This paper examines the relationship between financial analysis and firms’ value in food and drinks service industry in Nigeria. The issue of deciding on an effective financial ratio analysis for firms’ value has been a major challenge of most food and drinks industries in Nigeria. Using the descriptive survey research design, the study focused on secondary data obtained from the annual reports of 8 firms registered on the stock exchange, whose records provided the information required for the study. Total assets turnover ratio, creditor’s turnover were computed in order to represent company financial analysis from 2013 to 2017; while firms’ value as a dependent variable is represented by earnings per share. The data were analyzed using simple regression with aid of SPSS version 20. Findings indicate that total assets turnover ratio has no significant relationship on earnings per share of food and drink service industry in Nigeria (p>0.05; B= 4.782). The study found out that there is a significant positive relationship between debtors turnover ratio and earnings per share of food and drink service industry in Nigeria (p<0.05; B= .254). There is an indication that there is no significant positive relationship between creditor turnover ratio and earnings per share (p>0.05; B= -.624).This implies that due attention has to be paid to financial analysis of firms in Nigeria. Therefore, we recommend that companies should maintain their creditors’ turnover ratio at a zero point where the creditors and purchases (cost of sales) are equal. In this way, the company will utilize the advantage of credit facility and any discount associated with prompt payment of goods to increase their profitability index.
Business is not complete without financial activities and to ascertain the financial status of any enterprise, a statement must be prepared which is known as financial statements. Financial statements are prepared for decision making and planning purposes. Analysis of financial statements is an attempt to assess the efficiency and performance of an enterprise. Thus, the analysis and interpretation of financial statements are very essential to measure the efficiency, profitability, financial soundness and future prospects of the business units. Therefore, it is pertinent to opine that investor aims at improving the value of the firm for progression. This is possible where firm’s performance is shown in profitable yields on investment. Several issues have to be considered in the process of management, one of which is financial ratio analysis. Financial analysis involves analysis, interpretation, summarization and classification of financial statements.
Pandey (2010) posits that financial analysis is the process of identifying the strength and weaknesses of a firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. This in turn becomes beneficial to the management of the firm, stakeholders, chief executives, creditors, investors and the general public. He added that ratio analysis is a powerful tool of financial analysis. Financial ratios are one of the many tools used by financial analysts and investors to analyze the worth of a company or industry. No one consistently predicts firms’ value. However, ratios often highlight company’s strength and weaknesses. Therefore financial analysis is very important requirement in companies, industries and firms because it is used as a benchmark for evaluating the value of a firm.
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