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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Each person like every business requires some measures of both financial position and financial performance in assessing his financial conditions. The financial position depicts one’s wealth at certain point in time while one’s financial performance describes once. Financial statements according to Illoumezie (2006:33) are like compasses “which navigators use to locate their bearing and find direction”. People use them to gauge their financial positions at various points in their lives in order to judge their progress towards their financial goals. Financial statements according to meigs and meigs (1981:28) refers to reports which summarize the financial position and operating results of a business (balance sheet and income statements). It referred to as general purpose that satisfy the need of many groups generally called stakeholders. These groups are particularly concerned with the risk inherent in and returns provided by their investments, and who require accounting information to enable them assess the ability whether they should buy, hold and sell their investments. According to Anayaogu (2002:14) financial accounting provides information to eternal decision makes such as shareholders government, creditors, employees etc, these are people with whom or from whom money is ultimately paid or received. Anayaogu (2002:20) also states that records of financial accounting includes various ledges accounts, profits and loss accounts, balance sheet and other financial records. These records are intended to show the strength, progress, portability, management effectiveness and stewardship.
Financial statement are the means of communicating to interested partners information or the resource, obligation and performance of the reporting enterprise in a simple, clear and understandable form to all its user with such attributer of relevance to decision reliability, consistency and comparability materiality efficiency and understand-ability. Meigs&Meigs (1981: 14) states that the preparation of financial statement is not the first step in the accounting financial statement is not the first step in accounting process. At the close of financial period, the stakeholders such as investors of a company naturally desires to ascertain the following:
(a) The result of the company’s operations for the period.
(b) The resources and hostilities of the company over the period in question.
(c) Wealth created by the company and how it has been distributed.
(d) Financial resources acquired and how they have been expanded. Thus, published financial statement prepared under companies and allied matter decree (CAMA) 1990 supplies information about the above. As a matter of fact, shareholders of any corporation would require annual corporate report published about the entity and which must be relevant, sufficient and reliable. One of the tools for the analysis of financial statements is the ratio analysis. This analysis describes a particular relationship between elements of one with the other elements in a financial report. Financial statements referred to is the balance sheet and income statement. Balance sheet shows assets, debt and the company's capital at a given time. Income statement reflects the results achieved by the company within a certain period (usually one year). An accountant interpret the financial statement so as to evaluate the financial soundness and stability, the liquidity position and the profitability or the earning capacity of borrowing concern. Analysis of financial statement is necessary because it helps in depicting the financial position on the basis of past and current records. Analysis of financial statement helps in making the future decision and strategies.
Therefore, it is very necessary for every manufacturing companies to make financial statement and to analyze it. Finally, once the financial decisions have been made, accounting tools are used to evaluate the success or failure of those decisions. Income Statement The most common and oft-used financial statement is the income statement, which is a fairly simple notion on the surface. It begins with revenues, or all raw cash inflows, the firm generated over a period of time. Then, once all costs associated with those sales are removed, the so-called bottom line is obtained. This latter figure is most often labeled net income. Therefore, the income statement attempts to obtain a reasonable estimate of how much of the company’s revenues were retained as income throughout the accounting period. Balance Sheet Anyone who has seen a balance sheet can quickly understand the meaning of the name. There are two sides and, well, they must balance. Each side must sum to an equal value. The variables on the left-hand side take many forms but are all some type of asset. An asset is anything the firm owns, likely in hopes of using it to generate revenue.
RATIO ANALYSIS The analysis of the financial statements and interpretations of financial results of a particular period of operations with the help of 'ratio' is termed as
"ratio analysis." Ratio analysis used to determine the financial soundness of a business concern. Alexander Wall designed a system of ratio analysis and presented it in useful form in the year 1909.
Liquidity Ratio The liquidity of a company is measured with the use of some financial ratios refers to as liquidity ratio. These groups of ratios measured the ability of the firms to meet its current obligations (liabilities).
Liquidity Ratio
Profitability Ratio
Profitability is the ability to make profit from all the business activities of an organization, company, firms, or an enterprise. It measures management efficiency in the use of organizational resources in adding value to the business. Manufacturing company refers to those companies which involve in the manufacturing and processing of items and indulge in either creation of new commodities or in value addition. The manufacturing companies accounts for significant share of the industrial sector in developed countries. The final product can either serve as finished good for sale to customers or as intermediate goods used in the production process. Activities basically fall into four different categories, known as the manufacturing cost hierarchy. These categories are generally accepted today but were first identified by Cooper (1990). The categories of activities help to determine the type of activity cost driver required. The categories of activities are:
1. Unit level activities. The costs of some activities (mainly primary activities) are strongly correlated to the number of units produced. For example, the use of indirect materials/consumables tends to increase in proportion to the number of units produced. Another example of a unit level activity is the inspection or testing of every item produced, if this was deemed necessary or, perhaps more likely, every 100th item produced.
2. Batch level activities. The cost of some activities (mainly manufacturing support activities) are driven by the number of batches of units produced. Examples of this are : • Material ordering–where an order is placed for every batch of production • Machine set-up costs–where machines need resetting between each different batch of production • Inspection of products–where the first item in every batch is inspected rather than every 100th item quoted above.
3. Product level activities. The costs of some activities (often once only activities) are driven by the creation of a new product line and its maintenance, for example, designing the product, producing parts specifications and keeping technical drawings of products up to date. Advertising costs fall into this category if individual products are advertised rather than the company’s name. 4. Facility level activities. Some costs cannot be related to a particular product line, instead they are related to maintaining the buildings and facilities. Examples are the maintenance of buildings, plant security, business rates, etc. Also included in this category are salaries, such as the production manager’s. Advertising campaigns that promote the organization would also be included.
1.2 STATEMENT OF PROBLEM
Indeed, Solid mineral is a sector that has been virtually neglected and could, if properly managed, bail out the country from its present economic strait jacket.
s no longer news that the price of crude oil is going down in the world market. The advanced countries that happen to be major buyers are discovering the best alternatives to energy instead of petroleum products. Some of the challenges confronting the Nigerian mining sector include the quality of the data available to determine the size of what Nigeria has and how Nigeria can use bankable data for potentials investors. There is need for the legal and regulatory authorities to have effective monitoring mechanisms to effectively monitor what is available and how they are being exported. Successful governments have talked about the diversification of the economy, but they obviously lack the political will and necessary plan to implement any concrete plan of action in this regard Revenue from the oil export was high and this led to increase in oil exploration and exploitation. A consequence of this was neglect of solid mineral subsector leading to decrease in solid mineral production. The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis which measure financial performance is then performed on these statements to provide management with a more detailed understanding of the figures. Furthermore, the rationale of financial analysis is to diagnose the information contained in financial statement so as to judge the future earning, ability to pay interest, debt maturities, profitability and sound dividend policy.
1.3 RESEARCH OBJECTIVES 
Examine the incentives and government assistance to solid mineral companies in Nigeria.
To analyze the financial performance of manufacturing companies in the Nigerian solid mineral sector
To investigate the source of finance of manufacturing companies operating in the solid mineral sector.
1.4 RESEARCH QUESTIONS
In consideration of the problems identified above, the objective of this research include.
Ø What are the incentives and Government assistance to the solid minerals companies in Nigeria?
Ø What is the financial performance of manufacturing companies in the Nigerian solid mineral sector?
Ø What source of finance are the manufacturing companies operating on, in the solid mineral sector?
1.5 SIGNIFICANCE OF THE STUDY
The significance of this study is that on its completion, the following benefits will be derived: The study will help manufacturing companies in the solid mineral sector and others to know how ratio analysis can help them understand the financial contained in financial statements and enhance their firm’s decision. The findings of the research and the supportive reference materials will be of immense help to students and other researchers to investigate further in the area of study. The study will encourage businessmen, investors, managers, and government authorities to appreciate quantitative techniques like financial ratios.
1.6 SCOPE OF THE STUDY
The study is on analyses of financial statement of manufacturing companies in the solid mineral sector in Nigeria. The study focuses on the financial performance of solid mineral in Nigeria, government incentives and assistance to solid mineral sector in Nigeria, the source of finance manufacturing companies are operating on.
Limitations of the study are hindrances or obstacles witnessed by the researcher in the course of the study. In view of the impossibility of covering every type of financial statement, this study is therefore restricted to the analysis of the income statement and the Balance Sheet by means of financial ratios. However, other analytical techniques such as liquidity ratio, profitability ratio and termed ratios would also be explained and illustrated.
1.7 DEFINITION OF TERMS USED IN THE STUDY
Accounting: The process of recording, summarizing, analysis and interpreting financial (money-related) activities to permit individuals and organizations to make informed judgments and decisions. Dansby (2000).
Balance Sheet:A financial statement containing assets, liabilities, and owner’s equity or capital at a particular data or at the end of a particular period, to show the financial position of a organization. Akpakpan, (2002).
Financial Ratio:A proportion, fraction, or percentage expressing the relationship between one item of financial statements and another item in the same financial statements. Igben, (1999).
Financial Statement: Quantitative information on the economic activities of an organization prepared to show the result and the financial position of the entity, often presented in terms of Z Balance Sheet, Income Statement, Funds flow statement, and so on.
Income Statement:A financial statement often referred to as the trading and profit loss account, matching revenues against expense to show the profitability or operational results of an enterprise over a period of time, such as a month or year. Hermanson (1992).
Ratio Analysis: A systematic review of accounting data by establishing relationships among various figures on the financial statements which bring together the results of the activities a business. (Omuya, (1983).
Financial: financial information or data about a company,as balance sheets and price-earnings ratio. (Dictionary.com)

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