ASSESSMENT OF FINANCIAL PERFORMACE IN CASE

OF TENDAHO SUGAR-CANE FACTORY,AFAR

NATIONAL REGIONAL STATE,IN DUBTI WOREDA

A RESEARCH PROP0SAL SUBMITTED TO SAMARA

UNIVERSITY FOR THE PARTIAL FULFILMENT OF THE
REQUIREMENTS OF BACHELOR OF ARTS DEGREE IN
ACCOUNTING & FINANCE

BY: MESFIN AMEDE

ID NO=031/08

ADVISOR: ESMAEL ABDU (MSC)

SAMARA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

 DEPARTMENT OF ACCOUNTING & FINANCE

FEB, 2019

SAMARA, ETHIOPIA

ABBREVIATIONS

CSA-central statistical agency

DA-depreciation and amorizations

EU-europeans union

EV-enterprise value

GTP-growth and transformation plan

MBA-master in business administration

TSF-tendaho sugar-can factory

 I

TABLE OF CONTENTS

Contents Page

Abbreviations.........................................................................................I

Table of Content ...................................................................................II

Chapter One

Introduction ........................................................................................1

1.1 Background of The Study .............................................................1

1.2 Statement of The Problem .............................................................3

1.3 Objective of The Study ..................................................................4

1.3.1 General Objective ..............................................................4

1.3.2 Specific Objective ...............................................................4

1.4 Basic Research Question...............................................................4

1.5 Significance of The Study..............................................................5

1.6 Scope of The Study ......................................................................5

1.7 Limitation Of The Study................................................................5

Chapter Two
2.1 Literature Review.............................................................................6

2.1 Introduction.....................................................................................6

2.2 Growth Of Sugar Industry..............................................................10

2.3 Analysis Of Bussiness Performance................................................10

2.4 Policies For Sugar Industry.............................................................11

2.5 Theoretical FrameWork...................................................................12

2.5.1 Performance Management practice...................................12

2.5.2 Logistics Outsourcing.......................................................12

2.5.3 Enterprise Performance....................................................13

2.5.4 Financial Performance......................................................13

Chapter Three

Research Design and Methodology.......................................................13

3.1 Description of the study area.......................................................13

3.2 Research Design .........................................................................13

3.3 Source of date ............................................................................14

3.4 Target Population .……………….……….........................................14

3.5 Sample Size & Sampling Technique ............................................15

3.6 Method of Data Collection .………………………..............................16

3.7 Method of Data Analysis ............................................................17

3.8 Budget & time Schedule..............................................................18
 CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

Financial analysis is the assessment of firms past, present and anticipated future financial
condition. It is a base for intelligent decision making and starting point for planning the
future courses of events for the firm. It’s objective is to determine a firms financial
strength and to identify its weaknesses. The focus of financial analysis is on key figures
in the financial statement and the significant relationship that exist between them
(Anteneh & Kenenisa, 2010 ).

Financial analysis involves the use of financial statement. A financial statement is an

organized collection of data according to logical and consistent accounting procedures.
It’s purpose was to convey understanding of financial aspects of business firm. It show
apposition at a moment of time as a balance sheet or reveal a series of activities over a
given period of time as an income statement. Thus the two basic financial statements are
balance sheet and income statement. The most widely used financial analysis technique is
ratio analysis. It is the analysis of relationship between two or more like items on the
financial statement. The use of this technique in decision making reduces reliance on
guess work and intuition and establishes a basis for a sound research. (Chandra, 1998).

There are four basic categories of financial ratios, each represents important aspect of
firms financial condition. The categories consist of liquidity, activity, leverage and
profitability rations. Liquidity ratio is the ability of a firm to meet its short term financial
obligation when they come due, activity ratio measures the speed at which assets are
being converted in to sales. Leverage ratio measure a firm ability to pay long term debt as
they come due profitability ration measure ability of a business to each profit over a
period of time (Gitman, 1997).

Interest of various related group was affected by the financial performance of a firm.
Therefore, these groups analyze the financial performance of the firm. The type of
analysis varies according to the specific interest of the party involved. Trade creditors
interested in the liquidity of the firm. Bond holders interested in cash flow ability of the
firm. Investors interested in present and expected future earning as well as stability of
these earning . Management for internal control, better financial condition and
performance of company (Fouke, 1945).

The ability to analyze and understand financial statement is as much an art form as it is
an application of several technique. The technical side of financial analysis is straight
forward. We calculate a variety of common financial ratio to provide in sight in to the
financial condition of company. (Simon and Schuster(1987). The artistic dimension of
financial analysis is important because the accounting process relies to a great extent up
on the application of judgment introduce subjectivity values. Different, yet valid view
and interpretation of the economic consequences of a specific transactions action often
exist (Van Horne, 1998).

1.2. Statement of the Problem

Financial analyses are a tool of financial management that consist of financial condition
and operating result of business firm, forecasting of its future prospects and performance.
Financial statements are summaries of operating, investing and financial activities that
provide information for these decisions. Financial statements that are relevant, complete,
timely and understandable are preferred by users. ( )

There are many different ways of using financial statement information both within and
outside the organization, this diversity reflects the fact that financial statement
information plays an important role in many types of decision making. Among the users
of financial statement managers, investors, lenders and governmental bodies are the
forerunners.

Managers use relevant information to make right decision at right time, to potential
investors or security analyst consideration is profitability, with secondary consideration
given to liquidity and debt management. For bankers or trade creditors the emphasis is
given to ability to meet debt obligation. (Wester field and Jordan 1998:P.46).
Correct decision making depends on accurate information but information is not enough
by themselves and need to be analyzed. Most researches that has been done on financial
performance analysis cased specially in banks and micro finance institutions, but little
research has been done on the financial performance of factory environment especially in
Ethiopia. so the research conducted in Ethiopian Tendaho sugarcane factory aim at to
close the gap in the literature in this regard and add some knowledge about financial
performance of manufacturing environment.

1.3 Objective

1.3.1General objective

The main objective of the study is assessing the financial performance of Ethiopian
tendaho sugar factory in afar region.

1.3.2Specific Objectives

In addition, to the above general objective the study will have the following specific
objectives.

1. To assess the company’s position to meet its current obligation.

2. To evaluate how effectively the company is managing and utilizing its assets.

4. To measure the profitability of the company.

5. To assess the extent the borrowed funds are used & utilized

1.4 BASIC RESEARCH QUESTIONS

The purpose of this proposal will be trying to seek a solution for the following basic
question.

1. Is the company in a position to meet its current obligation?

2. How the company is managing and utilizing its asset?

3. Is the company earning profit over period of time?

 4. To what extent the borrowed funds are used and utilized?

1.5 Significance of the Study

Although few studies will provide some evidence on financial statement analysis, in case
of sugarcane factory remained unexplored. The paper tries to fill this lack of evidence by
extending the issue to the specific context. In addition, The paper will used as a reference
for those conducted their research in area of manufacturing environment.

1.6 Scope of the Study

The scope of the study will delimited to those areas which reveal the financial
performance. To conduct the research the researcher will use balance sheet and income
statements to assess TSF short term liquidity, Asset management, long term solvency and
profitability. The study covers the four week audited annual financial statements in order
to gather accurate and reliable data.
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

Performance refers to the accomplishment of a given task measured against present

standards of accuracy, completeness, cost and speed. In other words it refers to the degree
to which an achievement is being or has been accomplished performance is used to
indicate firms success, conditions and compliance.(Shodhganag. inflibnet. ac)

Financial performance refers to the act of performing financial activity. In broader sense
financial performance refers to the degree to which financial objectives being or has been
accomplished. It is the process of measuring the results of a firm’s policies and operation
in monetary terms. It is used to measure firms overall financial health over a given period
of time and can also be used to compare similar firms across the same industry or to
compare industries of sectors in aggregation. (www. Answers .com).

Financial performance analysis is the process of evaluating the relationship between

component parts of financial statement to obtain a better understanding of the firm’s
position and performance. The financial performance analysis identifies the financial
strengths and weaknesses of the firm by properly establishing relationships between the
items of balance sheet and profit and loss account. The first task is to select the
information relevant to the decision under consideration from the total information
contained in the financial statements. The second is to arrange the information in a way to
highlight significant relationship. The final is the interpretation and drawing of inferences
and conclusion. In short financial performance analysis is the process of selection,
relation and evaluation. .(Shodhganag. inflibnet. ac)

2.2 Growth Of Sugar Industry

Sethi and kanwar (1987) estimated the extent of fluctuations and annual growth rates of
various factors affecting the sugar industry and assessed the relative importance of these
factors in increasing sugar cane and sugar production in Indian.
Except for cane price data on all characters will for a period 1932-33 to 1981-83 data on
cane price will available from 1950-51 to 192-81.

2.3 Analysis Of Business Performance

Fouke(1945) hignlighted the importance of financial analysis in evaluating business

performance and used total debt to net worth to appraise the business performance.

Flank and Grunewald(1969), in their study in USA examined the solvency of a firm in
terms of whether its total assets will equal to greater than or less than the obligation of the
firm to its ability to meet its current obligation and profitability in terms of its over all
efficiency of the business over and above the annuals put in to business for transactional
performances.

Suprabha(2009) analyzed the financial performance of the Karnataka oilseeds federation

and she found that federation is having comfortable liquidity to meet the short and long
term financial obligation and also made mention that the gross profit margin has
increased over the years, but net profit margin implying that the operating expenses
relative to sales have been increasing over many years

2.4 policies for Sugar Industry

Anad(1983) felt the necessity of changing government policy regarding the release of
sugar.

The union government should fix an economic price of levy sugar. He further added the
sugar release policy should be changed taking in to account the pattern of demand and
supply during different period and different zones .

The sugar industry should organize the sale of sugar at fixed prices still fluctuate widely.
The government should use its duffer stock to discipline the market.

Swinbank (2009) studied the key feat uses of the European union (EU) sugar policy from
its inauguration in 1968 to its reform in 2006.
He stated that although a quota mechanism was in place limiting the quantity of EU
produced sugar that could quality for market price support the EU net export surplus was
allowed to grow particularly after EU enlargement in 1973.

The EU was unable to participate effectively in a succession of international sugar

agreement but was able to shrug off criticisms in GAAT initially the round agreement in
agriculture had little impact on EU sugar policy but an adverse dispute settlement ruling
and the opening of the EU market through the everything but arms changed the
international policy and led to policy return.

2.5 Theoretical Frame Work

2.5.1 Performance Management Practice

As with firm performance practice connected to if will be analyzed from various

perspective with multiple out comes.

In this proposal the analyzed practices include the organization of sugar industries out
sourcing of logistics operations and information systems support.

2.5.2 Logistics out sourcing

Literatures assert that the phenomenon of out sourcing is not new (see e.g. Greif 1993)
yet the possible benefits and down sides of out sourcing will be discussed more during
the past 20-30 year.

Traditionally out sourcing has been seen as one of the possible ways to increase
flexibility. Enhance performance and cut the cost of operation. Betties etal (1992) argued
that out sourcing could aid competitiveness providing it was managed property.

Aerates (1994) also discuss it from the logistics perspectives and subsequent analyzed the
out sourcing of physical distribution .

Also devein and ravens craft (1994) and gilley ang rushed(2000) argue that one of the
core motives for out sourcing is the firms need to concentrate on its core competencies.
There achieving higher performance.
2.5.3 Enterprise Performance

So many researches will be conducted addressing the multidimensional phenomenal of

enter price performance.

These studies consistently present essential elements of performance and its measurement
as well as what is included and excluded.

(akyuz and erkan 2010) according to Neely Gregory and plats (1995) performance could
be divided into four dimension of quality, time, cost and flexibility while from the
financial performance perspective beamon (1999) argued that financial performance
consists three categories resource related out put related classified the performance
metrics as strategic tactical and operation.

2.5.4 Financial Performance

In the literatures the definition of financial performance is just as extensive as that of

operational performance .

One of the broadcast definitions presented by gunasekaranet (2001). Who include not
only rate of return and net profit but also logistics cost and delivery performance
measures of financial performance.

Where as most of the literature as indicated in the preceding section consider logistic
costs to the mainly an operational performance measure on the ether hand van Lewinski
and van worsen have (2003) surveyed the key drivers of financial performance and
concluded that costs reductions are the most important.

This again would imply that even though costs in general or logistics costs in particular
are not a financial measure by their own their contribution to financial performance is
evident.
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 DESCRIPTION OF THE STUDY AREA

Tendaho sugarcane factories which are found the Afar National Regional State, Awsiresu
Zone Aysaeta woreda as far as 17 kilometre. The total population of the district about
89,068.From out of these total population 47,633 is male and the other remains 41,435 is
female altitude of the district about ,and the temperature is 18-35 degree centigrade, and
the annual range of rainfall is 250-300 and the topography of the district was about 450-
550 above sea level. Most of the pastoral and Agro-pastoralists the farming systems are
crop and mixed farming systems are used.

3.2 Research Design

The research is designed to will be research question posed and attain the general and
specific objective of the research. Analytical study uses information already available and
analyzes these to make critical evaluation of information.

The study uses information about the researcher area and sugar-cane factory employees at
the top level, middle level and lower level managers.

3.3 Sources of Data

The researcher will use both type of data which is expressed in terms of number. The
research will predominantly conduct on secondary source and to some extent on primary
sources.

3.4 Target Population

The target population selection will conducted at their local meeting place using group
discussion and individual interview through home visit. Therefore, 40 target populations
will be selected using purposive sampling method. During these the following criteria
will be considered ;

Ability to communicate the researchers and other agro-pastoralists, local practice and
advantage and disadvantage of the project willingness to use the requirement of
performance of Willingness to use the requirement of performance of income statement
and income statement and Access to get the necessary materials for the purpose of
researchers.

These three criteria will considered inorder to suit the number of tendaho sugarcane
employer or respondents the availability of inputs for purpose of performance of incoom
statement.

3.5 Sample Size And Sapling Technique

The researcher will be conducted in to the sugar factory. which is enable to perform in
order to random sampling will be used in the research area

3.6 Data Collection Method

Descriptive method of used because it is conducted on information already available.

Tools of financial statement analysis such as ratio analysis and time series analysis will
used. Ratio analysis is used as index for evaluating, the financial position and
performance of a company.

3.7 Method of Data Analysis and Presentation

After data was analyzed the outcome is presented in using percentage, tabulation and
graphs.

The ratio also used to summarize the large quantity of financial data, to make qualitative
judgement about the company’s performance. Time series analysis is used to compare
present rations of company with its own past rations.
 3.8 Budget And Time Schedule

3.8.1 Budget

Description of Activities Unit Unit Total Cost Remak

Price

Description Of Activity 5pc 10 50

Note Book 10pc 8 80

Smeeth Paper 1 desta 150 150

Flip Chart 1 80 80

Travelling Cost - 300 300

Total 660

3.8.2 TIME SCHEDULE

Description Of Activities Duration Final data Remark

Contac And Discuss With Concerned 5 May 5

Body

Selecting Target Pewation 4 May 15

Runing the finance performance in case 5 May 20

of TSF

Data Collection 7 May 20

Data Analysis And inter Preting 7 June 7

Write Up Research Report 7 June 15

Report Submissior 2 June 16

References

Anteneh G. And Kenenisa L; Financial Management I Module, 2010.

Brigham, E.F (1991), Fundamental Financial Management 7th edition, Dryden Press,
Forth Worth.

Brigham. E.F (2002), intermediate Financial Management.

Chandra P., Fundamentals of Financial Management, 3rd edition, Mc GrawHill Inc,

Dickesson B; B.J Company , introduction to Financial Management, 4th ed, 1995.

IM Pandey: Financial Management, 6th Revised Ed. New Delhi, Vikas Publishing
House Put Ltd. 1995.

L. Gitman, Principles of Managerial Finance, 8th Edition, 1997.

Stephen A. Ross, Randolph W. Westar Field, and Brand Ford. Jordan Fundamental of
Corporate Finance eth ed, California MC – GRAW Hill, 1998.

Van Horne James C; Financial Management and Policy 11th ed, New Jercy, Prentice Jell
1998.

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