed combination of some selected ratios likely to detect financial sickness of business organization.

Of all the tools of financial analysis, ratio analysis is perhaps the most widely used, but presently business organizations have started applying the Altman model as a result of its efficacy in predicting business bankruptcy prior to failure. Financial analysts are interested only in those ratios that are relevant in predicting financial distress. Altman model can enable an investor to conclude whether a liquidity position of an organisation is satisfactory or not, and also to determine the soundness or unsoundness of the firm’s capital structure. However, the firm’s ratios sometimes may be symptomatic of the firm’s problem. This calls for further assessment of business corporation to determine the causes or to draw conclusions of a qualitative nature. Comparison of financial soundness of the companies will be done base on the given score of the Altman model, which is called the Z-score.

The great advantage of Altman model is that, it reduces raw data of widely varying magnitude to a common comparative basis to predict bankruptcy. Thus, the Altman model provides information for shareholding decisions for the shareholders and other potential investors. What distinguishes shareholders from other finance providers is the fact that most shareholders are “outsiders”.  Despite being nominal owners of the company, they have perhaps the least access to the private information and arguably the least control unless they are institutional investors with significant shareholding.

The ongoing reforms in the Nigerian economy have started to strengthen many businesses especially the banking and manufacturing business in the aspect of capital base and management team composition. Considering the strategic position of manufacturing sector in the Nigerian economy and as one of the most suffered sector in the country, it becomes imperative that all hands must be on deck to finance the sector. Since uncertainty exists in virtually all decision-making situations, investors and other users of financial statements are interested in evaluating the past performance of the firm they wish to invest in. This is also based on the norm that the knowledge of the past is an essential ingredient for predicting the future. Altman model is one of the popular investment evaluation techniques.      

1.2       Statement of the Problem

Frequent business failure in most economies especially in developing countries have made it mandatory for investors