CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Financial ratio analysis assumes that there is a relationship between certain aspects of the activities of the firm as revealed in the income statements, Accounting figures reported in the financial statement do not provide Profit and loss account and the balance sheet, which established a pattern of behaviour. The information contained in the financial statement of a company is connected with the financial well being and performance of the reporting entity, organized to enable users of financial statement to draw a conclusion meaningful understanding of the performance of the financial position of a firm, except the figure are analyzed with other relevant information through the use of financial ratio analysis. Having established the fact that a ratio is useful and reliable in measuring the relationship between two things, this then gives rise to the need to study the relevance of the financial ratio in the appraisal of small scale business.
1.2 STATEMENT OF PROBLEM
The study is beset by a lot of problems which include: – Problems of non-challant attitude on the use of financial ratio in the interpretation of accounting records of small scale business – Lack of available ratio for measuring the state performance of a company – Lack of competent management – Obsolete use of data.
1.3 OBJECTIVES OF STUDY
The main purpose of this study is to identify and consequently analyze the relevance of financial ratios in the appraisal of small scale companies in Cross river state. In view of the above, the researcher intends to find the following: – To establish the extent to which accounting ratio can be use to interpret accounting records of small scale business. – To identify the available ratio for measuring the state of performance of a company. To established the effect of ratio analysis on the users of financial statement. – To ensure current data‟s are use in small scale business.