Tuesday, September 15, 2020

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Friday, September 11, 2020

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Thursday, September 10, 2020

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Wednesday, September 9, 2020

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Friday, August 28, 2020

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Thursday, July 9, 2020

Study On The Financial Performance Of Bralirwa Finance Essay - Free Essay Example

This chapter presents the theoretical framework used to evaluate the financial performance of BRALIRWA and the influence of corporate governance on the firm performance; and the research methodology followed throughout the research basing on the different aspects discussed in literature review. 3.1 INTRODUCTION As discussed in chapter one, the main focus for many companies is to create the best possible value for their owners and to secure excellent financial performance. The sound financial health of a company is one of its major goals and to maintain it, companies at one point of time have to look at the past and current performance to plan for future prospect. The most objective way to evaluate the financial performance of a company is through financial statement analysis. Financial analysis involves the assessment of a firms liquidity, its operating performance, its risk profile and its growth potential using financial ratios. Ratio analysis is an important and powerful analytical tool used for measuring the performance of a business entity (Van et Al., 2003). It helps stakeholders (shareholders, investors, creditors, managers, government etc) to make an evaluation about the profitability and financial soundness of the business entity (Bardia, 2008). Different types of investors ex pect different types of returns, if you are a stockholder, you expect an increase in the value of the stock you hold; if you have invested in a company with a history of paying dividends, you also expect a dividend; if you have loaned the firm money, you expect to receive interest and the return of loan principal. Although the types of returns they expect are different, equity investors and creditors both risk not receiving those returns. Therefore, both stockholders and creditors use financial statement analysis to predict their expected returns and assess the risks associated with those returns (Hongren, Sundem, Elliot and Philbrick, 2003). Analysis of financial performance allows comparison of practice performance from one year to the next, benchmarking of a practice against industry standards, and preparation of financial information for lending institutions or directors (Stallwood, 1996). The financial performance of a company can be influenced by many different aspects or f actors and for the purpose of this study, corporate governance was taken into consideration and specifically the aspect of board characteristics. The board of directors is an important entity in a company creating a link between shareholders and managers and therefore playing an important role in the governance of the firm (Dehaene et al., 2007). Therefore, boards of directors are charged with the task of monitoring the performance and activities of top management to ensure that the latter acts in the best interests of the owners (Jensen and Meckling, 1976; quoted by OConnell and Cramer, 2010) 3.2 PROBLEM DEFINITION After the 1994 genocide many companies in Rwanda were destroyed and some of them have not recovered up to today. Among the companies affected by the genocide include manufacturing companies out of which some tried to recover and restart their activities progressively and the country is providing a good environment for business but this does not guarantee good performance on behalf of companies. Standard financial reports provide basic information on the current profit level of investment in assets but do not give information on whether profit is adequate, how efficiently the assets are being used to generate sales, how efficient the overall operation is, and whether there are short-term financial problems facing the business. Ratio analysis provides some answers to these questions by calculating the relationships between various figures on the balance sheet and the income statement and comparing the movements in these ratios over time and against industry averages can provide ad ditional information about whether the organization is performing well or whether remedial action is needed (Stallwood, 1996). Ratio analysis is an important and powerful analytical tool for measuring the performance of a business entity. It helps stakeholders to make an evaluation about the profitability and financial soundness of the business entity (Van et al., 2003). Some key companies in the manufacturing sector do not have thorough financial analysis which makes it difficult for stakeholders to know how these companies are performing; BRALIRWA will be used as representative case study to exemplify the financial performance of companies in the sector and the way this performance is influenced by corporate governance. The way companies are directed and controlled can influence their performance (Berle Means, 1932), in some companies there is lack of consistency in reporting operating and financial activities as well as governance activities to shareholders in a fair, accurat e, timely, reliable, relevant, complete and verifiable manner. Manufacturing companies in Rwanda contribute to the economic development of the country and hence a need to evaluate their performance in other to detect their likely future and take appropriate measures accordingly, as well as the influence of corporate governance on their performance. 3.3 RESEARCH OBJECTIVES This study has one general objective and five specific objectives. 3.3.1 General objective The general objective of this study is to assess the financial performance of BRALIRWA s.a (2005-2008) and the influence of its corporate governance on the performance 3.3.2 Specific objectives To analyze the operating efficiency and profitability of BRALIRWA to know its level of operating performance. To analyze the sales and earnings variability in order to measure the risk that BRALIRWA may be exposed to. To analyze the internal liquidity of BRALIRWA in order to measure its ability to meet financial obligations in the short-term. To assess the impact if any of BRALIRWA governance on its performance. To analyze the sustainable growth potential of BRALIRWA. 3.4 THEORETICAL FRAMEWORK The theoretical framework adopted in this study was developed based on different literature on the analysis and evaluation of financial performance and literature on corporate governance and firm performance. 3.4.1 Dependent variable According to Jones, Wahba and Heijden (2007), the dependent variable is the one main research issue you are studying, on which other variables in theoretical framework are assumed to have an impact. Creswell (2002), defines dependent variables as the outcomes or results of the influence of the independent variables. For this study, financial performance stands for the dependent variable. Financial performance is usually measured by ROE and ROA, for this study financial analysis is used to analyze the financial performance of BRALIRWA and the analysis is conducted in three categories; the analysis of internal liquidity, operating performance and risk. When analyzing internal liquidity, the intention is to indicate the firms ability to meet its future short-term financial obligations, this may be an indication over a certain period of the likely performance of a company because if a firm is not able to meet its short-term financial obligations for a long period, definitely this wi ll affect its performance but the analysis of this may help the organization take necessary actions. The analysis here is based on current ratio, quick ratio, cash ratio, receivables turnover and inventory turnover. The analysis of operating performance, examines how management uses its assets and capital by measuring the sales generated by various categories of assets or capital and analyzes the profits as a percentage of sales and as a percentage of the assets and capital employed (Brown and Reilly, 2009). The ratios used are the asset turnover, equity turnover, profit margins, return on equity and return on assets. Concerning the risk analysis, both business and financial risks are measured and analyzed, here the emphasis is on the sales variability, operating leverage which consists of the variability of a firms operating earnings and then the debt-equity ratio to measure the financial risk. 3.4.2 Independent variables Independent variables are the variables impacting on your main research problem. They are called independent in a sense that those variables are affecting the amount of dependent variables and do not affect each other, so they are independent of each other (Jones, Wahba and Heijden, 2007). Corporate governance stands for the independent variable for this study. Corporate governance is the mechanism by which a corporation is managed and monitored. It determines a power-sharing relationship between corporation executives and investors by providing structure through which the objectives are defined; policies and procedures are established to ensure achievement of these objectives; and activities, affairs, and performance are monitored (Rezaee, 2004). Based on this definition and other definitions of corporate governance, it can positively or negatively influence the performance of a company and for the purpose of this study, the influence will be analyzed based on board characteristic s which are treated as the moderating variables in this study and considered as one of the aspects of corporate governance. 3.4.3 Moderating variables Moderating variables are included in the theoretical model to modify the way that the independent variables will affect the dependent variable. They might act as a catalyst of these relationships and strengthen them or perhaps they just inhibit the relationship and weaken it (Jones, Wahba and Heijden, 2007). For this study the moderating variables are the board characteristics, and the following characteristics were taken into consideration the board size, board composition, CEO duality, board diversity and frequency of board meetings. The board size is the number of members on the board and as boards are considered to be large decision-making groups, size can affect the decision-making process and effectiveness of the board (Dwivedi and Jain, 2005). Talking about the board composition, the board may be composed of directors who may be executive meaning that they are employees of the firm, or non-executive meaning they are not employees of the company; and this may have an effect on firm performance. CEO duality consists of having the same person holding both the board chairman and CEO positions or having the CEO and board chair positions separate, this also may have an impact on firm performance. When it comes to board diversity, the consideration is that there may be some diversification in the board members which may or may not have an influence on firm performance; diversity for this study is seen as gender diversity, racial diversity and experience/background diversity. Board meeting frequency consists of how frequently the board meetings are scheduled and the board activity is measured by the frequency of board meeting, this frequency may impact on the performance of the firm. CORPORATE GOVERNANCE FINANCIAL PERFORMANCE Risk Operating performance Internal Liquidity Objectives Policies Procedures Board Size Board Composition CEO Duality Board Diverstity Board Meeting Frequency Figure 3.1: Theoretical Framework Source: Research, 2010 3.4.4 Research assumptions Based on the various corporate scandals due to the manipulation of financial statements, the researcher made an assumption that the information provided in the audited financial statements of BRALIRWA for the period 2005-2008 are true and accurate. It was assumed that the respondents would be willing to fill the questionnaires and that the staff in the finance department of BRALIRWA would cooperate in providing any necessary information regarding the financial statements. 3.4.5 Research limitations The study uses BRALIRWA as a case study, which may provide little basis for generalization on the performance of other manufacturing companies The study only use a time-series analysis because there are no competitors in the industry to compare with The financial statements analyzed were the balance sheet and income statement because the company does not prepare cash flow statement The study only used board characteristics as the aspects of corporate governance due to time and logistics constraints the researcher could not use other aspects. The study was limited to a period of four years from 2005 to 2008 3.5 RESEARCH QUESTIONs To achieve the research objectives of this study; the study has to answer the following major and minor research questions. 3.5.1 Major research questions How is BRALIRWA financially performing for the period under study and what is the implication for future performance? How is BRALIRWA governance influencing its performance? 3.5.2 Minor research questions How well is the management of BRALIRWA doing to generate operating profits on companys assets? How well is BRALIRWA management using the capital invested? How is BRALIRWA financing its assets and how variable its earnings are? How well is BRALIRWA doing to meet its maturing financial obligations? The above mentioned research questions will help in analyzing the financial performance of BRALIRWA and the influence of its corporate governance on performance. 3.6 RESEARCH METHODOLOGY 3.6.1 Research type This study is basically quantitative with a small portion of qualitative and descriptive in nature and is using a case study method. The study is using the computation of different ratios to analyze the financial performance of BRALIRWA and statistical measure like mean, standard deviation and correlation are also used; and it is also qualitative in the sense that it is looking at the perceptions of staff on the influence of corporate governance on the performance. The purpose of quantitative research is to determine the quantity or extent of some phenomenon in the form of numbers (Zikmund, 1994). 3.6.1.1 Case study methodology This study is using BRALIRWA as a case study representing other manufacturing companies in Rwanda. BRALIRWA was chosen as a case study because of its long stay in the business and as being one of the manufacturing companies that were operating before the 1994 Rwandan genocide and which has continued operating and the major motivation for the researcher to take it as a representative case study is that the manufacturing sector in Rwanda is mostly made of food and beverages companies where BRALIRWA is dominating. According to Robson (2002:178) cited by Saunders, Lewis and Thornhill (2007), a case study is a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence. Yin (2009) defines a case study as an empirical inquiry that investigates a contemporary phenomenon in depth and within its real life context, especially when the boundaries between phenomenon and context are not clearly evident. According to Yin (2009), the case study inquiry copes with the technically distinctive situation in which there will be many more variables of interest than data points, and one result; relies on multiple source of evidence, with data needing to converge in a triangulating fashion, and as another result; and benefits from the prior development of theoretical propositions to guide data collection and analysis. 3.6.1.2 Descriptive research This study is descriptive as it is describing and evaluating systematically how BRALIRWA has been performing for the period under study. According to Kumar (2005), a descriptive research attempts to describe systematically a situation, problem, phenomenon, service or program, or provides information about something or describes attitudes towards an issue. 3.6.1.3 Quantitative and qualitative research As discussed early, this study is a mix of quantitative and qualitative, it is evaluating the performance of BRALIRWA by quantifying it through different ratios to analyze the internal liquidity, operating performance and risk and most of the information is gathered using quantitative variables (through financial statements). On the other hand, the study is qualitative in the way that it has some variables which were analyzed without being quantified. The study is qualified as quantitative if one wants to quantify the variation in a phenomenon, situation, problem, or issue; if information gathered using predominantly quantitative variables; and if the analysis is geared to ascertain the magnitude of the variation. On the other hand, a study is qualified as qualitative if the purpose of the study is primary to describe a situation, phenomenon, problem or event; the information is gathered through the use of variables measured on nominal or ordinal scales; and if analysis is done to establish the variation in the situation, phenomenon or problem without quantifying it (Kumar, 2005). 3.6.2 Data collection instrument and source For the purpose of this study, both primary and secondary data were collected. To collect primary data questionnaires were distributed to the staff of BRALIRWA to know and analyze their perceptions on the influence of board characteristics on firm performance, the questionnaires were given to different staff but the most targeted were the managers and directors (management team) and heads of department and then some of the officers in different departments; interviews were also used with the staff in the finance department to get some clarifications on the content of the financial statements. And to collect secondary data, different literature on the evaluation of financial performance and those on the relationship between corporate governance (board characteristics) were reviewed through books, journals, articles and websites; and the financial statements of BRALIRWA for a period of 2005-2008 were consulted and analyzed through financial ratios. 3.6.3 Sampling methods Sampling is the process of selecting a few (a sample) from a bigger group (the sampling population) to become the basis for estimating or predicting the prevalence of an unknown piece of information, situation or outcome regarding the bigger group; a sample is a subgroup of the population one is interested in (Kumar, 2005). For the purpose of this study, judgmental sampling technique has been used to select the sample in order to collect primary data. Purposive or judgmental sampling enables you to use your judgment to select cases that will best enable you to answer your research question(s) and to meet your objectives. This form of sample is often used when working with very small samples such as in case study research and when you wish to select cases that are particularly informative (Saunders, Lewis and Thornhill, 2007 quoting Neuman, 2000). According to Kumar (2005), the primary consideration in purposive sampling is the judgment of the researcher as to who can provide the best information to achieve the objectives of the study; the researcher only goes to those people who in his/her opinion are likely to have the required information and be willing to share it. For the respondents to fill the questionnaire it required a certain degree of information about the board of directors and the judgmental sampling is the appropriate technique to this study. 3.6.4 Sample size A sample of 25 respondents was selected from the staff of BRALIRWA which is the population of the study; as stated early the sample was selected using judgmental sampling. The respondents were selected from different departments of the company and from top management to senior officers and the sample is the representative of the population. 3.6.4 Data analysis methods The study is based more on the secondary data as the evaluation of financial performance is based on the financial statements of the case company (BRALIRWA) and on primary data which were collected using a questionnaire to analyze the influence of the board characteristics on the financial performance of the company as perceived by the company employees. In the process of data analysis, the information from the financial statement were first presented according to the research objectives and research questions and based on the theoretical framework and literature review; then they were analyzed using appropriate ratios and the analysis was based on time series analysis, some statistics were used such as mean and standard deviation for the researcher to analyze the data and come up with conclusions and recommendations. To analyze the data collected from questionnaires, the following process was followed; first the data were edited, then coded and frequency distribution were used. To analyze, the open-ended questions, content analysis was used whereby different themes were identified from the answers given by the respondents and then verbatim responses were examined and discussed with reference to literature to come up with research findings, conclusion and recommendations. 3.7 CHAPTER SUMMARY This chapter discussed the research problem by highlighting that in Rwanda some key companies do not have thorough financial analysis and that the performance of companies may be influenced by the way they are managed and monitored where this may depend on the characteristics of the board. The chapter also discussed the theoretical framework that was used for this study and the dependent, independent and moderating variables were identified; financial performance is the dependent variable which is determined through the analysis of internal liquidity, operating performance and risk and the summarizing indicators of financial performance for the purpose of this study were identified as ROE and ROA. The chapter goes on discussing the research objectives, research questions, the assumptions and limitations of study. Then the chapter concludes with the discussion of the research methodology that was used to conduct the research and to achieve the research objectives and to answer the research questions that were put forward; the study is a mix of quantitative and qualitative, both secondary and primary were used and financial statements and other sources were used to collect secondary data and the questionnaire was used to collect primary and the questionnaires were sent to a sample of 25 respondents, the sample was selected using judgmental sampling.

Tuesday, May 19, 2020

Essay on Bank of America Benefits - 1174 Words

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