Accounting Ratio: The Organisation Decision Making and Evaluation Dynamism

Abstract

Accounting ratios has been recognized generally as strong tool for evaluating the performance and financial conditions of business entity. Accounting ratios provide relevant measure   and indicators of firm’s performance and financial situation, however, the weakness of ratio analysis is obvious, of several weaknesses, the most potent is the lack of generally accepted standard of comparison. As a result only little published studies to explore the relationship between bank size, bank performance, financial institutions of banks among other factors using accounting ratios has been done. The study, therefore, aims at examining the significant relationship between financial variables such as capitalization, size, credit risk, liquidity and the performance of financial institution using accounting ratios and regression analysis as the relationship measuring factor. Ex-post fact research design using secondary data from   two major players in the banking industry was adopted for the study covering the period between 2001 and 2012. The findings show that the ratios employed in this study have different effects on the performance of banks in Nigeria. The results indicated that the ratio of loan-loss provisions to loans or credit risk affect profitability negatively. Moreover, liquidity risk and capitalization affects profitability significantly. It was recommended that the financial institutions  put in place measures to combat the menace of accumulation of unpaid loans and interest . And a unit in the financial institution should be created for generating, interpreting and monitoring financial relationship of variables in the financial institution from time to time.

Keywords: Loan-loss, Bank performance, accounting ratios,  Commercial banks.