ABSTRACT
Financial statements are crucial documents for assessing and comparing an organization's performance. These statements are prepared by management to indicate the health and status of a company throughout time. Banks in Nigeria are required by law to get permission from the Central Bank of Nigeria before releasing their audited financial reports. Financial performance is a monetary evaluation of an organization's financial and economic activity. Banks play a critical role in Nigeria's economic growth and their performance warrants closer examination. The relationship between financial statements and performance assessment is investigated in this study, with a special focus on the Profitability, Cash flow and Balance sheet. The study looks at Zenith Bank, GTB, and UBA's financial accounts during a ten-year period (2010–2019). The banks were chosen because three of Nigeria's five Tier 1 banks are situated in the Maiduguri area of the country. The study was based on the analysis of ten years audited financial statements of the banks. The chosen banks include Zenith Bank, GTbank and UBA being among the top ten banks in Nigeria. The population of this study consists all the 22 commercial banks as listed on the Nigerian Stock Exchange. The study was conducted using the audited financial statements of Zenith Bank, GTBank and UBA for the last ten years (2010-2019). Independent variables are financial ratios such as: ROA (return on assets), equity multiplier (EM), liquidity ratios, net interest margin (NIM) and loan-to-asset ratio (LAR). Total assets: This refers to the total amount of assets owned by a person or entity. Earnings per share: This is a significant financial measure, which highlights profitability of organizations. Total equity: Total equity is the value left in the company after subtracting total liabilities from total assets. Financial reporting has significant impact on profit expense ratio of the selected financial institutions. Zenith bank was more liquid compared with UBA and GTbank. Although, higher liquidity ratios were observed regularly among the three banks, this was attributed to the significant holdings of government securities such as treasury bills, federal government bonds. GTbank is most vulnerable to default risk and also had the lowest liquidity ratio of 47% compared with UBA and Zenith bank. The observed swing in the loan to deposit ratio between 2015, 2016 and 2018 was due to macroeconomic distortion occasion by inflationary pressure and rising interest rates.
INTRODUCTION
Background to the study
As a conduit for the movement of economic and financial resources into the economy, the banking industry is vital. As a result, it's necessary to evaluate their performance on a regular basis in order to guarantee that banks remain sound, stable, and safe in order to encourage long-term economic growth. Financial statements are crucial documents for assessing and comparing an organization's performance. These statements are prepared by management to indicate the health and status of a company throughout time. A overview of an organization's accounts, a statement of financial position that indicates liabilities, capital, and assets, and a statement of comprehensive income that illustrates the outcomes of operations over time are all included in financial statements. Meyer(2009).
Because financial statements are viewed as a trustworthy source of information for evaluating performance and making choices, it is critical to ensure that the facts generated from financial statements are as accurate, correct, and relevant as possible. To determine a bank's soundness, stability, and safety, financial statement analysis employs a variety of procedures and techniques. Banks in Nigeria are required by law to get permission from the Central Bank of Nigeria before releasing their audited financial reports. The monetary authority will be able to analyze the banks' soundness, stability, and safety, as well as provide assurance on the accuracy and reliability of financial accounts, as a result of this.
The primary objectives of financial statement analysis are to study financial data (both historical and present) in order to understand a company's financial performance and facilitate efficient decision-making a thorough examination of any potential issues (Woelfel, 1988). According to a research by Saoud, financial statement analysis is a strategy for studying and assessing an organization's financial statements in order to identify or scale its past, current, or predicted future performance, allowing for more effective economic decision making (2020). Financial performance is a monetary evaluation of an organization's financial and economic activity. Because they are reliable sources of useful information about an organization's health, cash flow statements, income statements, and financial position are important reports for assessing financial performance. It also offers stakeholders, owners, and analysts with thorough justifications for changes in a company's cash balances over an accounting period. It's worth mentioning that financial ratios are critical for obtaining data about a bank's financial performance. Financial ratios may also be used to assess a company's profitability and operational efficiency. As a consequence, enabling factors such as solvency and efficiency may be adequately evaluated. Globalization, macroeconomic distortions, new technology, supervisory concerns, fierce competition, and a high-risk business environment have all had an influence on Deposit Money Banks (DMBs). Banks must continually alter and adopt new strategies in order to solve severe difficulties and develop. Banks play a critical role in economic growth, and their performance warrants closer examination. Despite the fact that the Nigerian banking industry has achieved significant progress, more work is required to keep up with local and global macroeconomic development, technological advancements, and aggressive regulatory and supervisory policy choices.
Statement of the Problem
The extent to which bank financial statement studies are used in assessing their performance, as well as the various stakeholders' reliance on the analysis' conclusions for decision-making reasons, is investigated in this study. The veracity of financial statements has been questioned by financial professionals, tax authorities, potential investors, general public shareholders, and creditors. Financial reports, they argue, do not fully reflect company activities, rendering them worthless as a tool for evaluating success. For example, stating assets at their historical cost ignores the effect of inflation, even though the real value of such assets may have eroded, or the fact that financial statements do not include variables such as customer satisfaction, risk, and other factors that are important in determining a bank's overall performance. The relationship between financial statements and performance assessment is investigated in this study, with a special focus on the Profitability, Cash flow and Balance sheet
OBJECTIVE OF THE STUDY
The main objective of this study to on comparative analysis of the financial statement as a measure to access the performance of the selected banks in Maiduguri
As a result, the study's specific objectives are to:
- Investigate how financial statements represent the performance of financial institutions, with an emphasis on Profitability, Cash flow and Balance sheet of the selected banks.
- To Evaluate the impact of financial statements on bank performance.
- Identify the role of financial statements as decision-making tools in banks.
Research Questions
Consider the following questions:
- How do financial statements represent the performance of financial institutions, with an emphasis on Profitability, Cash flow and Balance sheet of the selected banks?
- What are the the impact of financial statements on bank performance.
- Identify the role of financial statements as decision-making tools in banks.
Hypothesis Based on the study's research questions and objectives, the following working hypotheses have been developed:
HO: Financial statements do not represent the performance of financial institutions, with an emphasis on Profitability, Cash flow and Balance sheet of the selected banks?
HO: there is no impact of financial statements on bank performance.
Scope of the study
The scope is Maiduguri. The research looks at Zenith Bank, GTB, and UBA's financial accounts during a ten-year period (2010–2019). Because of the nature of the research, 10 years is an appropriate period of time to get thorough results. The banks were chosen because three of Nigeria's five Tier 1 banks, i.e. the country's biggest banks, are situated there.
Significance of the study
The importance of the study derives from the need for businesses to provide financial statements that are as transparent and acceptable as possible, in accordance with international best practices. This is to ensure that financial statement preparation receives greater attention because it serves as the cornerstone for any firm's analysis and performance evaluation, as well as contributing to high-quality decision-making. In view of the aforementioned, a frequent critical examination of a bank's financial statements is required to assess its performance and establish its profitability, stability, and viability. Financial analysis also assists in noticing changes in financial patterns, assessing progress, establishing links between financial variables, and generating logical conclusions regarding the success of the firm. Another key aspect of financial analysis is comparing a company's performance to that of its rivals (Laitnen, 2006). Financial analysis is also used to help businesses grow and flourish by allowing them to make better economic decisions.
Limitations to the study.
Despite efforts to conduct interviews with key personnel from the relevant banks under investigation, the researcher was unable to do so due to the global COVID-19 epidemic, which prevented the researcher from gathering information and results that would have been useful in improving the overall quality and relevance of the research.
DEFINITION OF OPERATIONAL TERMS
BANK: Banks are financial intermediaries that regulate the economic flow of resources by taking finances from those with surplus (through deposits) and giving it to those with deficits(through loans).
BANK PERFORMANCE: Progress made by a bank in the utilization of its resources to achieve its objectives.
FINANCIAL ANALYSIS: It is often based on information extracted from financial statements.
FINANCIAL STATEMENTS: These are documents that portray recorded accounting information in monetary terms e.g. statement of financial position, statement of changes in equity, cash flow statement, statement of comprehensive income.
ROA: The return on assets(ROA) shows the percentage of how profitable a company’s assets are in generating revenue.
ROE: a measure of the profitability of a business in relation to equity.
