Uses of Accounting Ratio as a Measure of Management Performance and Effective (A Case Study of Texaco Nigeria Plc)

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

        Interpretation of account is the art and science of translating the figures there in such a way as to reveal financial strength and weakness of a business. Ratio analysis is a powerful tool of accounting analysis. A ratio is defined as the indicated quotient of two mathematical expressions and the relationship between two or more things. In accounting analysis a ratio is used as index or yardstick for evaluating the financial position and performance of a firm or company. More so, ratio analysis involves comparing none figure in terms or in relation to another figure. It is computed by dividing one number that is the base into another. Ratio analysis facilitates the evaluation of accounting information by educing such data into smaller unit. One of the utility of accounting ratio as a tool of accounting analysis to that not effected by the relatives size of activities or department being compared thus it allows for comparison between a small and large firm with the same firm. Ratio analysis in addition to providing us the means by which we test the efficiency of various pleasures of the business as prevented by the financial statement. It also makes it possible for management to compare the performance of a firm with those of other firms in the same industry and/ with the same organization. We can compare different department or the performance of the organization between years. The performance on organization can be measured from the income statement and balance sheet. Therefore, this accounting ratio uses the financial data from balance sheet and income statement to evaluate the company performance. The compilation of trading profit and loss account: and balance sheet present and produce of series of transaction, which we have taken place over a particular period of time. In order to make use of information presented in the final, account and balance sheet the users need analysis and interpret the meaning before making any conclusions. The first stage in analysis in the development of a systematic review if accounting data with the aid of accounting ratio, which show the relationship of the results of the firms activities.