CHAPTER ONE
Ratio analysis is one of the analytical tools used in analyzing the financial statement of companies. Ratio analysis is simply measuring the relationship between two variables that are in the financial statement of the company. For example, x/y; this is a ratio that measures the relationship between x and y. Ratios analysis simplified, summarizes, and systematizes a long array of accounting figures. Its main contribution lies in bringing out the inter-relationship which exists between various segments of business. Ratios are more of a diagnostic tool that helps to identify problem areas and opportunities within a company. Accounting ratios has been frequently practicing for many years by companies, micro-finance institutions (MFI) and enterprises for decision making. Accounting ratios also help the managers of enterprises to know the profit and expenses and in general the financial health of the enterprise. This information is carefully prepared from financial statements by management accountant and handed over to the manager for evaluation and implementation of decisions. Ratio analysis is one of the analytical tools used in analyzing the financial statement of MITACCUL. These ratios are used for decision making. Some of these ratios used by MITACCUL for decision making include liquidity ratios, profitability ratios and collection rate ratios. The extent to which these accounting ratios affect decision making has really called the attention of the researcher. This project is made up of five chapters.
Chapter one is the general introduction and definition, chapter two literature review, chapter three the methodology, chapter four is the analysis and presentation of data and chapter five is discussion, conclusion and recommendation
This background includes; historical, theoretical, conceptual and contextual
1.1.1 Historical Background
This research is about the impact of using accounting ratios in decision making. Decision making is the most important element in management activities of all kinds of enterprises; profit-oriented, non-profit oriented and public institutions. This research is carried out in profit-oriented micro-finance where decisions are made based on different aspects among which the use of accounting ratios should have a great impact. The use of financial reporting is the main aspect in decision making. According to (Charles H. and others (1989) financial reporting is not the end in itself but it is intended to provide information that is useful in making business and economic decisions. It is in this regard the researcher was motivated in finding the extent to which management dealers may depend on accounting ratios in decision making.
The main objective of this chapter is to introduce the researcher’s topic and its content which include: background of the study, statement of the problem, objectives of the study, hypothesis, research questions, significance of the study, scope of the study and organization of the study.
As an art, management has been practiced since the early beginning of twentieth century. It had got a great evolution at the time of industrial revolution which started in England around the mid-eighteenth century. Prior to this, most of business enterprises were characterized by craftsmanship rather than mechanization or technology and faced the problem much simpler than those faced by today's firms in our complex industrial and technological society.
Consequently, managers had to look for the means of discharging their stewardship responsibility; this can be obtained using accounting ratios.
The use of accounting ratios is a time-tested method of analyzing a business. Wall Street investment firms, bank loan officers and knowledgeable business owners all use accounting ratio analysis to learn more about a company's current financial status as well as its potential.
This research employs theory to assist in determining suitable factors that could influence voluntary financial ratio disclosures patterns between the accountant and users of ratios analysis information. Here the researcher will be discussing on Agency Theory by Stephen (1973) and Signaling Theory by Michael Spence (1973).
1.1.2.1 Agency Theory by Stephen Ross (1973)
1.1.2.2 Signaling Theory by Michael Spence (1973)
Signaling theory was originally developed to clarify the information asymmetry in the labour market. It has also been used to explain voluntary disclosure in corporate reporting. The theory argues that the existence of information asymmetry can also be taken as a reason for good companies to use financial information to send signals to the market. Information disclosed by managers to the market reduces information asymmetry and is interpreted as a good signal by the market. With an intent to signal by the market. With an intent to signal their performance, management of a company will engage in earning management. Furthermore, the theory depicts that managers man oeuvre earning to convey their inside information about MFI’s prospects and thus it serves as a signaling mechanism. Managers engaging in earning management to creating a smooth and growing earnings string over time that will enable them affect the share price.
Studies have modelled some form of information asymmetry and showed making decision as rational equilibrium behavior. These studies documented signaling evidence of earning management.
Here we are going to define the terms that makes up the topic.
According to English dictionary, Accounting is the development and the use of a system for recording and analyzing transactions and financial status of a business or other organization.
According to an OHADA Accounting text book, Accounting is an act of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events that are in part at least of a financial character and interpreting results thereafter.
1.1.3.2. Ratio
According to the Webster's New Collegiate Dictionary, Mass: G&C (1975), a ratio is defined as «the indicated quotient of two mathematical expressions» and as «the relation between two or more things»
According to English dictionary, Ratio is the relative magnitudes of two quantities usually expressed as quotient.
1.1.3.3 Liquidity or solvency ratio
These ratios measure the ability of a company to meet it short term obligations. Mostly, their interested users are short-term creditors. Two variables are very permanent in these ratios. That is current asset and current liability. Types of solvency ratios are
- Current ratio (CR)= current assets ÷ current liability: which measure the number of times assets can cover the current liability of a company.
- Acid test ratio/Quick ratio= (current asset – stock) ÷ current liability: this ratio is measuring the number of times the current liabilities can be covered by much more liquid assets
- Debtors turnover ratio = (annual credit sales ÷ debtors) × time: these measures the number of times debtors remain unpaid.
1.1.3.4 Profitability ratios
These are ratios which measure the overall of profitability of a company in relation to its sales. Mostly interested users are employees and owners. This ratio is calculated as follows:
Profitability ratio = (gross profit ÷ sales) × 100
1.1.3.4 Collection Rates Ratio
Many MFI (micro finance institutions) claim to recover 98 or 99 percent of the funds lends. This claim implies an indicator whose numerator is actual cash collections of principal and whose denominator is the principal amount that was due to be paid. We’ll call this kind of ratio a collection rate.
A collection rate ratio has advantages of using elementary information that even simple information system can usually generate. As a result of this kind of portfolio quality measure is use by more MFIs than any other. It includes ratios such as collection on-time rate, current collection rate and renegotiation rate. It is calculated as
Collection rate = amount collected/amount fallen due
1.1.3.5 Valuation ratios
The valuation ratios indicate the market valuation of a stock in terms of some measure of company fundamentals such as earnings, book value, cash flows, and dividends. These are the ratios that investors tend to look at daily. These ratios change whenever the price of the stock changes. We will discuss the price/earnings ratios, the price/book value ratio, the price/cash flow ratio, and dividend yield.
1. Price / Earnings ratio (P/E)
This is the most widely used valuation ratio.
Market Price per share
Earnings per Share
P/E = Market price per share / Earnings per share
The earnings per share (EPS) is calculated as the net income available for ordinary shareholders divided by the number of issued shares.
EPS = Net income / Number of shares
2. Price / Book Value Ratio (P/BV) = Market price per share / Book value per share
The book value per share is calculated as the equity divided by the number of ordinary shares outstanding
BV = Equity / Number of shares
3. Price / Cash Flow Ratio
Total cash flow = Net income + Depreciation & Amortization
CF = Total cash flow / Number of shares
4. Dividend Yield (DY) = Dividend per share x 100 / Market price per share
1.1.3.6 ASSETS MANAGEMENT RATIOS
Asset management ratios also known as efficiency ratios indicate the efficiency of the use of assets in generating sales. There are five (05) more important efficiency ratios: average collection period, inventory turnover, cash conversion cycle, fixed assets turnover and total assets turnover.
The scope of this study is to investigate whether accounting ratio influence decision making. With this information, an organization or a firm will be able to know whether it is making a gain or a loss or it is breaking even.
Mitanyen Cooperative Credit Union Limited (MITACCUL) is a large and dynamic micro-finance institution which is a people owned and loan cooperative society that is operated on sound cooperative and business principles.
This credit union started on the 16/01/2000 with 137 members living in Bamenda and its environs. The first meeting was held in Mankon at Longla comprehensive college whereby Mr. Ngwafor Moses Nchang presided over the meeting and during the deliberation, some members approved the proposal to form credit union (MITACCUL) which is one of the most successful credit union affiliated to CAMCCUL.
MITACCUL operates under micro-finance law on 92/006 of 14/08/1992, relating to the rules and the regulations governing cooperative societies and common initiative group in Cameroon, as well as decree no 92/455/pm of 23/11/1992. Also, MITACCUL operates under the COBAC regulation decision no D-2001/05, code no 19704, of 11/01/2001, and ministerial decision no 00395/MINEF Affiliated to CAMCCUL with the registration no REG: MINAGRA: NW/CO/28/00/3304 of 09/05/2000 at Bamenda based on COBAC decision no 19703 of 11/01/2001. More so, MATICCUL on the 18th day of October 2008 at Bamenda was awarded with a certificate of recognition as one of the biggest credit union by shares and savings of the CAMCCUL Network.
In view of the fact that no business can operate in isolation of accounting, it suffices to note that accounting information plays the role of the guardian in business activities. It is clear that managers of cooperatives are required to make financial statements and calculate ratios to comply with requirements of financial statements users for decision making or to guide them to see the strength or weakness of their business operations and hence leading into desired decision making. Decision making calls information and the proper use of the information is an important part of decision-making (Cooper and Dart, 2009).
Despite the effect of accounting ratio on the decision making of enterprises, companies, and micro-finance institutions couple with the fact that no business can operate in isolation of accounting, some business turn isolate themselves from using accounting ratios as tools for decision making. When a company does not use ratios, the decisions taken are not accurate which leads to poor management decisions, fall in the profitability of the MFI, poor collection rate decisions/evaluations and insolvency.
This is why the researcher decided to embark on the topic, the effect of ratio analysis on the decision making of MITACCUL.
The researcher objective is divided in to main and specific objectives.
To investigate the effect of accounting ratios on the decision making of MITACCUL.
1.3.2. Specific Objectives
The study seeks;
1.. To analyze the effect of liquidity ratios analysis on the decision making of MITACCUL.
2.. To analyze the effect of profitability ratios analysis on the decision making of MITACCUL.
3.. To analyze the effect of collection rate ratios analysis on the decision making of MITACCUL.
The research questions are divided in to main and specific questions
What is the effect of accounting ratios on the decision making of MITACCUL?
1) What is the effect of liquidity ratios analysis on the decision making of MITACCUL?
2) What is the effect of profitability ratios analysis on the decision making of MITACCUL?
3) What is the effect of collection rate ratios analysis on the decision making of MITACCUL?
1.5 HYPOTHESIS OF THE STUDY
1.5.1 Main Hypothesis
Accounting ratios analysis has a significant effect on the decision making of MITACCUL.
1.5.2 Specific Hypothesis
1) Liquidity ratios analysis has a significant effect on the decision making of MITACCUL.
2) Profitability ratios analysis has a significant effect on the decision making of MITACCUL.
3) Collection rate ratios analysis has a significant effect on the decision making of MITACCUL.
1.6. SIGNIFICANCE OF THE STUDY
This study is very important to the researcher as it equips him of the knowledge of financial analysis techniques and the interpretation of the available data for managerial purpose using ratio analysis. It further helps in designing proper solution for identified problems.
This study will enable the researcher to obtain Higher National Diploma (HND) in accounting sciences. The research enables managers to understand better the role that accounting ratios plays in decision making and it will attempt to make a causative analysis and designed the possible alternative for improvement of managerial decision making for the growth of Mitanyen Cooperative Credit Union Limited (MITACCUL). This study will become a base for further research and provide the necessary information for action by the concerned parties.
1.7. JUSTIFICATION OF THE STUDY
Accounting ratios are vital tools in decision making. For example, the expansion and the growth of a micro-finance institution will depend on the Net profit to sales Ratio. Therefore, a high Net profit to sales ratio will stimulate growth, expansion and a higher return on owner’s equity. With this maximized turnover, the micro-finance is bound to grow and expand.
The scope of the study is the delimitation of the study and it is broken down in to three components which are
The researcher carried out this study within a period of three months. That is from 13th June to the 13th of August 2019. This period was a challenging and a highly returning period in Mitanyen Cooperative Credit Union Limited (MITACCUL). Within this period, the micro-finance which deals with financial transaction such as creating deposit account, saving account, grant loans to its members, receive and send money and so accounting skills has a lot of role in the micro-finance as far as analysis is concern which bring into play ratios for better decision making.
This work delimits itself within the sphere of management and decision making with particular reference to accounting ratios analysis.
LITERATURE REVIEW AND PRESENTATION OF INTERNSHIP ACTIVITIES
In this chapter, the researcher will base his attention on the studying and examining accounting ratios and its effect on decision making of MITACCUL. To this effect, the researcher will equally outline and examine some theories (review by theories) to best demonstrate the impact of accounting ratios on decision making as well as definition of some concept (review by concept), show how the objectives in the previous chapter are achieved (review of objectives) and give an exclusive internship report.
Two theories are reviewed under this chapter, which are the Agency Theory by and Signaling theory.
2.1.1. Agency Theory by Stephen Ross (1973)
This research employ theory to assist in determining suitable factors that could influence voluntary financial ratio disclosures patterns where the accountant (agent) collect, analyse, summarise financial information then calculate ratios which are being use by the principal (investors, shareholders, managers, the government and employees) for decision making. This could also be explained as shareholders (principal) delegate their powers to the board of directors/managers (agent) to use financial ratios analysis for decision making. Agency theory is concern with the relationship between the principal (managers, shareholders, employees) and agent (accountant) of the micro-finance institution (MFI). The underling basis of agency theory is that one party (the principal) assigns work to another (the agent) who performs that work. According to Jensen and meckling (1976, p.308), agency relationship is defined as ‘a contract under which one or more persons (the principal/s) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent.
They also explain that agency theory enhances the understanding of the situation where separate ownership and control between owner and top management of the firm occurs. They also suggest that these parties have their own concerns and preferences giving rise to what is known as a „conflict of interest‟. A conflict of interest arises from divergent goals between the principal and agent, and difficulties in monitoring agents‟ actions (Eisenhardt,1989). The principal uses the various ratios provided by the agent to make decision about the micro-finance institution.
According to Fama and Jensen (1983), a considerably high cost is needed to monitor the
actions and decisions made by an agent. This is because full monitoring of an agent’s actions seems unlikely in any principal-agent contract especially for large MFI in developed industrial societies (Scott, 1997). In addition, Healy and Palepu (2001) suggest the resolution to agency problems may require formal contracts, monitoring of management by the board of directors, information intermediaries and the market for corporate control.
2.1.1.2 Advantages of calculating ratios analysis within the Annual Reportan
This section provides insights into the benefits of increased use of accounting ratios analysis. It is based on the argument that MFI should provide sufficient decision-useful information to their stakeholders. Knauss (1964, p.607) posits that “disclosure, however, is not a simple method of regulation having universal application and universal effectiveness. It assumes a different role and meaning depending on the information to be disclosed, and the parties for whom the information is intended”. Botosan (2006) suggests financial ratios disclosure mitigates information asymmetry by displacing private information and concludes that greater disclosure reduces cost of equity capital. Thus, more accounting ratios benefits both the MFI and its stakeholders. They report that an increase in accounting ratios disclosure is associated with an increase in stock performance, growth in institutional ownership, increased stock liquidity and higher analyst coverage. Lang and Lundholm (1996) evidence that by disclosing more future information, it reduces uncertainty and information asymmetry, improves accuracy of users expectation and it also attract the attention of analysts. Thus, it implies that more accounting ratios disclosure of future-orientated information reduces uncertainty of users.
Evans and Sridhar (2002) investigate how accounting ratios disclosure may influence capital markets, product markets and shareholder litigation. They argue that favourable accounting ratios disclosure lead to a lower cost of capital. Graham, Harvey and Rajgopal (2005) list five factors that motivate firms to voluntary disclose accounting ratios information. These are information asymmetry, increase analyst coverage, corporate control test, stock compensation and management talent.
On the other hand, they suggest the constraints on voluntary disclosure financial ratios information which are profitability ratios, leverage ratios, liquidity ratios, valuation ratios and collection rate ratios disclosure precedent that may be hard to maintain. To conclude, previous studies have reported ample evidence on the positive impact of disclosure of accounting ratios information to MFIs and shareholders. Several studies have applied agency theory in explaining the choice of disclosure policy by the firms. It is suggested that voluntary disclosure of ratio analysis information, in addition to mandatory formations, reduces the information asymmetry problems and therefore enhances better informed decision making. This notion applies to voluntary financial ratio disclosures Despite its obvious benefits and functions, the amount of research on voluntary disclosure of financial ratios is still low. Therefore, this study explores factors that encourage firms to voluntarily disclosed financial ratios in their annual reports. Previous research on disclosures of financial ratios information mainly focus on the characteristics of the MFI such as liquidity and profitability of the MFI.
In summary, annual reports and financial analysis do play a significant role in conveying the financial ratios information to the users in making wise decision. Interestingly, this study supports the agency theory where the agent provides financial ratios information and are being used by the principal for decision making. The findings from this research also provide additional knowledge to be shared especially with investors, government, customers, employees and especially regulators on the current status of MITACCUL. In terms of the limitation, this study only considers MITACCUL in the extent of financial ratio and its impact on decision making. Future research may increase the sample size to include other micro finance institutions and corporate Companies.
2.1.2 Signaling Theory by Michael Spence (1973)
Signaling theory was originally developed to clarify the information asymmetry in the labour market. It has also been used to explain voluntary disclosure in corporate reporting. The theory argues that the existence of information asymmetry can also be taken as a reason for good companies to use financial information to send signals to the market. Information disclosed by managers to the market reduces information asymmetry and is interpreted as a good signal by the market. With an intent to signal by the market. With an intent to signal their performance, management of a company will engage in earning management. Furthermore, the theory depicts that managers man oeuvre earning to convey their inside information about MFI’s prospects and thus it serves as a signaling mechanism. Managers engaging in earning management to creating a smooth and growing earnings string over time that will enable them affect the share price.
Studies have modelled some form of information asymmetry and showed making decision as rational equilibrium behavior. These studies documented signaling evidence of earning management.
Furthermore, the signaling perspective also implies that earning management is sometimes demanded by shareholders. He argues that shareholders will demand for earning management for two reasons. First, managers can reduce the cost of capital through a smoother more predictable income stream. Second, Dye state that a more stable income stream influences prospective investors’ perception of firm value. He revealed that current shareholders will sell their shares to the next generation of future shareholders and managers will act on behalf of the current shareholders and has an incentive to manage earning for their advantage.
Empirically, several studies have studied signaling influence on reported earning and have concluded that performance measures, namely: profitability, firm size, efficiency and liquidity, motivate managers to engage in earning management through making decision using this ratio. The theory argues that directors who believe their company can perform better than other companies can perform better than other companies will signal its shareholders in order to attract more investments. Directors in excess of any information that is require by regulations. Signaling theory suggests that when a corporation’s performance is good, managers will signal companies’ performance to their investors, stakeholders and the market by making disclosures that poorer companies cannot make. By enhancing disclosures of financial analysis information, directors wish to receive more benefits: a better reputation and the MFI’s value will increase. In contrast, firms with poor performance may misinterpret this silence as withholding the worst possible information.
ü Profitability ratio has significant and positive impact on making management decisions.
ü Liquidity ratio has significant and positive impact on making management decisions.
ü Collection rate ratio has significant and positive effect on making management decisions
2.2 REWIEW BY CONCEPTS
Here the researcher will be elaborating on some concepts earlier announced.
2.2.1 Accounting
According to English dictionary, Accounting is the development and the use of a system for recording and analyzing transactions and financial status of a business or other organization.
According to an OHADA Accounting text book, Accounting is an act of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events that are in part at least of a financial character and interpreting results thereafter.
According to R.N Anthony, “nearly every business enterprise has accounting system. It is a means of collecting, summarizing, analyzing and reporting in monetary terms, information’s about business.”
According to Smith and Ashburne, “accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part at least, of a financial character and interpreting the results thereof.”
According to Eric L. Kohler “accountancy is the theory and practice of accounting: its responsibilities, standards, conventions and activities.”
According to F.W. Pixley, “accounting is the science which deals with recording of monetary transactions of every description.”
2.2.2 Ratio Analysis
Ratio analysis is one of the analytical tools used in analyzing the financial statement of companies. Ratio analysis is simply measuring relationship between two variables that are in the financial statement of the company. This present the concepts about accounting ratios and decision making. Accounting ratios as an integral part in decision making, the researcher wanted to investigate whether the use of accounting ratios can intervene in decision making in MITACCUL. Using accounting ratios and decision-making concepts, the researcher will attempt to relate their theories and what could be their applicability in MITACCUL.
When investing in the market an investor should have a clear understanding about the company that he is investing in. Financial ratios will help an investor to get a sufficient understanding of the company’s financial status.
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Financial ratios allow for comparisons
- between companies
- between industries
- between different time periods for one company
- between a single company and its industry average
Ratios generally hold no meaning unless they are benchmarked against something else, like past performance or another micro-finance. Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition are usually hard to compare.
In the analysis of financial statements, it is better to have a complete understanding of the different types of ratios, their calculation, and interpretation. Financial ratios can be classified into five types as follows.
- Liquidity ratios
- Leverage ratios
- Profitability ratios
- Collection ratio
- Valuation ratios
2.2.3 LIQUIDITY RATIOS
Liquidity ratios asses the firm`s ability to meet its short- term obligations using short-term assets. The short-term obligations are the ones recorded under current liabilities that come due within one financial year. Short-term assets are the current assets. The researcher wants to know whether liquidity ratios are applied in MITACCUL. There are three (03) important liquidity ratios.
1. Current Ratio
The current ratio (CR) is equal to total current assets divided by total current liabilities. This indicates the extent to which current liabilities can be paid off through current assets
Current Ratio = Current Assets/ current Liability
2. Quick asset Ratio
One Key problem with the current ratio is that it assumes that all current assets can be converted in to cash in order to meet short-term obligations. We know this assumption is highly untrue. Firms carry current assets, such as inventory and pre-paid expenses which cannot be converted into cash quickly. To correct this problem, the quick asset ratio (QAR) removes from current assets less liquid current assets, such as inventory and pre-paid expenses, which cannot be converted into cash quickly. The quick ratio, also called the acid test ratio, is equal to liquid current assets, divided by current liabilities. It indicates the extent to which current liabilities can be paid off through liquid current assets such as cash, marketable securities, and accounts receivables.
Quick asset Ratio = Current assets – inventory/ current Liabilities
3. Cash Ratio
The cash ratio goes a step further and examines the ability of the firm to settle short-term liabilities using only cash and cash equivalents such as marketable securities. In other words, the cash ratio indicates the extent to which current liabilities can be paid through very liquid assets.
Cash Ratio = Cash + marketable securities/ current liabilities
2.2.4 PROFITABILITY RATIOS
The profitability ratios, also known as performance ratios, assesses the cooperatives’ ability to earn profits on loans, assets, money transfers and equity. These are critical to determining the attractiveness of investing in company shares, creation of accounts by new members and investors and customers use these ratios widely. We will examine five important profitability ratios, namely, gross profit margin, operating profit margin, net profit margin, return on assets, and return on equity.
- Gross Profit Margin
The gross profit margin (GPM) shows the firm`s profit margin after deducting costs of services offered but before deducting operating expenses, interest expenses, inspection expenses and taxes. This ratio is also known as gross profit ratio.
Gross Profit Margin = turnover – Cost of services offered /turnover
This is the first level of profitability. The GPM depends primarily on the firm`s service pricing and cost control. The price of the service offered impacts turnover. Production cost such as material, labor, processing cost and overhead or the cost of purchases affect the cost of services provided. A micro-finance with a better ability to price services in line with inflation of cost of production and the ability to control production costs or suppliers will be able to maintain or increase gross margins.
- Operating Profit margin
The operating profit margin (OPM) shows the cooperatives’ profit margin after deducting cost of services and operating expenses but before interest expenses and taxes. The operating profit is the earnings before interest and taxes or EBIT as a percent of sales.
Operating Profit margin = EBIT /turnover
The OPM reflects the true profitability of cooperative business in that it is calculated before deducting interest costs, which are a result from cooperative financing decision, and taxes, which are outside the control of the cooperative. In other words, regardless of the way the cooperative is financed, whether through debt or equity, and regardless of the taxes imposed by the government, the cooperative can earn this margin.
- Net Profit Margin
This is the bottom line profitability, which most analysts and investors pay attention to on a regular basis. The net profit margin (NPM) shows the cooperative profit margin after all the costs and expenses. It is the profit available for distribution to common shareholders a percentage
Net Profit margin = Net income / turnover
Obviously, the lower operating profit margin is one reason for the lower NPM. It is also possible that, since the cooperative is more debt-financed than an average micro-finance, it has more interest expenses as well. Since taxes are fixed, the key difference between the OPM and NPM is interest costs, which are linked to the cooperatives’ financing decision.
- Return on assets
The return on assets (ROA) measures the return earned on total assets employed in the business. Sometimes, this is also referred to as the return on total capital. Since total assets are financed through both debt and equity, is important that the return measure used for this calculation reflects income to both shareholders and debt holders. We define the return as the net income available for distribution to shareholders plus the interest expenses paid to debt holders. This return is divided by the average total assets, which represents the simple average of the total assets at the beginning and ending balance sheets.
Return on assets = Net income + Interest Expenses /Average total Assets
- Return on Equity
The return on equity (ROE) measures the return earned on the capital provided by the common stockholders (Equity holders). It is the net income as a percent of the average common equity, where the average common equity is the simple average of the common equity at the beginning and ending balance sheets. The net income is the income available for distribution to ordinary shareholders after deducting any preferred dividends.
ROE = Net Income / Average common Equity
Many MFI (micro finance institutions) claim to recover 98 or 99 percent of the funds lends. This claim implies an indicator whose numerator is actual cash collections of principal and whose denominator is the principal amount that was due to be paid. We’ll call this kind of ratio a collection rate.
A collection rate ratio has advantages of using elementary information that even simple information system can usually generate. As a result of this kind of portfolio quality measure is use by more MFIs than any other. It’s calculated as
Collection rate = amount collected/amount fallen due
It could be in the following situations
ü On-time collection rate: In the microfinance program of Chiles’s Banco del Estado, the principal tool for day-to-day portfolio management is an on-time collection rate. For each period, the denominator is amounts falling due for the first time during the period, and the numerator is amounts that have been paid on time (and in cash)
ü Current collection: the numerator of the current collection rate is all cash received in payment of loans during the period, whether this cash represents current payment, payments or late payments of amounts overdue from previous periods. The denominator is all amounts that fall due for the first time during the period. Normally, the numerator and denominator include principal only, excluding interest. But a lender whose information system has trouble sorting payments into principal and interest can use a current collection rate based on total payment amounts without seriously distorting the results. (The same is true, incidentally, of the on-time collection rate)
ü Renegotiated loans: when a borrower runs into repayment problems, an MFI will often renegotiate the loan, either rescheduling it (that is, stretching out its original payment terms) or refinancing it (that is, replacing it even though the client hasn’t really repaid it with a new loan to the same client. These practices complicate the process of using a collection rate to estimate an annual loan loss rate.
The valuation ratios indicate the market valuation of a stock in terms of some measure of company fundamentals such as earnings, book value, cash flows, and dividends. These are the ratios that investors tend to look at daily. These ratios change whenever the price of the stock changes. We will discuss the price/earnings ratios, the price/book value ratio, the price/cash flow ratio, and dividend yield.
1. Price / Earnings ratio (P/E)
This is the most widely used valuation ratio. It indicates the market price of a share in terms of earnings. It is the rupee amount an investor has to pay for each rupee of earnings made by the firm for the ordinary shareholder.
Market Price per share
Earnings per Share
P/E = Market price per share / Earnings per share
The earnings per share (EPS) is calculated as the net income available for ordinary shareholders divided by the number of issued shares.
EPS = Net income / Number of shares
2. Price / Book Value Ratio (P/BV)
Price / Book Value is also a regularly reported and watched valuation ratio. It indicates the market price of a share in terms of the book value of equity. It is the rupee amount an investor has to pay for each rupee of book value.
P/BV = Market price per share / Book value per share
The book value per share is calculated as the equity divided by the number of ordinary shares outstanding
BV = Equity / Number of shares
3. Price / Cash Flow Ratio
The price/cash flow indicates the price of a share in terms of the cash flow per share. It shows the rupee amount an investor has to pay for each rupee of cash flow generated.
Although not widely reported, this is in fact a more useful ratio than the P/E and P/BV ratios discussed earlier. This is because the price of a share must be related to the actual cash flows generated by the firm to its shareholders. There are many different definitions of cash flow, and the one we use here is the most basic definition of cash flow. The cash flow is the net income available for ordinary shareholders adjusted for non-cash income and expenses included in the income statement. Since most common non-cash item in the income statement is depreciation of physical assets and amortization of intangible assets, the cash flow is calculated by adding these two items to the net income.
Total cash flow = Net income + Depreciation & Amortization
CF = Total cash flow / Number of shares
4. Dividend Yield (DY)
The dividend yield indicates the dividend income as a percentage of the investment. It is calculated as the common dividend per share dividend by the market price per share.
DY = Dividend per share x 100 / Market price per share
This is a particularly an important valuation measure for investors seeking regular income. Investors who depend on income from their investments include retired persons and well as pension and mutual funds, which invest with the primary objective of maximizing the income return. These investors like to see a higher dividend yield. Typically, higher dividend yields are associated with more stable and mature companies such as utilities. Growth -oriented companies tend to pay lower dividends such as at a higher multiple, and as a result, produce lower dividend yields.
The dividend per share (DPS) is the total dividends to ordinary shareholders during a specific period divided by the number of ordinary shares outstanding.
DPS = Total ordinary dividend / Number of shares
Here the researcher will be analyzing the link between the dependent variable and the independent variable.
2.3.1 Liquidity Ratios and decision making
As regard current ratios in decision making; current ratio is a relationship of current assets to current liabilities. Current Assets are the assets that are either in the MFI of cash or cash equivalents or can be converted into cash or cash equivalents in a short time (say, within a year’s time) and Current Liabilities are repayable in a short time. It is calculated as follows: current ratio = current assets/current liability. The objective of calculating Current Ratio is to assess the ability of the MFI to meet its short-term liabilities promptly. It shows the number of times the current assets can be converted into cash to meet current liabilities. As a normal rule current asset should be twice the current liabilities. Low ratio indicates inadequacy of the MFI to meet its current liabilities and inadequate working capital. High Ratio is an indication of inefficient utilization of funds. An enterprise should have a reasonable current ratio. Although there is no hard and fast rule yet a current ratio of 2:1 is preferable.
As regard acid test ratio in decision making; acid test ratio is a relationship of liquid assets with current liabilities and is computed to assess the short- term liquidity of the enterprise in its correct form. This is calculated as follows: Quick assets= Current assets – (stock + Prepaid Expenses)/ current liability. Liquid assets are the assets, which are either in the form of cash or cash equivalent or can be converted into cash within a very short period. Liquid assets include cash, bills receivable, marketable securities and debtors (excluding bad and Doubtful debts), etc. Stock is excluded from liquid assets as it may take some time before it is converted into cash. Similarly, prepaid expenses do not provide cash at all and are thus excluded from liquid assets. A quick ratio of 1:1 is usually considered favorable, since for every rupee of current liabilities, there is a rupee of current assets. A high Acid Test ratio compared to current ratio may indicate under stocking while a low liquidity ratio indicat overstocking.
2.3.2 Profitability Ratios and decision making
As regard portfolio yield in decision making; portfolio yield metric demonstrates the MFI’s ability to generate cash from interest, fees and commissions based upon the average loan book. A declining trend in the yield might indicate a change in product mix, a change in loan pricing or an issue with increasing arrears.
As regard net interest margin and return on average assets in decision making; net interest margin ratio shows the net of interest income less interest expense over the average earning assets. This yield measures the margin after paying for funds and a declining trend will mean less profit to cover operating expenses and loan losses. While return on average assets ratio demonstrates how the MFI is managing its assets. A positive RoA indicates how mature the MFI has become.
As regard return on average equity and financial expense ratio in decision making; return on average equity metric is a good measure of profitability and a mature MFI should generate positive RoE by building equity through retained earnings. While financial expense ratio provides a measure of the financial expense an MFI incurs to fund its loan portfolio.
As regard impairment expense ratio and operating expense ratio in decision making; impairment expense ratio shows credit related losses or write-offs in the loan portfolio. Delinquency and provision policies can affect this ratio. While operating expense ratio measure shows the cost of delivering loans to the average loan portfolio. A declining trend may indicate a more efficient organisation or an increasing average loan size. Whilst financial performance is important to microfinance institutions it is often only one half of a dual bottom line. To find out how MFI's can balance the dual bottom lines of financial and social performance.
2.3.3 Collection Rate ratios and decision making
As regard collection rate ratios in decision making; financial management assures that there is enough liquidity to meet an MFI’s obligations to disburse loans to its borrowers and to repay loans to its creditors. Even though financial management is a back-office function, decisions in this area can directly affect the bottom line of the institution. Errors in liquidity or foreign exchange management, for example, can easily compromise an institution with efficient credit operations and otherwise sound management. The importance of adequate liquidity, and hence of financial management, grows further if the MFI is mobilizing savings from depositors. Financial management can also have a decisive impact on profitability through the skill with which liquid funds are invested. Finally, managing foreign exchange risk and matching the maturities of assets and liabilities involve financial management. Both are areas of great potential risk for an MFI and underline the importance of competent financial management.
2.4. PRESENTATION OF INTERNSHIP ACTIVITIES
The researcher will be giving a detail presentation of the internship activities, strength and weaknesses of the internship place, general impression and working condition, internship experience, professional experience, personal experience and the problems encountered during the internship period.
2.4.1 Description of the internship place
MITACCUL Yaoundé branch is situated in Mfoundi division Yaoundé six subdivision opposite GP Melen main gate coming from Melen market, the next building after “Palais des Verres” coming from carrefour Obili.
2.4.2 Various departments and the activities carried out
MITACCUL, carries out a wide range of activities which are as follows;
Counter service department.
Accounting department.
Loan department.
2.4.2.1 The counter service department
This department is responsible to direct members to other department if need be. While at the receptionist, I received people coming into the credit union, welcome them by saying good morning sir/madam and good afternoon sir/madam you are highly welcome, followed by how may I help you?
We also help some member in filling the deposit slip, the withdrawal slip, the send and receive slip which was mostly for either members who could not read or write. Again, we carried out activities on account to account transfer within branches and I also verified to see the names, ID card numbers are on the right place as required and made sure that members signed on the appropriate place provided, also helping members to arrange money. This is the only department that handles all cash transactions.
2.4.2.1.1 Opening account for new members
Membership is obtained by fulfilling the following condition;
Filling and signing a membership form with the assistance of a staff member.
Payment of registration fees of 2000fcfa.
Payment of building fees of 10000fcfa.
Presenting three passport size photos (4×4)
Buy 50 shares at 1000fcfa each, costing 50000fcfa, payable immediately.
Start the saving account with at least 1000frs and after continuing with a minimum amount of 1000fcfa or more per deposit.
2.4.2.1.2 Counseling members and enquires
MITACCUL increases membership for its union by advising and counseling members. Below are the various advises and counseling to the members;
Ø Members’ saving and loans are insured to CAMCCUL at zero cost.
Ø All members’ transactions and account are treated with confidence.
Ø Money put in members deposit account could be withdrawn at will.
Ø Members have a secured place to save their money.
Ø Members obtain loans at low interest rate.
Ø Reasonable interest is paid to members yearly.
2.4.2.1.3 Reconciling members passbook with their individual ledger and computer entries
A passbook unlike individual ledger card is a book in which individual transactions are recorded. This individual card is at the disposal of the credit union and the passbook is at the disposal of the members. This account book is made up of the share account saving account, loan and deposit account.
The receptionist also analyzes cash in the account transfer with the help of;
Ø Pay-in slip coming into the union.
Ø Withdrawal slip analysis which analyses all the money paid out by the union and is slightly the same as pay-in-slip.
2.4.2.2 Accounting department
The accountant prepares the financial statements, submit them to the manager, and reconcile all banking transactions carried during each month. He/she ensure that the money deposited in the bank by other members is in line with the record of the union. This is to avoid frauds, embezzlements and ledger differences.
In this office, we assist in filling the various expenditure receipts into their various files such as; receipt for clerical expenses, transport expenses, personnel expenses, water and electricity expenses, administrative expenses, collateral expenses. Also, I used to fill incoming and outgoing mails.
Stock inventory: Theaccount department keeps an inventory of the credit asset and backup records. He makes provision for reserves and bad debts to build up a strong capital. This record of stock inventory is of passbook, individual ledgers, and membership and loan forms.
Daily cash reconciliation: It helps the accountant to know whether there is a deficit or not. The cash at the end of the day must tie with the actual cash available.
Record of original entry: These include cash receipts and payment voucher. Cash receipt is a document which records all the money coming into the union. This money is later posted into the cash book. Their payment voucher gives account of all the money paid out of the credit union. All payment voucher are posted into the cash book.
The general journal: It is used to record non-cash transactions and the correction of errors. It is often summarized and posted to the general ledger account.
The general ledger account: It is a record that contains all the accounts kept in the credit union such as the asset account, income and expense account.
The trial balance: It is a list of general ledger entries balances arrange according to whether they are debited or credited. In this case all assets and expenses are debited while all liabilities and income are credited. The trial balance helps the union to prepare the final account such as income statement and balance sheet.
2.4.2.3 Loan department
This department oversees collection of information about, analyzing and recommending all loans. Before the loan is granted, the borrower must fulfill the following condition;
State clearly the purpose of the loan,
List (assets) that can guarantee the loan (collateral),
Show proofs of credit worthiness,
Here, we help some members in filling their loan application form. We calculated interest rate on different loan. This is in accordance with the type of loan taken, risk involved, security and modalities at the credit union. Throughout the loan duration, the interest calculated on the outstanding balance of principal is as follows;
ü Loan within savings 1.5%
ü Normal loan above savings 1.5%
ü Njanggi funding (financing) 1.5%
ü Overdraft 2.5%
Loan duration: loan duration is agreed upon when the loan is being processed but shall not exceed the following date as shown on the table below;
|
Particulars |
Duration |
|
Business loan |
24-30 months |
|
Agricultural loans |
12-24 months |
|
Contract loan |
12-24 months |
|
Overdraft loans |
1 month |
|
Commercial real estate loans |
60 months |
2.4.2.3.1 Loan restriction
When there are many approved applications, priority for payments shall be given to smaller loans when there are not enough funds to reach all payment.
When funds are limited, priority shall be given to emergency loans for purpose such as ill health, accident, death etc.
A blank list of recalcitrant borrowers within MITACCUL shall be establish and forward to CAMCCUL.
2.4.2.3.2 Loan granting authorities
This procedure begins with the applicant applying for the loan, proceeding by gathering, analyzing and validation of the loan and recommendation by the loan officer.
Inspection of the security by the loan committee, disbursement of the loan and follow up for recovering of delinquent loans. Loans are considered delinquent when no installment or the entire loan is not paid on the due date.
Loan granting authorities are as follow;
The first step to obtain loan is by presenting a business plan and filling of a loan application form assist by the loan officer. When this is completed, the loan officer studies the business plan and goes into the field for information after which he analyses the information and makes recommendations to the manager.
The manager
The general manager may cause the granting of the loans to members up to 80% of the members’ savings. He may equally grant similar loans of up to ten million francs all covered by collateral security or any means of sure repayment.
Credit committee
The credit committee shall grant all loans cover by other collateral securities but not more than four million francs for a period not exceeding 48 months. The board of directors shall grant all other loans provided they are covered by a good security.
2.4.3 Strengths and weaknesses
Here the researching citing some strengths and weaknesses of MITACCUL
2.4.3.1 Strengths
1. There have competent and polite staff who are friendly with members.
2. There are good working conditions.
3. Interest rates are affordable to members.
4. There is members’ satisfaction.
5. The micro finance has a good security system.
2.4.3.2 Weaknesses
1. There are insufficient staff.
2. There is no privacy of members at the counter.
3. No marketing strategies.
4. There is no service car to facilitate certain transaction.
2.4.4 General Impression/ Working Condition
Here the researcher will be giving the general impression and working condition of MITACCUL
2.4.4.1 General impression
MITACCUL is situated at a strategic place; this makes access easy to members. Staff members are regular, punctual, receptive and devoted. There is a team spirit and the workers are well educated. MITACCUL is the second growing credit union under CAMCULL and it had an award as the best credit union in Cameroon in 2016.The is good ventilation, proper lighting and enough space. The duty hours are;
Monday to Friday: 7:30am to 4:00pm
Saturday: 8:00am to 12:00noon
2.4.4.2 Working condition
MITACCUL is having good working conditions. Filtered water is made available to all the employees. There is also a flat screen television and an AC which make employees more comfortable as there is a good ventilating system. MITACCUL also has a very high friendly environment.
2.4.5 Internship experience
The internship experience is divided into professional and personal experience.
2.4.5.1 Professional experience
- The researcher learned how to fill a loan application.
- The researcher learned how to reconcile journals and bank transactions.
- The researcher learned how to prepare a cheque booklet and stamp.
- The researcher learned how to fill a deposit/withdrawal form.
- The researcher learned how to use accounting ratios to evaluate financial statements.
- The researcher learned how to record incoming and outgoing mails.
- The researcher learned how file documents.
2.4.5.1 Personal experience
- The researcher learned how to work under pressure and beyond the closing time.
- The researcher learnt how to compile books and clip them in to order.
- The researcher learned that field work is better than school work because it is practical. However, they are complementary in the sense that school work helps the students to understand field work.
- The researcher learned how to listen wisely and attentively and how to be corrected by others. That is the staff and the members.
- The researcher also learned to cultivate the habit of talking to people of all level of personalities like the polite, arrogant, impatient, self-centered and untruthful people.
2.4.6 Problem encountered
- During the internship period we had little or no access to the software of MITACCUUL that is the Alpha which made work more manual than computerized.
- Insufficient computers for intern students to make their work more practical.
This chapter explains methods and instruments used to collect and analyze data with the use of accounting ratios which guides management for effective decision making. (Kenneth 1988) says «the scientific method is the method that seeks to test thoughts against reality in a disciplined manner with each step in the process made explicit». This section covers the methods that the researcher is going to use to obtain the necessary data to achieve the objective and to come up with a suitable conclusion.
The research design in this study is the quantitative approach. In this quantitative approach, questionnaires were developed
3. 2 POPULATION, SAMPLE SIZE AND SAMPLING TECHNIQUE
The population of the study, sampled size and sampling technique was as follows:
3.2.1 POPULATION OF THE STUDY
As (Grinnell and Williams, (1990), put it that, «a population can be defined as the totality of persons or objects with which a study is concerned». The studied population consists of 25 members of MITACCUL.
16 staffs from all departments were used as the sampled size. According to Saunder and others (2007), a population of 25 corresponds to a sample size of 22 with a 5% margin of error. Therefore, the size of 22 as sample is use. After data collection, it was realized that only 16 filled the questionnaires and return it thus, the respond rate for the study was calculated as 16/22= 72.72%
The researcher used the judgmental sampling technique whereby out of (25) workers in the union, only (16) was selected for the study because they understood how ratios influence decision making.
3.3SOURCES OF DATA COLLECTION METHOD AND INSTRUMENTS
The study focused of primary and secondary sources for collecting information
As put forward by (Hagood and Price (1952) «if a person or agency that has published data has earlier been collected or supervised the collection of data, the publication is called a primary source. » (Audrey et al, 1989) adds that «primary sources come straight from people or workers you are researching and therefore the most direct kind of information you can collect». That is the reason why primary data were firsthand information gathered by the researcher himself because of the researcher's investigation.
3.3.1.1. Interview Guide
This technique involves exchange of ideas between the interviewer (researcher) and the interviewee (managers) to get the opinion of the interviewee on the use of accounting ratios in decision making. During interview, notes were taken after asking questions on any information relevant to the study by the interviewer
3.3.1.2 In depth Interview
To the opinion of the Secretary and management department executives on important issues related to accounting ratios group interview (in depth interview) was conducted. All staff of management department in MITACCUL was interviewed including the Manager of this union. The discussion took place at MITACCUL Office where all the participants were requested to think on all matters concerning accounting ratios in MITACCUL. After each interview, notes are taken to enable analysis to be made. For some question, clarifications are given to the interviewee so that they can give their views and opinions.
The discussion was designated to accomplish the following objectives:
1. To identify the effect of using accounting ratios in decision making.
2. To know whether accounting ratios are used in MITACCUL
3. To determine the linkage between accounting ratios and decision made in MITACCCUL
4. To determine other factors used in decision making
5. To identify the constraints that hinders the proper use of accounting ratios
6. To determine if there is any effect of liquidity ratios analysis on the decision making of MITACCUL.
7. To determine if there is any effect of profitability ratios on the decision making of MITACCUL.
8. To determine if there is any effect of collection rate ratios on the decision making of MITACCUL.
Roth further states that these are one step removed from the original and are often an examination of a study someone else has made on a subject or an evaluation of commentary, or summary of primary materials, journal articles, critical reviews are the most common secondary sources.
The secondary sources of data for this study included financial statements, union record and journals. Therefore, document review (the cooperative record and financial statement) was used to collect secondary data was obtained through interview guide.
3.4 VALIDITY AND RELIABILITY OF THE INSTRUMENTS
The validity and reliability of this research work is presented as follows
3.4.1. VALIDITY
The questionnaire given to the sampled size was made up of open and closed ended questions which was constructed with the aid of friends and taken to the supervisor for validation before presenting it to the respondents. The respondents were issued the questionnaire and collected one week later. The researcher work was then written, and some copies printed and given to classmate and teachers for correction before it was taken to the supervisor for which he did the final correction.
3.4. 2. RELIABILITY
Reliability is defined as the consistency of an instrument to measure what it is intended to measure over time and under the same condition.
3.5. CONSTRUCTION OF RESEARCH INSTRUMENTS
This refers how the researcher’s questionnaires were constructed in relation to the study.
These questionnaires were constructed as follows
Ø How effective are accounting ratios use in the union;
The researcher wants to know the accuracy and the reliability of accounting ratios analysis information in the MFI.
Ø How effective are current ratios use in the union;
The researcher wants to know the solvency of MFI and its effect to decision making.
Ø How effective are profitability ratios use in the union;
The researcher wants to understand how profitability of the MFI is being achieve with the help of profitability ratios.
Ø How effective are collection rate ratios used in the union;
The researcher wants to how effective is the collection rate of loan with the help of collection rate ratios.
3.7. PROCEDURE;
ü The researcher used his phone during discussion to record information. The is to ensure that no information is lost or misinterpreted during writing of the project.
ü The researcher also used his pens, pencils exercise book to record information during discussion. The effect is to minimize loss of information
ü The researcher was polite and careful enough during discussion to avoid conflict or the use of wrong words that might hinder the flow of information
ü The researcher met with the various hierarchy at their various convenient time for discussion
ü The past recordings and the financial statement of the enterprise was reviewed by the researcher to confirm their validity before it was used.
3 .8 DATA PROCESSING AND ANALYSIS
(Nachimias (1976) argue that «data processing and analysis involves the transformation of data gathered from the field into a systematic category and the transformation of these categories into codes to enable quantitative analysis and tabulation; the data collected was classified into a meaningful manner for easy interpretation and understanding.
This involves preparing data collected into some useful, clear and understandable data. The whole exercise involved calculations of different types of ratios to analyze, liquidity, debt, valuation, collection rate and profitability, compute the agency analysis and the multiple discriminant analysis for the secondary sources.
While for the first-hand information the researcher has summarized the recorded interview (discussion).
3 .9 STUDY LIMITATIONS
Some limitations were encountered during the process of data collection; however, salutation were sought in order to make the findings of the study available as planned. The following are the limitations that were encountered:
· Financial constraints as funds required for transportation and buying of research materials was not on time since the researcher is responsible for the funds
· The researcher has to borrow funds from friends and ask support to his family members in order to accomplish the research in time.
PRESENTATION OF DATA ANALYSIS AND INTERPRETATION OF RESULTS
This chapter presents the findings of the study entitled «the effect of accounting ratios on the decision making of MITACCUL». It also analysis of both primary and secondary data collected to achieve the stated objectives. The analysis of the data collected was done in accordance with the study objectives and questions. The results were reported in tables and summarizing answers to major questions asked. The researcher used face to face discussion to obtain first hand information, whereby all the staff of the enterprise who deal with accounting and finance were involved in the discussion. In short, this chapter examines the empirical evidence and establishes grounds upon which the researcher’S questions can be proved before concluding the results of this research.
4 PRESENTATION AND ANALYSIS
4.1 Respondents’ background
4.1.1 GENDER
The number of male/females were investigated and the results summarize on table 1 as follows
Table 1: Gender
|
Gender |
Number |
Percentage(%) |
|
Men |
11 |
68.75 |
|
Women |
5 |
31.25 |
|
Total |
16 |
100 |
Source: Fieldwork 2020
Figure 1: Distribution according to gender
The findings summarized in Figure 1 show that a little over the majority of the respondents (68.75%) were males while 31.25% were females.
4.1.2 Marital Status
The marital status of the respondents was also investigated and findings summarized in Table 2.
Table 2: Marital Status
|
Status |
Frequency |
Percentage (%) |
|
Single |
10 |
62.5 |
|
Married |
6 |
37.5 |
|
Total |
16 |
100.0 |
|
Single 62.5% |
|
Married 37.5% |
Source: Fieldwork 2020
Figure 2: Distribution according to marital status
Table 2 shows that 62.5% of the respondents are single, 37.5% married and 0% widow/widowed and 0% divorced.
4.1.3 Highest qualification
Information on the respondent’s highest educational level was also investigated and the result obtained were summarized in table 3 below
Table 3: Highest qualification
|
Education |
Frequency |
Percentage (%) |
|
"A" level |
5 |
31.25 |
|
HND/Diploma |
1 |
6.25 |
|
Degree |
7 |
43.75 |
|
Master |
2 |
12.5 |
|
PHD |
1 |
6.25 |
|
Total |
16 |
100.0 |
|
Degree 43.75% |
|
“A” Level 31.25% |
|
Master 12.5% |
|
HND/Diploma 6.25% |
|
PHD 6.25% |
Source: Fieldwork
Figure 3: Distribution according to highest qualification
Table 3 shows that majority of the respondents hold first degree (43.75%) and 31.25% are A. level holder.The next classes are those of Master (12.5%) and holder of professional qualification such as HND/Diploma or PHD with 6.25% each.
4.1.4 Longevity in service
An analysis of how long respondents have served in the selected MITACCUL shows an average of 5 years. The study discovered a minimum of 1 year and above 5 years as seen below.
|
Age range |
Frequency |
Percentage(%) |
|
1-3 years |
9 |
56.25 |
|
3-5 years |
3 |
18.75 |
|
Above 5years |
4 |
25 |
|
Total |
16 |
100 |
A chart to represent this information
|
1-3 years 56.25% |
|
3-5 years 18.75% |
|
Above 5 years 25% |
Source: Fieldwork 2020
Figure 4: Distribution according to longevity in service
Table 4 shows that majority of the respondents have been in the enterprise for about 1-3 years (56.25%), followed by age range of above 5 (25%). while the minority ranges between 3-4years ( 18.75%).
4.2 Analysis of liquidity ratios questionnaires
4.2.1 Your currents assets can cover your current liability
Questionnaire was given to the respondents on “can your current assets cover yourcurrent liabilities”and the following responses were obtained
Table 5: Your current assets can cover your current liabilities
|
Response Options |
Frequency |
Percentage (%) |
|
Disagree (D) |
4 |
25 |
|
Strongly agree (SA) |
10 |
62.5 |
|
Agree (A) |
2 |
12.5 |
|
Total |
16 |
100 |
A chart to represent this information is as shown below
|
SD 0% |
|
D 25% |
|
SA 62.5% |
|
A 12.5% |
Figure 5: Distribution of responses according to the phrase “can your current assets cover your current liabilities”
From the chart above, of the respondents 62.5% Strongly agreed to the fact that current assets can cover current liabilities as well as 12.5 agree to the fact that the current assets of MITACCUL can cover the current liabilities, 25% of the respondents disagree and no one strongly disagreed which the researcher can concluded the micro-finance is having enough current assets to cover it current liabilities.
4.2.2 The micro-finance changes it inventories to cash more easily
The second questionnaire under liquidity ratio states that “the micro finance changes it inventories to cash more easily” and the following responses were obtained and analyze on table 6 as follows.
Table 6: The micro-finance changes it inventories to cash more easily
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly disagree (SD) |
3 |
18.75 |
|
Disagree (D) |
9 |
56.25 |
|
Strongly agree (SA) |
1 |
6.25 |
|
Agree (A) |
2 |
12.5 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
SA 6.25% |
|
D 56.25% |
|
A 12.5% |
|
SD 18.75% |
Source: Fieldwork 2020
Figure 6: Distribution of responses according to the phrase “the micro-finance changes it inventories into cash more easily”
A questionaire on if there has been a enough cash to cover short term obligations when reflecting liquidity ratios given and the respondses were as given on table 7
Table 7: There has been sufficient cash to cover short term obligations when reflecting liquidity ratios given
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly disagree (SD) |
1 |
6.25 |
|
Disagree (D) |
12 |
75 |
|
Agree (A) |
3 |
18.75 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
SD 6.25% |
|
A 18.75% |
|
D 75% |
Source: Fieldwork 2020
Figure 7: Distribution of responses according to the phrase “there has been sufficient cash to cover the short-term obligation when reflecting liquidity ratios given”
4.2.4 Inventory levell is higher than the level of cash held
Table 8: Invenntory level is higher than the level of cash held
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly disagree (SD) |
12 |
75 |
|
Disagree (D) |
3 |
18.75 |
|
Agree (A) |
1 |
6.25 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
D18.75% |
|
SD 75% |
|
SA 0% |
|
A 6.25% |
Source: Fieldwork 2020
Figure 8: Distribution of responses according to the phrase “Inventory level is higher than the level of cash held”
4.2.5. There is enough cash to cover your short-term obligation
Table 9: There is enough cash to cover your short-term obligation
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly disagree (SD) |
5 |
31.25 |
|
Disagree (D) |
6 |
37.5 |
|
Strongly agree (SA) |
1 |
6.25 |
|
Agree (A) |
4 |
25 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
A 25% |
|
SA 6.25% |
|
SD 31.25% |
|
D 37.5% |
Source: Fieldwork 2020
From the chart above, of the respondents 37.5% disagreed to the fact that “there is enough cash to cover your short-term obligations” as well as 31.25% strongly disagree to the fact that MITACCUL is having enough cash to cover it short term obligations. 25% respondents agreed and 6.25% with this fact which the researcher can then concluded that from the views of the respondents MITACCUL hold slidly less cash than inventory. Hence, not having enough cash to cover its short-term obligations.
4.3 Analysis of Profitability Ratios questionnaires
4.3.2 The gross profit as to the turnover is high
Table 10: the gross profit as to the turnover is high
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly disagree (SD) |
2 |
12.5 |
|
Disagree (D) |
10 |
62.5 |
|
Agree (A) |
4 |
10 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
A 25% |
|
SD 12.5% |
|
D 62.5% |
Source: Fieldwork 2020
Figure 10: Distribution of responses according to the phrase “Gross profit as to the turnover is high”
From the chart above, of the respondents 62.5% disagreed to the fact that “gross profit as to the turnover is high” as well as 12.5% strongly disagreed with the fact that MITACCUL gross profit as to turnover is high, 25% of respondents either agreed while none strongly agreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL gross profit as to turnover is low which this comes from poor decisions making by the management.
4.3.3 Net profit to turnover is high
Questionaire was given to the respondents on if “the gross profit as to the turnover is high” and the responses were analyze on table 11 as follows
Table 11: Net profit to turnover is high
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly disagree (SD) |
2 |
12.5 |
|
Disagree (SA) |
8 |
50 |
|
Agree (A) |
6 |
37.5 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
A 37.5% |
|
D 50% |
|
D 12.5% |
Source: Fieldwork 2020
Figure 11: Distribution of responses according to the phrase “Net profit to turnover is high”
From the chart above, of the respondents 50% disagreed to the fact that “net profit to turnover is high” as well as 12.5% of the respondents strongly disagreed with the fact that MITACCUL net profit to turnover is high. 37.5% of respondents agreed with this fact but no respondents strongly agreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL net profit to turnover has been low which this signifies poor decision making since MITACCUL will be unable to compensate shareholders’ capital. This might encourage to uninvest in the organisation thereby leading to a decrease in the share capital of the MFI
4.3.4 Operating profit to turnover is high
Questionaire was given to the respondents on if “the gross profit as to the turnover is high” and the responses were analyze on table 12 as follows
Table 12: Operating profit to turnover is high
|
Response Options |
Frequency |
Percentage (%) |
|
Disagree (D) |
9 |
56.25 |
|
Agree (A) |
7 |
43.75 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
A 43.75% |
|
D 56.25 % |
Source: Fieldwork 2020
Figure 12: Distribution of responses according to the phrase “Operating profit to turnover is high”
From the chart above, of the respondents 56.25% disagreed to the fact that “operating profit to turnover is high” while 43.75% of the respondents agreed with the fact that MITACCUL operating profit to turnover is high. None of the respondents strongly disagreed or strongly agreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL operating profit to turnover has been slidly low which this comes from from decisions making by the management using accounting ratios.
4.3.5 Return as regards capital employed has been increasing
Questionaire was given to the respondents on if “the gross profit as to the turnover is high” and the responses were analyze on table 13 as follows
Table 13: Return as regards capital employed has been increasing
|
Response Options |
Frequency |
Percentage (%) |
|
Disagree (D) |
1 |
6.25 |
|
Strongly agree (SA) |
12 |
75 |
|
Agree (A) |
3 |
18.75 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
A 18.75% |
|
SA 75 % |
|
D 6.25% |
Source: Fieldwork 2020
From the chart above, of the respondents 75% strongly agreed to the fact that “return on capital employed has been increasing” as well as 18.75% of the respondents agreed with the fact that MITACCUL return on capital employed has been increasing. Despite this strong percentage of agreeing with the fact, 6.25% still disagree. Actually none of the respondents strongly disagreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL have been experiencing an increase return of capital employed which this comes from good decisions making by the management using accounting ratios.
4.4 Analysis of Collection rate ratios questionnaires
4.4.2 Collection rate is high and increasing
Questionaire was given to the respondents on if “collection rate is high and increasing” and the responses were analyze on table 14 as follows
Table 14: Collection rate is high and increasing
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly agree (SA) |
12 |
75 |
|
Agree (A) |
4 |
25 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
D 0% |
|
A 25% |
|
SA 75 % |
|
SD 0% |
Source: Fieldwork 2020
From the chart above, of the respondents 75% strongly agreed to the fact that “collection rate has been high and increasing” as well as 25% of the respondents agreed with the fact that MITACCUL has been expiriencing a high and increasing collection rate.None of the respondents strongly disagreed or disagree with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL have been experiencing an increasing and high collection rate which this comes from good decisions making by the management using collection rates ratios.
4.4.3 Collection rate ratios analysis is a condition for the micro-finance to grant loans to borrowers and for monitoring the success of the business
Table 15:Collection rate ratios analysis is a condition for the micro-finance to grant loans to borrowers and for monitoring the success of business
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly agree (SA) |
14 |
87.5 |
|
Agree (A) |
2 |
12.5 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
D 0% |
|
A 12.5% |
|
SA 87.5% |
|
SD 0% |
Source: Fieldwork 2020
Figure 15: Distribution of responses according to the phrase “Collection rate ratios analysis is a condition for the micro-finance to grant loans to borrowers and for monitoring the success of business”
From the chart above, of the respondents 87.5% strongly agreed to the fact that “Collectionrate ratios analysis is a condition for the micro-finance to grant loans to borrowers and for monitoring the success of business” as well as 12.5% of the respondents agreed with the fact that MITACCUL collection rate is important for granting and monitoring of loans.None of the respondents strongly disagreed or disagree with this fact. Hence, the researcher can then concluded that from the views of the respondents collection rate of loans is very important to MITACCUL when granting loans and monitoring success. This means collection rate affects decision making and is very important for monitoring of the MFI success.
4.4.4 Current collection of loan is equal to the amount fallen due
Table 16: Current collection rate of loan is equal to the amount fallen due
|
Response Options |
Frequency |
Percentage (%) |
|
Disagree (D) |
10 |
62.5 |
|
Agree (A) |
6 |
37.5 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
D 37.5% |
|
A 0% |
|
A 62.5% |
|
SD 0% |
Source: Fieldwork 2020
Figure 16: Distribution of responses according to the phrase “current collection rate of loan is equal to the amount fallen due”
From the chart above, of the respondents 62.5% disagreed with the fact that “ current collection rate of loan is equal to the amount fallen due” while just 37.5% of the respondents agreed with the fact that MITACCUL current collection rate of loan is equal to the amount fallen due. None of the respondents strongly disagreed or strongly agreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL have been experiencing a low rate of collection of loans as compared to the amount fallen due which this comes from poor decisions making by the management using collection rates ratios.
4.4.5 The rate of renegatiation of loan is low
Questionaire was given to the respondents on if “Current collection of loan is equal totheamount fallen due” and the responses were analyze on table 17 as follows
Table 17: The rate of renegotiation of loan is low
|
Response Options |
Frequency |
Percentage (%) |
|
Disagree (D) |
6 |
37.5 |
|
Agree (A) |
10 |
62.5 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
D 37.5% |
|
A 62.5% |
|
SA 0% |
|
SD 0% |
Source: Fieldwork 2020
From the chart above, of the respondents 62.5% agreed with the fact that “ the rate of renegotiation of loans is high” while just 37.5% of the respondents disagreed with the fact that MITACCUL renegotiation rate of loans has been low. None of the respondents strongly disagreed or strongly agreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL have been experiencing a low rate of renegotiation of loans when there fall due which comes from a decisions making by the management using collection rates ratios and making sure there is less renegotiation..
4.4.6 Collections are usually on time
Questionaire was given to the respondents on if “Collection are usually done on time” and the responses were analyze on table 18 as follows
Table 18: Collections are usually on time
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly disagree (SD) |
1 |
6.25 |
|
Disagree (D) |
6 |
37.5 |
|
Agree (A) |
9 |
56.25 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
SD 6.25% |
|
D 37.5% |
|
A 52.25% |
|
SA 0% |
Source: Fieldwork 2020
Figure 18: Distribution of responses according to the phrase “collections are usually on time
From the chart above, of the respondents 52.25% agreed with the fact that “ collections are usually on time” while just 37.5% of the respondents disagreed with the fact that MITACCUL loan collections are usually being done on time. Out of the 16 respondents 6.25% strongly disagree with this fact. None of the respondents strongly strongly agreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL have been experiencing a minimal rate of collection of loan.
4.5 Analysis of decision-making questionnaires
4.5.1. Efficient used of liquidity ratios has helped the MFI to maintain solvency
Questionaire was given to the respondents on if “efficient use of liquidity ratios has helped the MFI to maintain solvency.” and the responses were analyze on table 19 as follows
Table 19: Efficient use of liquidity ratios has helped the MFI to maintain solvency
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly agree (SA) |
6 |
37.5 |
|
Agree (A) |
10 |
62.5 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
SA 37.5% |
|
D 0% |
|
SD 0% |
|
A 62.5% |
Source: Fieldwork 2020
From the chart above, of the respondents 62.5% agreed with the fact that “ efficient use of liquidity ratios has helped the MFI to maintain solvency” as well as 37.5% of the respondents strongly agreed with the fact that MITACCUL effficient use of liquidity ratios has help the union to maintain solvency. None of the respondents strongly disagreed or disagreed with this fact. Hence, the researcher can then concluded that from the views of the respondents MITACCUL as been able to efficient use liquidity ratios which has helped the MFI to maintain solvency . This show that MITACCUL uses liquidity ratios during management decision making.
4.5.2 The increase in profitability has led to expansion and creation of more branches by MITACCUL.
Table 20: The increase in profitability has led to expansion and creation of more branches by MITACCUL.
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly agree (SA) |
10 |
62.5 |
|
Agree (A) |
6 |
37.5 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
A 37.5% |
|
SA 62.5% |
|
D 0% |
|
SD 0% |
Source: Fieldwork 2020
Figure 20: Distribution of responses according to the phrase “the increase in profitability has led to expansion and creation of more branches by MITACCUL.”
From the chart above, of the respondents 62.5% strongly agreed with the fact that “The increase in profitability has led to expansion and creation of more branches byMITACCUL. ” as well as 37.5% of the respondents agreed with the fact that MITACCUL increase in profitability has led to expansion and creation of more branches by MITACCUL. None of the respondents strongly disagreed or disagreed with this fact. Hence, the researcher can then concluded that from the views of the respondents expansion and creation of more MITACCUL branches in other towns is as results of increase in profitability.This show that MITACCUL uses profitability ratios to determine if there is an increase in profitability.
4.5.3 There has been increase in the number of employees
Questionaire was given to the respondents on if “There has been increase in the number of employees.” and the responses were analyze on table 21 as follows
Table 21: There has been increase in the number of employees.
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly agree (SA) |
12 |
75 |
|
Agree (A) |
4 |
25 |
|
Totsl |
16 |
100 |
A chart to represent this information is as showned below
|
A 25% |
|
SA 75% |
|
D 0% |
|
SD 0% |
Source: Fieldwork 2020
Figure 21: Distribution of responses according to the phrase “there has been increase in the number of employeess”
From the chart above, of the respondents 75% strongly agreed with the fact that “There has been increase in the number of employees” as well as 25% of the respondents agreed with the fact that MITACCUL number of employees has increase. None of the respondents strongly disagreed or disagreed with this fact. Hence, the researcher can then concluded that from the views of the respondents expansion and creation of more branches has led to increase in the number of MITICCUL. This comes as a result of good management decision making.
4.5.4 Good decision making in the management of assets has attracted new customers to create account.
Questionaire was given to the respondents on if “Tgood decision making in the management of assets has attracted more customers to create accou.” and the responses were analyze on table 22 as follows
Table 22: Good decision making in the management of assets has attracted new customers to create account.
|
Response Options |
Frequency |
Percentage (%) |
|
Strongly agree (SA) |
13 |
81.25 |
|
Agree (A) |
3 |
18.75 |
|
Total |
16 |
100 |
A chart to represent this information is as showned below
|
A 18.75% |
|
SA 81.25% |
|
D 0% |
|
SD 0% |
Source: Fieldwork 2020
Figure 22: Distribution of responses according to the phrase “good decision making in the management of assets has attracted new customers to create account.”
From the chart above, of the respondents 81.25% strongly agreed with the fact that “good decision making in the management of assets has attracted more customers to create account” as well as 18.75% of the respondents agreed with the fact that MITACCUL good asset management decisions as attracted more customers to create account. None of the respondents strongly disagreed or disagreed with this fact. Hence, the researcher can then concluded that from the views of the respondents; proper management of assets has attracted more creations of accounts .
DISCUSSION, CONCLUSION AND RECOMMENDATION
This chapter will focus on discussion, conclusion and recommendations on the data analyzed in chapter four.
Here the researcher will be discussing on the objective’s findings analyzed in chapter four:
As regard liquidity ratios it was observed on table 6 that 56.25% of respondents disagreed with the fact the micro-finance changes it inventories to cash more easily. It was also observed on table 7 that 75% of respondents disagreed with the fact that there has been sufficient cash to cover short term obligations when reflecting liquidity ratios given; 6.25% of respondents also strongly disagreed to this fact. This is contrary to the works of Dansby (in 2000) who said that liquidity is the ability of a business to meet its financial obligations as they fall due. And also, the work of Needless (1996) who said that liquidity is the ability of a company to pay it bills when they are due and to meet unexpected needs of cash.
As regard profitability ratios it was observed on table 12 that 56.25% of respondents disagreed with the fact that operating profit to turnover is high. This is contrary to the works of Lasher (1997) who said that profitability ratios are also called activity ratios because they indicate the ability of micro-finance to earn profit in relation to the turnover made. Slightly low operating profit means turnover was not as expected. It was also observed on table 13 that 75% of respondents strongly agreed and 18.75% agreed to the fact that return as regard capital employed has been increasing and this is why the micro finance has been able to create more branches and expand to other regions. This goes in line with the work of Damian Van (July 2003) who said that that this ratio provides the best indicator of the overall efficiency of a lending institution. For this reason, the ratio is commonly referred to as the efficiency ratio: it measures the institutional cost of delivery loans and other services. The lower the operating expense ratio, the higher the efficiency.
As regard collection rate it was observed on table 16 that 62.5% of respondents disagreed with the current collection rate of loan is equal to the amount fallen due. Also, on table 18 it was observed that 6.25 strongly disagreed and 37.5 disagreed with the fact the collection is usually done time. This goes in line with the work of Damian Van Stauffenberg (July 2003) who said that Microfinance institutions have innovatively shifted two classic banking obligations to the borrowers. Firstly, it is the poor who decide the credit worthiness of borrowers through peer selection into the borrowing groups. Secondly, it is still the poor who impose debt collection from peers while being governed by innovative contracts that are too costly to breach. The popular explanation of how the poor repay their loans is based on four principles. The first is the principle of dynamic incentive to loan repayment. This means that the lending institution will offer the prospect of a larger loan once an individual borrower has been able to repay the current loan. It was also observed on table 18 that 56.25% of respondents agreed with the fact that collections are usually on time. This goes line with what Damian Van Stauffenberg further explain that repayment of loan on time alone is supposed to be an incentive to the clients to finish repaying their current loan and qualify for a larger one. Proponents of joint responsibility borrowing argue that dynamic incentives make microfinance for the poor operate in a similar fashion to the credit card in developed countries, whereby clients repay because they want to access more credit in the future.
It implies that accounting ratios is the back bone for decision making in a micro finance institution. So, no concrete decision can be taken in a micro finance institution without accounting ratios being put into play for analysis of financial statements.
Accounting ratios analysis involves analyzing the micro-finance's financial statements to extract information that can facilitate decision-making. The use of accounting ratios as one of techniques used in financial statements analysis can guide management in decision making by playing a center role in measuring the strength and weaknesses of the micro-finance. Ratio analysis for a micro-finance institution like MITACCUL centers its efforts to derive quantitative measures or guide concerning the expected capacity of the micro-finance to meet its future financial obligations or expectations.
Based on findings, MITACCUL gives much significance in profitability ratios and collection rate of loans, the management staff of the MFI believes that, net profit margin ratio, displays the profitability of the company comparing to turnover, but also the net profit ratio can help in improving management. Thus, according to them there is a need of using any of the profitability ratios.
Furthermore, it was found that, the accounting department has a problem of using accounting ratio even the personnel of this department accept the effectiveness of using them, this is due to a lack of knowledge required for the use of accounting ratio. Basing on the discussion with the management staff, they accept the role that can play accounting ratios in decision making but they present a problem of lack of capacity to use them.
From the researcher’s point of view, decision making in Mitanyen Cooperative Credit Union Limited (MITACCUL) is slightly effective, this is because of various reasons. First, the use the accounting packages used by the enterprise facilitates decision making, whereby there is easy storage and access of data. Second, the use of some of accounting ratios and other model like the flexible budget can provide information from various aspects of business; these methods put the management in a better position in decision making. Therefore, the combination of these qualities among others can ensure effective decision making.
However, the facts that MITACCUL operates in the perfect competition market, decision making of the micro-finance can have the more value to survive in competitive market. In competitive market, for any MFI to survive the competition, there is a need of effective decision making to ensure the efficiency. The company should be vigilant on cost management and profit maximization.
Finally, the study objectives were attained and the questions to be study were answered
Based on the research findings, skills of the researcher and other constraints accounted, we can finish this work by giving the following recommendations that aimed at further improve decision making using accounting ratios for the great success of MITACCUL:
1. Since the profit of MITACCUL is increasing based on the periods of this study, and this profit earned is obtained with different turnover, for a better understanding of decision making and profitability in MITCCUL, the micro-finance should further calculate expenses analysis ratio, gross margin ratio and net profit ratio for each period covered. It is through this analysis that a micro-finance can be able to assess the expenses incurred comparing to turnover realized and gross margin obtained for a better control of production cost and other expenses so as to maximize profit in a long run.
2. The computation of multiple discriminate analyses should be made at the end of each accounting period to assess the historical data in order to predict the financial failure not for MITACCUL as our case study, but also for the other business entity to verify their going concern situation.
4. The management of the enterprise should look for the means of disclosing micro-finance’s financial statement to the professional accountants to get advices and recommendations from these experts to get the fully disclosed financial statement on which financial analysis could be conducted in decision making.
6. That the course “Research Methodology” could be taught twice that is in two semesters, to enhance a better understanding of the research process to the students.
7. As in the country there is a lack of accounting regulations, the ONECCA should prompt their settings and train the academician accountants so that they can fill gaps of shortage of professional accountants in Cameroon.
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QUESTIONNAIRE
Author: KAYEH JUDE BOLACK
To the employees of MITACCUL
Dear respondent,
I am a student from Yaoundé International Business School (YIBS) Obili; out to carry out an internship research report on “the effect of accounting ratios on the decision making of Mitanyen Cooperative Credit Union Limited (MITACCUL)”. This questionnaire is designed to assist the researcher to make an objective assessment. The exercise is basically academic and your answers would be treated with the utmost confidentiality they deserve. Your maximum cooperation is highly appreciated.
Please express your views by ticking the box appropriate to your response. There are no right or wrong answers – your opinion is based on your personal experience. Thanks for your cooperation.
SECTION A: RESPONDENT’S BACKGROUND
Put a tick on the box which suit your response
1) Gender: A) Male [ ] B) Female [ ]
2) Marital status: A) Married [ ] B) Divorced [ ]
C) Single [ ] D) Widow/widower [ ]
3) Highest qualification A) “A” Level [ ] B) HND/ Diploma [ ]
C) Degree [ ] D) Master [ ]
E) PHD [ ]
4) Longevity in service? A) 1-3year [ ] B) 3-5years [ ]
C) Above 5year [ ]
|
S/N |
SECTION B: LIQUITY RATIOS |
SD |
D |
SA |
A |
|
1 |
Your current assets can cover your current liabilities |
|
|
|
|
|
2 |
The micro finance changes it inventories to cash more easily |
|
|
|
|
|
3 |
There has been sufficient cash to cover short term obligations when reflecting liquidity ratios given |
|
|
|
|
|
4 |
Inventory level is higher than the level of cash held |
|
|
|
|
|
5 |
There is enough Cash to cover your short-term liabilities |
|
|
|
|
Please put a tick in the table below on the option that best suit your response. The options are: Strongly Disagree (SD), Disagree (D), Strongly Agree (SA), Agree (A),
|
SECTION C: PROFITABILITY RATIOS |
SD |
D |
SA |
A |
|
|
1 |
Gross profit as to the turnover is high |
|
|
|
|
|
2 |
Net profit as to turnover is high |
|
|
|
|
|
3 |
Operating profit to the turnover is high |
|
|
|
|
|
4 |
Return as regard capital employed has been increasing |
|
|
|
|
Please put a tick in the table below on the option that best suit your response. The options are: Strongly Disagree (SD), Disagree (D), (N), Agree (A),
|
S/N |
SECTION D: COLLECTION RATE RATIOS |
SD |
D |
SA |
A |
|
1 |
Collection rate is high and increasing |
|
|
|
|
|
2 |
Collection rate ratios analysis is a condition for the micro-finance to grant loans to borrowers and for monitoring the success of the business |
|
|
|
|
|
3 |
Current collection rate of loan is equal to the amount fallen due for collection |
|
|
|
|
|
4 |
The rate of renegotiation of loan is low |
|
|
|
|
|
5 |
Collections are usually on time |
|
|
|
|
Please put a tick in the table below on the option that best suit your response. The options are: Strongly Disagree (SD), Disagree (D), (N), Agree (A)
|
S/N |
Decision making |
SD |
D |
A |
SA |
|
1 |
Efficient use of liquidity ratios has helped the MFI to maintain solvency. |
|
|
|
|
|
2 |
The increase in profitability has led to expansion and creation of more branches by MITACCUL |
|
|
|
|
|
3 |
The has been increase in the number of employees |
|
|
|
|
|
4 |
Good decision making in the management of assets has attracted new customers to create accounts |
|
|
|
|
|
5 |
Accounting ratios are used by MITACCUL management for decision making |
|
|
|
|
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