Financial Statement Analysis

Topics: Financial ratio, Financial statements, Financial ratios Pages: 37 (11175 words) Published: September 29, 2010
CHAPTER ONE
INTRODUCTION
1.1BACKGROUND OF THE STUDY
For the past fifteen years Ecobank Ghana Limited has been consistently been at the forefront of Ghana Banking Industry. It has won more domestic recognition than more of its much older competitors; grown into what was hitherto Ghana’s largest merchant bank; and gone on to become one of the first bank in the country to become universal bank, offering commercial as well as merchant banking products and services. Ecobank Ghana Limited has nearly monopolized the most converted bank of the year award conferred annually at the Ghana Banking Awards. The bank has won this prestigious award for five times in the years 2001, 2002, 2003, 2005 and 2006. These achievements of Ecobank Ghana Limited were made possible by analysis of its financial performance.

The impact of financial analysis on the performance of the banking industry has been discussed and debated upon by many scholars in the field of finance. Researchers have adopted measures like analyzing the relationship between organizations investment in human resources development and their performance in analysis financial performance. Financial statement analysis can be a yardstick to measure an organization’s level of productivity and the level of contribution it should supposedly make to the development of an economy, all other things been equal. Critical assessment and analysis of financial performance should be the concern of any individual or group of people running financial institutions.Wild, Bernstern and Subramanyam (2001), defines financial statement analysis as the application of analytical tools and techniques to general-purpose financial statements and related data to derive estimates and inferences useful in business analysis. Thus financial statement analysis involves the use of simple and mathematical techniques, an understanding of accounting and appreciation of business strategy to gain insight into the reporting company’s history, current position and future prospects through examination of the company’s financial statement. The main function of the financial statement of a company is to provide information that will enable shareholders and loans creditors to evaluate the performance and financial position of a company. However, the absolute amount of profit or assets and liabilities, show in the financial statements is not usually a particularly meaningful criterion for evaluating the performance or financial position of any business. The primary financial statements of a company mostly analysis by users are; • Profit and Loss Account

• Balance Sheet
• Cash Flow Statement

Financial statement analysis consists of three broad areas, namely; profitability analysis, risk analysis and analysis of sources and uses of fund. Financial ratios are the fundamental analytical tools for interpreting financial statements. With the aid of ratios one can determine the ability of a company to meet it current obligation and the profitability of the company. A good working knowledge of financial statements analysis is desirable simply because such statements and ratios derived from those statements are the primary means of communicating financial information.

History of Ecobank
Ecobank Ghana (EBG) was incorporated on January 9, 1989 as a private limited liability company under the Companies Code to engage in the business of banking. EBG was initially licensed to operate as a merchant bank by the Bank of Ghana on November 10, 1989. It commenced business on February 19, 1990. EBG has grown consistently over the years to become one of the leading banks in Ghana and a well-recognized brand in the Ghanaian banking industry. EBG acquired a universal banking license in 2003 and has since expanded its geographical reach and broadened its scope of financial services. EBG is a subsidiary of Ecobank Transnational Incorporated, a bank holding company which currently has twelve (12) subsidiaries across...

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