THE ROLE OF FINANCIAL STATEMENTS IN INVESTMENT DECISION MAKING
(A CASE OF TANGA PORT AUTHORITY)
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ABSTRACT
This study intended to investigate the role of financial statements in investment decision making. The study questions were to examine how financials aid investors in decision making, evaluate the performance of a company for investment decision making, and appraise the fundamental use of financial statement information.
The approach was to work with the TPA and general public to achieve the set
objectives. In summary, the approach and research methodologies involved; desk study
to review current literatures; pilot study and the actual field research study.
Data analysis was conducted on the basis of data collected. Explanatory analysis using
Ms Excel, and SPSS were used. The findings show that financials are critical in
investment decision making. Investors are confident with TPA financials. Majority of
the respondents appeared to be knowledgeable with financial variables specifically, the
gearing ratios, liquidity ratios and profitability ratios.
TPA faces government interventions in financial reporting, and qualified audit reports.
Conclusion was based on findings that investor need to get proper interpretations of
financial reports, making consultations and get other none financial information in
investment decision making. The study recommends; both females and males must be
included in any study, need to use informed sample, encourage usage of financials in
investment decision making, need for TPA to fully apply the IFRS principles in the
preparation of its financials and investors to seek consultancy services in the use of
financial reports to make investment decisions.
TABLE OF CONTENTS
CERTIFICA TION ……………………………………………………………………………………………… i
DECLARATION AND COPYRIGHT …………………………………………………………………. ii
ACKNOWLEDGEMENT ………………………………………………………………………………….. iii
DEDICATION …………………………………………………………………………………………………. iv
ABSTRACT ……………………………………………………………………………………………………… v
LIST OF ABBREVIATIONS …………………………………………………………………………….. vi
TABLE OF CONTENTS ………………………………………………………………………………….. vii
LIST OF TABLES …………………………………………………………………………………………….. x
LIST OF FIGURES …………………………………………………………………………………………… xi
CHAPTER ONE ………………………………………………………………………………………………. 1
INTRODUCTION AND BACKGROUND INFORMATION …………………………….. 1
1.1 Introduction ………………………………………………………………………………………………. 1
1.2 Background of the Problem ………………………………………………………………………… 1
1.3 Statement of the Problem ……………………………………………………………………………. 2
1.4 Research Objectives …………………………………………………………………………………… 3
1.4.1 General Objective ………………………………………………………………………………… 3
1.4.2 Specific Objectives ………………………………………………………………………………. 3
1.5 Research Questions ……………………………………………………………………………………. 3
1.6 Significance of the Study ……………………………………………………………………………. 4
1.7 Scope of the Study …………………………………………………………………………………….. 4
1.8 Limitations of the Study …………………………………………………………………………….. 4
CHAPTER TWO ……………………………………………………………………………. 5
LITERATURE REVIEW …………………………………………………………………………………. 5
2.0 Introduction ………………………………………………………………………………………………. 5
2.1 Definitions of terms …………………………………………………………………………………… 8
2.2 Characteristic of Financial Statements ……………………………………………………….. 10
2.3 Features of Financial Statements ……………………………………………………………….. 11
2.4 Objectives of Financial Statements …………………………………………………………….. 12
2.5 Analysis of Financial Statement ………………………………………………………………… 12
2.6 Accounting Information Tools …………………………………………………………………… 15
2.7 Definition and Nature of Investment Decisions …………………………………………… 19
2.8 Investment Evaluation Criteria …………………………………………………………………. 21
2.9 The Role of Financial State in Investment Decision …………………………………….. 24
2.10 Empirical Literature Review ……………………………………………………………………. 26
2.11 Conceptual Frame Work …………………………………………………………………………. 27
CHAPTER THREE …………………………………………………………………………… 29
RESEARCH METHODOLOGY …………………………………………………………………….. 29
3.1 Introduction …………………………………………………………………………………………….. 29
3.2 Research Paradigms and Design ………………………………………………………………… 29
3.3 Area of the study ……………………………………………………………………………………… 30
3.4 Population of the Study …………………………………………………………………………….. 30
3.5 Sample Size and Sampling Techniques ………………………………………………………. 30
3.5.1 Sample and Sample Size …………………………………………………………………….. 30
3.5.2 Sampling Procedures ………………………………………………………………………….. 30
3.6 Data Collection Methods and Approach ……………………………………………………… 30
3.6.1 Sources of Data Collection ………………………………………………………………….. 30
3.6.2 Validity Testing …………………………………………………………………………………. 31
3.7 Management and Analysis of Data …………………………………………………………….. 32
3.7.1 Data Cleaning ……………………………………………………………………………………. 32
3.7.2 Data analysis …………………………………………………………………………………….. 32
CHAPTER FOUR ………………………………………………………………………… 33
DISCUSSION AND PRESENTATION OF MAJOR FINDINGS ……………………… 33
4.1 Personal Details of the Respondents …………………………………………………………… 33
4.1.1 Gender of the respondents …………………………………………………………………… 33
4.1.2 Age of the respondents ……………………………………………………………………….. 35
4.1.3 Occupation of the respondents …………………………………………………………….. 36
4.1.4 Academic background of respondents ………………………………………………….. 37
4.1.5 Education levels of the respondents ……………………………………………………… 38
4.2 Use of Financial Statements in the Assessment of Financial Position …………….. 40
4.2.1 Use of financial statement information in investment decision making …….. 40
4.2.2 The adequacy of TPA financials for use in investment decision making …… 41
4.2.3 The Variables looked at in assessing company’s financial position ………….. 43
4.3 Financial Statements in Forecasting Company’s Performance and challenges
faced by TPA ……………………………………………………………………………………………….. 44
4.3.1 Extent to which financials help investor to take opportunities …………………. 44
4.3.2 Reliability of NPVs calculated from financials’ information …………………… 45
4.3.3 Challenges of TPA financials ………………………………………………………………. 46
4.3.4 Recommendations to Investors using TPA financials …………………………….. 47
CHAPTER FIVE ……………………………………………………………………….. 49
CONCLUSIONS AND RECOMMENDATIONS …………………………………………….. 49
5.1 Conclusion ……………………………………………………………………………………………… 49
5.2 Recommendations ……………………………………………………………………………………. 50
REFERENCES ………………………………………………………………………………………………. 51
APPENDICES ………………………………………………………………………………………………… 54
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