Professional Documents
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Timothy Kiplang'at Project
Timothy Kiplang'at Project
Timothy Kiplang'at Project
COLLEGE
ii
DECLARATION
I declare that this research proposal is my original work and has never been presented by any one
or in any institution for the award of any certificate or diploma course to Kenya national
examination council.
Signature : ………………………………
Date : ……………………………….
Name of the candidate: …………………………………..
Index number : ………………………………………
Declaration by supervisor
Name of the supervisor : …………………………………..
Signature : …………………………………
Date : ………………………………….
iii
ACKNOWLEDGMENT
I give thanks to God almighty for his love, care and blessings. I also want to thank those in one
way or another, who contributed to the success of this work. I appreciate the efforts made by my
supervisor who saw me through the writing of this research project. I appreciate the effort made
by my supervisor who saw me through the writing of this report and even his way of thinking
and converting ideas is something meaningful really help me a lot. She was always there guiding
me wherever possible, especially whenever I had a negative attitude trying to look for a way I
can overcome the mentality of developing bad attitude.
She really helped me think in a positive way and provide me with his humble and gracious time
despite being busy with her work. His guidance really build a future person to be really
motivated to complete my report.
Contents
iv
DEDICATION................................................................................................................................ii
DECLARATION............................................................................................................................iii
Abstract............................................................................................................................................1
INTRODUCTION TO THE STUDY..............................................................................................2
INTRODUCTION.........................................................................................................................2
1.1BACKGROUND OF THE STUDY...........................................................................................2
1.2 STATEMENT OF THE PROBLEM.........................................................................................3
1.3 OBJECTIVES............................................................................................................................3
1.4 RESEARCH QUESTIONS.......................................................................................................4
1.5 SIGNIFICANCE OF THE STUDY..........................................................................................4
1.6 LIMITATIONS OF THE STUDY............................................................................................4
1.7 SCOPE OF THE STUDY..........................................................................................................4
LITERATURE REVIEW................................................................................................................5
INTRODUCTION...........................................................................................................................5
2.1 LITERATURE REVIEW THEORETICAI...............................................................................5
2.2 THEORITICAL FRAMEWORK..............................................................................................6
2.2.1 Accounting theory...............................................................................................................6
2.2.2 Financial theory and financial strategy...............................................................................6
2.2.3 Matching principles of Accounting Theory....................................................................6
2.2.4 Monetary Unit Assumptions Theory...................................................................................7
2.3 Empirical Review of Literature.................................................................................................7
2.3.1 To determine whether the managements make use of financials statements in decision
making..........................................................................................................................................7
2..3.2 to determine financial report..............................................................................................7
2.3.3 To assess the earning capacity or Profitability of the firm.................................................7
2.4 Summary and the gaps to be filled by the study........................................................................7
2.5 CONCEPTUAL FRAMEWORK..............................................................................................7
RESEARCH DESIGN AND METHODOLOGY...........................................................................9
3.1 Introduction................................................................................................................................9
3.2 RESEARCH DESIGN...............................................................................................................9
3.3 TARGET POPULATION.........................................................................................................9
3.4 SAMPLE SIZE AND SAMPLE PROCEDURE.......................................................................9
v
3.4.1 SAMPLE SIZE...................................................................................................................9
3.4.2 SAMPLING PROCEDURE...............................................................................................9
3.5 DATA COLLECTION INSTRUMENTS...............................................................................10
3.6 DATA ANALYSIS.................................................................................................................10
3.7 ETHICAL ISSUES..................................................................................................................10
DATA ANALYSIS, PRESENTATION AND INTERPRETATION...........................................12
Introduction....................................................................................................................................12
4.1 RETURNING RATE...............................................................................................................12
4.2 RESPONDENT RELATED FACTORS.................................................................................12
4.2.1 Gender of respondents......................................................................................................12
4.2.2 Distribution of respondent by gender................................................................................13
4.2.3 Distribution by Education level........................................................................................13
4.2.4 Distributions by marital status..........................................................................................13
4.3.2 To identify the limitation dealing with the use of financial statement in the management.
....................................................................................................................................................15
4.3.3 To find out the reasons for change in profitability and financial position of the firm......15
4.3.4 To assess the earning capacity of the firm........................................................................16
FINDING, CONCLUSION AND RECOMMENDATION..........................................................17
5.1 INTRODUCTION...................................................................................................................17
5.2 SUMMARY OF THE FINDINGS..........................................................................................17
5.3 CONCLUSION........................................................................................................................17
5.4 RECOMMENDATION...........................................................................................................18
REFERENCES..............................................................................................................................19
Appendix I : LETTER OF INTRODUCTION..............................................................................20
Appendix ii: Questionnaire...........................................................................................................21
vi
List of tables.
Table 3.1........................................................................................................................................17
Table 4.1........................................................................................................................................19
Table 4.2........................................................................................................................................19
Table 4.3........................................................................................................................................20
Table 4.4........................................................................................................................................21
Table 4.5........................................................................................................................................22
Table 4.6........................................................................................................................................22
Table 4.7........................................................................................................................................23
List figures
Figure 4.2.1 gender of respondents
……………………………………………………………………………….18
vii
Abstract
The main purpose of this study is to determine, forecast and evaluate the best of economic
conditions and company’ performance in future. The other purpose of this study is to analyze the
financial managers to make through decisions about their business .The financial statement
applies tools analytical techniques and required methods for business analysis.
Stewardship and responsibility are the focus for their statement, thus it needs financial report
suited for disclosing useful information to different user within and outside the organization. The
study examined and assesses how KCB bank makes use of financial report in decision making
The daily recording and keeping of all financial data to be needed by the public sector in an
accurate and reliable manner the processing and analysis and submission of the information to
the manager holding decision making positions are of importance to the management .
The analysis of financial statement in public sector had initially occurred in 19 th century with the
changes in the company structure. Since the scope of the cash basis accounting system was rather
narrow and the financial statement generated within this system did not include comprehensive
information, it has not been possible to develop analysis techniques.
The world is experiencing difficulties in decision making process resulting from poor prepared
financial statement.
Probably the most well-known study on financial statement and analysis, accrued earnings are
significantly less persistent than operation cash flow.
The objective of this study is to examine and see whether it is possible to apply the financial
statements analysis techniques on the financial statements especially on balance sheets and
operating results statements which are prepared in the public organizations and enterprises
according to accruals accounting
Assessment of financial statement and analysis as a person’s feeling of pleasure or disappointed
resulting from comparing every year financial statement. This has caused the failure to deliver
productive decisions due to lack of sufficient records to base decisions. Commercial and
industrial parastatals composition of Kenya and fiscal affairs of the Kenyan government have
been characterized too often by mismanagement, lack of controls and accountability, operating
losses and irresponsibility, insufficiently trained and unsophisticated management
Using principal component analysis the study reduced the number of variable for any further
regression from 17 variable to 3 variables this study proves that the performance of a company
can be analyzed using just a few factors or by focusing on few ratios which is cost effective with
lesser time as well as obtaining mare precise result that have least duplication of calculations.
Financial statement and analysis is regarded as the most critical step in writing an effective
accounting memo and this analysis includes information from relevant guidance words about
how guidance is applicable
1
Having different accounting standards in the world is a problem for multinational public limited
companies and investors in order to be able to compare and evaluate financial statements.
2
CHAPTER ONE
INTRODUCTION
This chapter gives a brief description of the background of the study, develops the statement of
the problem, the purpose, research objectives and questions, it gives the significance of the study
and the limitation.
3
Many companies and organizations all over, stewardship and responsibility are the focus for
these statements, thus it needs financial report suited for disclosing useful information to
different users within and outside the organization.
The study examined and assesses how KCB bank makes use of financial report in decision
making.Accountabiliy however is defined in Article 8 of law no.5018 .By this Article, those who
are assigned and authorized for the obtainment and use of all public sources are held responsible
for the efficient, economic, productive and legal obtainment, use, recognitions, reporting of
resources and taking necessary precautions for preventing the misuse thereof. Various suctions
have been foreseen for those who failed to fulfil said responsibilities. With Law no. 5018,
accountability has been conditions on the reporting activity, while those holding accountable
positions have been obliged to inform the public with regular intervals.
The daily recording and keeping of all financial data to be needed by the public sector in an
accurate and reliable manner, the processing and analysis and submission of the information to
the managers holding decision making position are of importance to the management.
The objective of this study is to examine and see whether it is possible to apply the financial
statements analysis techniques on financial statements especially on balance sheets and operating
results statements which are prepared in the public organizations and enterprises according to
accruals accounting.
The analysis of financial statements in public sector had initially occurred in 19th century with
the changes in the company structures .Since the scope of the cash basis accounting system was
rather narrow and the financial statements generated within this system did not include
comprehensive information, it has not been possible to develop analysis techniques. The world is
experiencing difficulties in decision making process resulting from poor prepared financial
statement. Nobes et al (2002), postulated that to some extent financial statements may be
prepared in such a way that may not meet the needs of the users, this problem is explained
worldwide; external environment culture, legal system, taxation and inflation may influence it.
According to Adolf et al (1978), preparing financial report to be used in decision making is a
difficult task to many if not all of the commercial, industrial and government
organizations.Companies provide financial statement information for both internal and external
users to help them make better decisions.Also, financial ratio analysis is one of the important
analysis because the profitability of an organization is affected by this decision.
The accrual based state accounting system has not only brought by an order registering all
incidences by public institution bearing economic consequences, it has also made to produce
financial statements ensuring the use of these information in the process of decision making and
the assessment of financial statement in the institution. However, it is also necessary to analyze
the financial statements for completing the assessment of the institution and for resolving on the
matter.
financial statements analysis techniques on the financial statements especially on balance sheets
and operating results statements which are prepared in the public organizations enterprises The
4
objective of this study is to examine and see whether it is possible to apply the according to
accruals accounting and on the other hand another objective of the study is to contribute to the
usage of accruals accounting by decision makers more effectively as in the private sector
accounting.
Financial statement based on result for the past activities are analyzed and interpreted as a basis
for predicting future rate of returns and assessment of risk and guiding the corporate decision
making. Most of this financial crises that drove businesses into recessions were driven by poor
financial analyses which resulted into poor investment decisions thus plunging corporations into
losses and liquidation in some cases
This study focuses on fair value accounting and measurability so as to know how realistic is
LFRS, and also examine how realistic is LFRS vis-avis the influence of fair value accounting
and measurability on profitability.
This has caused the failure to deliver productive decisions due to lack of sufficient records to
base decisions. Adolf and others pointed out that the commercial and industrial parastatals
compositions of Kenya and fiscal affairs of the Kenyan government have been characterized too
often by mismanagement, lack of controls and accountability, operating losses and
irresponsibility, insufficiently trained and unsophisticated management.
Adolf et al (1978) also postulated that non-profit making organizations such as government and
charities typically present statements which exhibit their resources and the way those resources
were distributed.
5
This study evaluated the role and importance of financial statement in decision making in
ensuring that mangers use them effectively in an effort to make best decision that will enable the
organization achieve its goals.
1.3 OBJECTIVES
1. To determine whether the management make use of financial statement in decision making.
2. To identify the limitation dealing with the use of financial statement in decision making.
3. To find out the reasons for change in profitability and financial position of the firm.
4. To assess the earning capacity or profitability of the firm.
6
1.7 SCOPE OF THE STUDY
The study is based on the financial position of the firm by using ratio analysis. Financial
statement helps the management to analyze profit, solvency, liquidity and efficiency. These
assessments examine resource usage and cash flow to assess the financial health of the business.
7
8
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
Literature review of the study on assessment of financial statement analysis was done by
referring previous studies, articles and book to know the areas of study and analyses two gab that
was not done.
MY Khan and P.K Jain (2011), explained that the financial statements provide a summarized
view of the financials positions and operations of a firm.
Fleischman and Kindersley (2001) wrote and articles about the study on the purpose of
assessment of financial statements analysis Was to facilitate the decisions making of financial
report users and the managing of the public sectors
Sloan (1996) is probably the most well-known study on financial statements and analysis. He
finds that the accrued earnings are significantly less persistent than operating cash flow.
Kosher (2003) defined assessments of financials statements and analysis as a person’s feelings of
pleasure or disappointments resulting from comparing every year financials statements.
Susan ward (2008), emphasis that financial analysis using ratios between key values help
investors cope with the massive amount of numbers in company financial statements. All other
things remaining the same, a company that earns a higher percentage of profit compared to other
companies is a better investment option
Due to limited time for those who do the analysis of financial statements and also given the facts
that the these ratios are mostly correlated the number of ratios that are being evaluated has to be
reduced so that focus is given to a few with minimum loss of data (Taylor 1986)
Using principal components analysis the study reduced the number of variables for any further
regressions analysis from seventeen variables to three variables. This study proves that the
9
performance of a company can be analyzed using just a few factors or by focusing on few ratios
which is cost effective with lesser time as well as obtaining more precise results that have least
duplications of calculations.
Recently, Coy at (2001) suggested that the nation that stewardship is that primary accounting has
been replaced by a focus on decisions usefulness .when considering that any financials
information is disclosed should be under stable, reliable, relevant and comparable
The role of financial statements requires it to provide even-handed, neutral or unbiased
information specifically details that financial information should be useful for all users especially
investors and creditors.
Financial statements should provide information that is useful to presents and potentials investors
and creditors and other users in making rational investment, credit and similar decisions.
Financial statements and analysis is regarded as the most critical step in writing an effective
accounting Memo and this analysis includes information from relevant guidelines along with an
accountants own wants about how guidelines is applicable.
Having different accounting standards in the world is a problem for multinational public limited
companies and investors in order to be able to compare and evaluate financial statements
(Doupnik and Perera, 2009)
10
2.2.3 Matching principles of Accounting Theory
The matching Principles of accounting keeps the financial statements analysis associated with
specific revenue. The expenses are reported in the same period as the revenue generated .When
expenses are recognized too early, it can be difficult to see where they result in revenue. This can
potentially distort financial statements and give investors an unclear view of overall financial
position. According to the revenue recognition principle, revenue must be recognized and
recorded on the income statement when it’s earned or realized. According to the matching
principle, both the commission fee and cosmetic sales must be recorded in the same accounting
period meaning both should be recorded in income statement.
2.2.4 Monetary Unit Assumptions Theory
The monetary assumptions principles consider whether the value of money will remain stable.
This is important for companies that operate country wide for planning manufacturing and
inventory control. Company must record its business transactions in a stable currency and
available everywhere. Problems can arise due to variations in the value of money and ignorance
of qualitative factors such as quality of management and growth of competition. However, the
money measurement concept is accepted for its adaptability and understandability. The
monetary unit assumption is based on the assumption that all transactions can be measured in
money terms. The monetary unit assumption determines the balance sheet components. In
particular, income must be recorded in that from which can then be expressed in terms of money.
This is an important aspect to consider for a business entity because it cannot be automatically
from other accounts on a balance sheet.
2.3.3 To find out the reason for change in profitability and financial position of the fitm
Profitability is defined as the ability of a business to generate profits. Firm’s capital structure has
a positive impact on the performance of the firm. Large firms have more competitive efficiency
11
when compared to small firms in a competitive market as they are able to suffer losses through
internal resources during chaotic conditions.
2.3.4 To assess the earning capacity or profitability of the firm
The earning capacity of a business is assessed by financial analysis through profitability ration.
An income statement is traditionally used to measure profitability of the business for past
accounting period
12
To determine whether the management make use of financial statement in decision making
Inter-firm comparison improve banking analysis by bringing together technique which studies
the performance , efficiencies costs and profits of various concerns in order to have a relative
comparison.
To identify the limitation dealing with the use of financial statement in decision making
Forecast about future prospects of the firm within the banking industry have become increasingly
complex, limited knowledge of the extent to which financial forecasting procedures are currently
being utilized within the banking industry.
To find out the reason for change in profitability and financial position of the firm
Change in profitability and financial position of the firm improve banking analysis because
major mission among the several financial sectors has been to convert people’s savings into
productive investment and raise the living standards of people.
To assess earning capacity of the firm
Assess earning capacity of the firm improve banking analysis because it is a good indicator of
sufficient sources to cover operating expenses and provide adequate return on capital. One
typical method to assess the earning capacity includes assessing the earning capacity and
profitability of the firm.
13
CHAPTER 3
RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction
This chapter explains the methodology that was used in carrying the research work, crucial
issues that were discussed in this chapter includes research design, target population sample size,
data collection and techniques, questionnaire, data analysis techniques and ethical issues.
14
3.5 DATA COLLECTION INSTRUMENTS
The study was conducted using two data collecting methods:
I. Questionnaires
II. Interview
The main technique applied by the study was of the questionnaires which were issued to the
respondents and given enough time to answer the questionnaires. Questionnaires technique was
preferred because it covers a wide range of area and also it reaches many respondents at a
cheaper cost and also it saves time.
15
CHAPTER 4
DATA ANALYSIS, PRESENTATION AND INTERPRETATION
Introduction
This chapter includes data analysis, presentation and interpretation.
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
male female
16
In gender characteristics, it was found that majority of respondents where male than female
which means male gender was more satisfied than female.
4.2.3 Distribution by Education level
Education level Frequency Percentage
certificate 4 3
Diploma 40 33.3
Degree 46 38.3
Tertiary 30 25
TOTAL 120 100
Table 4.2
The researcher carried out an investigation on educations level of the respondent. This shows
that the highest percentage were educated meaning they understand the value of the urgency
banking and very familiar with it.
4.2.4 Distributions by marital status
Marital status Frequency Percentage
Married 72 60
Single 48 40
TOTAL 120 100
Table 4.3
The researcher distributions table on marital status shows that 60%of respondents who were
agent from the bank were married while 40%were single. This shows married people understand
more about assessments of financial statements
4.3Respondents related objectives
4.3.1 To determine whether the management make use of financial statement in decision
making.
The study was to determine if the managements use financial statements for making decisions
and from the sample they gave a different reason why they prefer to conduct the assessments of
financial statements from their premises.
Strongly Agree Strongly Disagree Neutral
agree disagree
Factors to 30% 25% 35% 10% 0%
determine
whether the
management
make use of
financial
statement
analysis in
decision
making
17
To determine 40% 10% 20% 10% 20%
if the
management
do conduct
financial
statement
assessment in
the premises
Cut all 30% 20% 10% 30% 0%
unnecessary
costs
Use to 10% 30% 20% 15% 15%
measure the
impact on the
company
Table 4.4
4.3.2 To identify the limitation dealing with the use of financial statement in the
management.
The limitations of financial statements are those factors that a user should be aware of before
relying on them to an excessive extent. The sample gave the different preference about the
limitation on financial statement.
Strongly Agree Strongly Disagree Neutral
agree disagree
Inflation 20% 20% 30% 20% 10%
adjustment
Specific time 30% 20% 30% 20% 0%
period
reporting
Fraudulent 40% 10% 20% 20% 10%
practices on
financial
statements
No discussion 10% 20% 30% 30% 10%
on non-
financial
issues
Table 4.5
4.3.3 To find out the reasons for change in profitability and financial position of the firm
The study was to measure the factors of profitability and financial positon of the firm and from
the questionnaire the higher percentage of respondents shows that the firm is a position to change
in profitability rate and financial position of the firm.
Agree Disagree Neutral Strongly Strongly
agree disagree
18
The degree of 20% 10% 40% 20% 10%
competition a
firm faces
The strength 20% 10% 10% 50% 10%
of demand
The state of 40% 20% 0% 20% 20%
of the
economy
management 30% 20% 10% 10% 40%
Table 4.6
4.3.4 To assess the earning capacity of the firm.
There were many individuals from the sample collected that prefer on the assessment of earning
capacity of the firm.
Agree Disagree Neutral Strongly Strongly
disagree agree
Assessing the 20% 30% 0 30% 20%
operational
efficiency and
managerial
effectives of the
company
Analyzing the 20% 20% 10% 20% 30%
current position
or financial
analysis
Analyzing the 30% 30% 0% 30% 10%
financial
strengths and
weakness and
credithworthness
of the company
Studying the 40% 10% 10% 30% 10%
reasonability of
stock and
debtors held by
the company
Table 4.7
19
CHAPTER FIVE
FINDING, CONCLUSION AND RECOMMENDATION
5.1 INTRODUCTION
According to the study goods, this chapter offers a summary, conclusion and suggestion
regarding research findings
According to the study findings regarding assessments of financial statement and analysis in
public institution they sought to investigate out factors influencing the analysis of financial
statements in the bank
20
This shows that the highest percentage were educated meaning they understand the value of
assessment of financial statements.
5.3 CONCLUSION
From the research findings, I can finally conclude that the highest level of assessment of
financial statement and analysis in public institution is derived from easy accessibility of book of
records in the firm. Therefore the level of accessibility impacts the management satisfaction in a
direct proportion to the higher satisfaction.
Finally the bank agents showed a positive attitude towards the researcher finding conducted
between them. The banking industry has adopted this strategy to increase its financial transaction
and reach out the investors. The bank therefore makes new changes through the use of advanced
technology to ensure accessibility of financial reports and statement for efficiency of services
and reliability of financial products.
5.4 RECOMMENDATION
1. The researcher recommends assessment of financial statement and analysis should be done
annually to avoid laziness among the management.
2. The study also recommends that the management should heavily take up the financial
assessment initiative as a mandatory to avoid errors in books of accounts.
3. There should be an effective and operational control system to ensure greater control of
financial statement and continuous improvement and implementation of suggestion from the
assessment report.
4. The management expresses sincere admiration for the outstanding effort in the workplace for
the study.
21
REFERENCES
Adolf et al (1978), Preparing financial report to be used in decision making is a difficult
Task to many, if not al of the commercial, industrial and government
Organizations.
Cole (2000), presuppose that in most continental Europe, Asia, the traditional
Scarcity of outsiders’ shareholders has meant that external financial
Reporting has been largely invented for the purpose of protecting
creditors or controllers of the economy.
Fleischman and Kindersley (2001), Wrote an article about the study on purpose of
assessment of financial statement analysis.
Kennedy and Muller (1999), Explain that the analysis and the interpretation of financial
Statements are an attempt to determine the significance and
meaning of financial statements.
Kother (2003), Defined assessment of financial statement and analysis as a person
feeling of pleasure or disappointment resulting from comparing
every year financial statement.
My Khan and Pk Jain (2011), Explained that the financial statements provide a summarized
View of the financial position and operation of a firm.
Sloan (1996), Is probably the most well known in the study on financial
Statements and analysis. He finds that accrued earnings are
Significantly less persistent than operating cash flow.
Susan Ward (2008) Emphasize that financial statement analysis using ratios between
Key values help investors cope with massive amount of numbers
In company’s financial statement.
22
Appendices
Timothy kiplangat.
23
Appendix ii: Questionnaire
This questionnaire is designed to gather information to be used for the purpose of academic
research intended to investigate the factors influencing Assessment of Financial statement and
analysis by investors and shareholders.
SECTION A: GENERAL INFORMATION
1. What is your gender? (Kindly tick appropriately)
Male [ ]
Female [ ]
2. Which age bracket do you belong?(kindly tick appropriately)
18-25[ ] 41-50[ ]
26-30[ ] Above 50 [ ]
31-40[ ]
3. What is your level of education?(kindly tick appropriately)
Degree [ ] Secondary [ ]
Diploma [ ]
Certificate [ ]
4. Marital status?
Married [ ]
Single [ ]
5. For how long have you been serving as a KCB bank agent?
Less than a year [ ]
More than a year [ ]
24
SECTION B
4.3.0 Respondents related objective.
4.3.1 To determine whether the management make use of financial statement in decision
making
Strongly Agree Strongly Disagree Neutral
agree disagree
Factors to
determine
whether the
management
make use of
financial
statement
analysis in
decision
making
To determine
if the
management
do conduct
financial
assessment
from the
premises
Cut all
unnecessary
costs
Use to
measure the
impact on the
company
25
4.3.2 To identify the limitation dealing with the use of financial statement in decision
making
Strongly agree Strongly disagree neutral
agree disagree
Inflation
adjustment
Specific time
period of
reporting
Fraudulent
practices on
financial
statements
No discussion
on non-
financial
issues
4.3.3 To find out the reason for change in profitability and financial position of the firm
Agree Disagree Neutral Strongly Strongly
agree disagree
Assessing the
operational
efficiency and
amangerial
effectiveness of
the company
Analyzing the
current position
or financial
analysis
Analyzing the
financial
strengths and
weakness and
credithworthness
of the company
Studying the
reasonability of
stock and
debtors held by
the company
26
4.3.4 To assess the earning capacity or profitability of the firm
Agree Disagree Neutral Strongly Strongly
agree disagree
The degree of
competition a
firm faces
The strength
of demand
The state of
the economy
Management
27