Accounting for Managers to Make Decisions:590074

Question:

Interpret the  financial Information of First Bank of Nigeria Plc applying the following model, techniques and reflections studied during the module:

Measuring Financial Performance

Statement of Financial Position

Measuring and reporting cash flow

Profit & Loss Account

Analysing and interpreting financial Statements

Making capital investment decisions

Cost-volume-profit analysis

Costing

Budgeting

Managing working capital

Financing a business

Answer:

Introduction:

This report has been organized to analyze the financial and non financial performance of the company. This report offers the user about the various techniques and tools which are helpful for the company to analyze its financial performance and interpret the financial information with the analyst. It has been found that every tool is significant to analyze the performance of the company.

In this report, first Bank of Nigeria Plc has been investigated. Balance sheet, profit and loss account, cash flow statement, budgeting, cost volume profit analysis etc have been done over First Bank of Nigeria Plc. Through this report financial report of First Bank of Nigeria Plc has been investigated.

Company overview:

First Bank of Nigeria plc offers many corporate and retail banking services and products in Nigeria and globally. The company functions through Corporate Banking, Retail Banking, Public Sector segments and commercial banking. It provides fixed deposit, savings, current and domiciliary accounts that is automobile, term deposits; household equipment, personal home and secured term and personal loans alongside salary; protected overdraft product; income loans and overdraft.

This company also provides Internet Banking, short message service, mobile phone banking, automated teller machine, point of sales terminal and Internet compensation services; debit and credit cards; indemnity brokerage services; money transfer services and e-payment; and different reserves services. Further, it provides retirement fund assets guardian and credit banking services. This company proposes its services and products to SMEs and individuals, local and multinational corporations, governmental institutions throughout a 750 branches network. First Bank of Nigeria Limited has been founded in 1894 and it is situated in Lagos, Nigeria. It operates as FBN Holdings Plc’s subsidiary.

Measurement of financial performance:

Measuring financial performance of an organization is an imperative part of administrating a growing company. Many businesses become unsuccessful due to poor planning or financial management. An organizations success depends on mounting and implementing powerful system of finance and management. It helps an organization to update all the required information. An evaluation of financial performance of an organization could help it to reassess the business plan and goals effectively to improve the company’s operations. While conducting a financial review on First bank of Nigeria plc, following tools has been considered:

Statement of financial position:

It is another known as balance sheet. It is one of the important financial statements and it informs an organization’s liabilities, assets and disparity in total sum.  This amounts accounted on the balance sheet are the total amounts as final instant of an accounting era.

The organization of the balance sheet is quite similar to basic accounting equation. Such as a corporation would account sum in the below format:

Assets = Liabilities + Stockholders’ Equity.

Statement of financial position of first bank of Nigeria depict that the financial performance of the company has been increased from last year. The current asset of the company has been increased but the total asset of the company has been reduced by .03% due to many internal and external factors. It has been found that the company has many changes from the last year in current year to manage the financial strength and performance of the company. It has been found that the Liabilities of the company have also reduced from last year. This has taken place due to the asset and liability balance of the company. The reduction rate is .05%.

The paid up capital of the company is same in last 2 years. Retained earnings of the company has been enhanced due to the fact that company is out of money and for new investment company has enhanced the fund from the retained earning so that the debt equity ratio of the company could be managed. It has also found that the total shareholder equity of the company has been enhanced.

Statement of cash flow:

It is a financial statement which depicts about the modifications in balance sheet and profit and loss statement affects the cash and smashes the investigation down to financing, operating and investing activities. Basically, the cash flow statement is concerned with the business’s cash flow. This statement detains both the current working results and the associated changes in the final financial statement.

Statement of cash flow of first bank of Nigeria depict that the cash inflow of the company has been increased from last year. The cash inflow from operating activities is 457961 in 2015 and earlier it was -460245 in 2014. It depict that the cash management of the company have been increased. Company has bought fewer assets this year that is why the cash in the hand of the company is quite higher than last year. Other operating activities of the company have also helped the company to enhance the cash in hand.

The cash inflow from investing activities is -190405 in 2015 and earlier it was -14290 in 2014. It depict that the cash outflow of investing activities has been increased by 12.32%, it depict that company has invested more amount this year rather than last year. It shows that the assets of the company have been enhanced but the cash inflow of the company has been reduced.

Further, the financing activities of the company depict that earlier the 198831 was the cash inflow of the company but in current scenario, the financing activities of the company has been reduced to -113754. It depict that the cash outflow of the company has been decreased. Lastly it depict that the total cash inflow of the company has been enhanced.

Profit and loss account:

It is a financial statement which reports a financial performance of a company over a definite accounting era. Financial performance could be reviewed by offering a summary about the business that how it incurs its expenses and revenue throughout both non-operating activities and operating activities.

Statement of income statement of first bank of Nigeria depict that the revenue of the company has been increased from last year. The revenue of the company is 378790 in 2015 and earlier it was 349277in 2014. It depict that the sales of the company have been increased. Still, the net revenue of the company has been decreased from last year by 70%. The total expenses of the company have been increased from last year due to many internal and external factors.

Net income of the company has been found 2552 in 2015 and 84827 in 2014 which depict that the company has faced as total 96% reduction in the net profit from last year. Due to it, the earnings of the shareholder of the company have also been reduced. In 2014, shareholders were getting 2.36 on each share but in 2015, this amount has been reduced to .08. Due to it, company has also made changes in its outstanding share and the total outstanding share of the company has been reduced from last year. Thus it could be said that company has faced many issues due to market and economic condition.

Analysis and interpretation of financial statements:

Through analyzing and interpreting balance sheet, income statement and cash flow statement of the company, it has been analyzed that company has faced many changes from last year due to many internal and external factors. It has been analyzed that the liquidity ratio of the company has been enhanced from last year that means company has made some changes into its current assets and liabilities to manage the liquidity condition.

Further, it has been analyzed that the profitability ratio of the company depict that the net profit of the company has been enhanced from last year and at the same time the return on equity of the company has also been enhanced. Debt equity ratio of the company depict that the debt of the company has been decreased in comparison of equity of the company from last year. Efficiency ratio of the company also depict that the efficiency of the company has been improved from last year.

Thus it has been analyzed that company is performing average in the market. Many internal and external factors have impacted over the company’s performance. The economic condition of the company is not in the favor of the company. Financial statements of the company depict that the investment in the company would not be in the favor of the investors in current scenario.

Capital investment decision:

Capital investment decision refers to a decision which is taken for making an investment in a firm for the reason of adding value to its business goals. Capital investment could also submit to a company’s achievement of fixed assets or capital assets like machinery and manufacturing plants which is predictable to be more industrious over many years. There are many basis of capital investment which includes equity investors, venture capital, angel investors, banks and financial institutions.

Capital investment decision of first bank of Nigeria has been analyzed and found that the company could enhance its debt as well as equity to enhance the capital. Through the analysis over the company, it has been found that from numerous sources of capital, retained earnings, debts and equity sources are the best. Through the market analysis and economy analysis of the country, it has been found that the equity source is the best source for the company. Company even has enhanced the equity from last year to manage the capital of the company. Debt of the company has also been decreased by the company due to high cost of capital. It has been found that cost of equity is quite lesser than the cost of equity.

It has also found that the dividend per share of the company has been reduced from last year by the company due to retaining the amount for other investments and further expansion of the bank.

Through this analysis, it is suggested to the bank to raise the funds through equity than debt as it would be more helpful for the company than the other sources.

Cost volume profit analysis:

Cost-volume profit analysis (CVP) is based upon analyzing the BEP of sales volume and sales cost and it could be helpful for administers to take short-term financial decisions. CVP analysis prepares numerous assumptions for becoming more relevant which includes sales price variable cost per unit and fixed cost are constant. This analysis contains using numerous equations through using cost, price and other variables and intrigues them over an economic graph.

Cost volume profit analysis over first bank of Nigeria has been analyzed and found that the first bank of Nigeria is a bank and cost volume profit analysis could be conducted over a manufacturing company to analysis that whether the company is able to make the profits or how much units of a product must be introduced by the company to achieve the breakeven point. Further, cost volume profit analysis helps a company to make decisions about the production level and it also helps the company to make decisions about the variable and fixed cost of the production house.

Costing:

Costing is a system to assign the costs to an aspect of a business. It is typically used for developing costs for the following:

Customers

Geographic regions

Products

Distribution channels

Employees

Processes

Subsidiaries

Product lines

Entire companies

Costing only involves the task of variable costs which costs vary with some activities like number of employees. It is also called direct costing. For illustration, materials cost varies with total production like number of employees and thus it is known as variable cost.

Costing could also contain the fixed costs which are same with every level of production irrespective of activity level. It is also called absorption costing. Such as fixed costs like rent, property taxes and insurance.

Cost analysis over first bank of Nigeria has been analyzed and found that the first bank of Nigeria is a bank and cost analysis could be conducted over a manufacturing company to assign the different cost to the different elements of the organization. Further, cost analysis helps a company to make decisions about the total cost and the total profit of the company.

Budgeting:

Budgeting is the progression of making a plan to use organization’s money. This expenditure plan is called budget. Making this expenditure plan permits the company to decide in progress whether company would have sufficient money to accomplish the things organization would like to do or need to do. Budgeting is simply managing your income with the expenses.

Budgeting process of first bank of Nigeria has been analyzed and found that this bank also makes the budget to analyze the future expenses and income of the company. Budgeting helps the company to manage the liquidity position and it also helps the company to make the best of the strategy for the company.

Managing working capital:

It is to determine the efficiency of the company and financial health for the short term of the company. Formula of working capital is as follows:

Working Capital = Current Assets – Current Liabilities

This ratio indicates that whether a firm has sufficient short term assets for managing the short term debts.

Working capital of first bank of Nigeria was -24,55,844.0 in 2014 and further, it has expanded to the -23,29,030.0. It depicts that the company has managed the working capital smoothly. Company has introduced many new strategies to manage the working capital.

Financing a business:

Financing a business means raising the fund through many sources to meet the short term obligation of the company. It is required for every organization to find the suitable source as a wrong source of capital could be dangerous for the company.

It has been found through the analysis over the company that loan from central bank is the best option for the company to finance the business.

Recommendation and conclusion:

Through the analysis over first bank of Nigeria, it has been found that the company is performing very well and there are lesser chances of the investors to get return from this company as the economy condition and market condition are not in the favor of the company and the return of the company has also been decreased from last year.

Thus it could be concluded that the financial statements of the company is depicting average performance of the company.

Bibliography:

Morningstar. 2017. First bank of Nigeria. Retrieved from http://financials.morningstar.com/balance-sheet/bs.html?t=FBNH&region=nga on 22 July 2017

Annual Report. 2017. First bank of Nigeria. Retrieved from http://ir.fbnholdings.com/financial-information/annual-reports/ on 22 July 2017