CHAPTER ONE

1.1       BACKGROUND OF THE STUDY

Corporate organizations owe a duty to fully disclose matters concerning their operations so as to aid investors in making investment decisions. Both large and small organizations in addition to satisfying the legislating requirement tend. to retain existing investors and to attract potential ones through the publication of their financial statements where the capital stock of a corporation is widely held and its affairs are of interest to general public. The discussions and illustrations of the study will be centered on the financial statement presented to shareholders and also available for potential investors, bond holders and trade creditors as a tool of information for investment decision. Financial statement based on result on past activities are analyzed and interpreted as a basis for predicting future rate of returns and assessment of risk.

Financial statement provides important information for a wide variety of decision, investors draw information from the statement of the firm in whose security they contemplate investing. Decision makers who contemplate acquiring total or partial ownership of an enterprise expect to secure returns on their investment such as dividends and increase in the value of their investment [capital gain]. Both dividends and increase in the value of shares of company depends on the future profitability of the enterprise. So investors are interested in future profitability. Past income (dividend) data are used to forecast returns for future investment and increase in share prices.

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Managers are responsible for the overall performance of the firm they make or take decision in relations to available information; therefore they need relevant information readily made available to make an effective decision for the purpose of this research.

1.2    STATEMENT OF THE RESEARCH PROBLEM

The problem confronting most business organization and investors are in the area of the area of evaluation of financial ratio is often negelected until a problem occurs. The basic analytical tools for the comparative income statement, profit and loss account and balance sheet. It is observed that both investors and manager are either not aware of the relevance or otherwise issue it source? In addition to lack of adequate valuation statement “Fact information” from business to investors there is the lack of analytical intellect on the part of the investors to access the reliability of financial statement. Also the intention of the study the financial statement and trend to future timely present figures and the figure only have meaning in relation to when compared with other fact.

However, these problems observed in the preceding paragraph tend to scare away the both existing and potential investor who rather prefer to hold liquidity than investing in business organization that are surrounded by bond of uncertainty until a specific techniques are developed to mean sure liquidly, profitability, solvency etc.

The interest of this study will be clustered around the financial statements presented to the shareholders, investors, bond holder, and trade creditor, as important information for investment decision. Finally it is beyond the scope of this study to adequately look into the entire above mentioned problem and to suggest possible solution will reveal key factors responsible for under capacity utilization of financial statement in corporate investment and

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the relevance of the financial statement in inducing on effective decision making in business of all kinds.

1.3 RESEARCH QUESTIONS

1.      Is there relationship between financial statement and investor decision?

2.      To what extent financial statement aid in investment decision?

3.      Does financial statement aid in assessing the financial position of an organization?

4.      Does analytical tools are set to aid prospective investors in accessing the financial position of the cooperate organization?

1.4 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the relevance of financial statement to investment decision. The other objectives include:

1.      To identify the relationship between financial statement and investment decision

2.      To assess how financial statement aid in investment decision

3.      To ascertain how financial statement aid in asserting the financial position of an organization

4.      To examine how a set of analytical tools will aid prospective investors in assessing the financial position of the cooperate organizations.

1.5         RESEARCH HYPOTHESIS

The study will be based on the following hypotheses

HI: there is a relationship between financial statement and investment decision

Ho: There is no relationship between financial statement and investment decision.

H2: That financial statement and investment decision

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HO: financial statement dose not aid in investment decision

H3: financial statement determine how a set of analytical tools will aid prospective investors in analytical tools will aid prospective investor in assessing the financial position of the cooperate organization.

1.6         SIGNIFICANCE OF THE STUDY