1.1 The topic chosen
The topic is Evaluation of the financial and business performance of CAL Bank Limited between December 31, 2005 and December 31 2007.
Financial and business performance evaluation involves a critical analysis of a company’s business activities and its financial results. Such analysis helps stakeholders to understand how a business generates value for its shareholders, identified its strength, weaknesses, opportunities and threat.
The main objective of a profit seeking organization is to add value to its shareholders. Therefore an understanding of how a firm is able to harness the available resources to increase the wealth of it owners is important in reaching a conclusion as to whether the business has performed well or not. ‘Value generation in a business is ascribed to many factors including know-how, proprietary technology, good management, brand recognition, brilliant marketing strategy etc, (Stephen H Penman, 2003).
Performance evaluation, especially for financial institutions, also involves some level of risk analysis. ‘For Banks, profitability and shareholder value added will depend on the efficiencies of risk management processes in optimizing the risk-reward trade-off’ (OPPapers.com). The efficiency of risk management as performance indicators in Banks is important because the consequences of failure as a result of poor risk management may have ripple effect on the whole economy of a country. A good example is the current credit crises which is caused by poor risk management in the Banking sector (Student Accountant, October 2008).
Performance evaluation reports provides various stakeholders including the shareholders, potential investors, lenders, government etc, important source of information in taking informed economic decisions.
Financial performance evaluation is usually done through analysis of the financial statements. Financial statements are like ‘stethoscope’, an important diagnostic tool in medicine. It reflects the financial implications of various activities that took place within an entity in a period. ‘Financial statements analysis provides a way of interpreting the business that enables readers to understand the value it generates for shareholders’ (Stephen H. Penman, 2003).
Business performance evaluation involves analysis of the impact of environmental factors on the entity. It measures the effectiveness of the entity’s strategic choice and operational decisions in response to challenges thrown at it by its environment. It is therefore a measure of an organization’s competitiveness in its industry.
‘In accessing Bank performance, it’s important to distinguish between Bank policy decisions which affect performance and external factors which are beyond the control of Bank management’ (OPPapers.com).
(A.A. Adams) suggests that performance evaluations are useful management tools in controlling an organization. This emphasis the importance of internal use of performance evaluation in operational controls and ensuring the organization is on track on its way to realizing its strategic goals. However, the main focus of this research is the external usefulness of performance evaluations.
1.2 Reasons for choosing the topic.
I choose this topic because of my desire to become a financial analyst. Analysts provide investment advice to individuals and organization (Wikipeid.com). They also work in credit controls sections helping organizations to evaluate the credit worthiness of their clients. This helps reduce the risk of bad debts resulting from granting credits to clients who cannot pay.
My original motivation in becoming an ACCA student was to acquire a Bachelor’s degree to enhance my current engineering diploma. However, having taken the skill level papers (F4-F9), I decided a career change. I...