ASSESSMENT OF FINANCIAL PERFORMANCE OF REPI SOAP AND

DETERGENT S.C

A PROPOSAL PAPER SUMITTED TO ACCOUNTING DEPARTMENT

FOR THE PARTIAL FULFUILMENT OF B.A DEGREE IN ACCOUNTING

SUBMITTED BY: DAGIM JABESSA

ADVISOR: BAHIRU W.

UNITY UNIVERSITY

BUSINESS AND ECONOMICS COLLEGE

ACCOUNTING AND FINANCE DEPARTMENT

MAY, 2023

ADDIS ABABA, ETHIOPIA

 ABSTRACT
This study will be conducted under the title of financial performance as a case study of Repi soap
and detergent plc. financial performance is the process of measuring the results of firm’s
operations in monetary terms. The aim of the study is to show the real financial performance of
the Repi Soap and detergent PLC. By using different accounting tools the source of the data the
researcher will use secondary source. The secondary source was used in order to reach the aim of
the study. Finally, we conclude that Repi Soap and Detergent PLC is relatively high ability in
fulfilling both short term and long-term obligation of creditors. In addition to these the firm is
also profitable in their operation but some improvement needed in effective utilization of its asset
as well as in its credit term.
 Contents
ABSTRACT....................................................................................................................................2
CHAPTER ONE: INTRODUCTION..............................................................................................1
1.1 Background of the study........................................................................................................1
1.2 Background of the organization.............................................................................................2
1.3 Statement of the problem.......................................................................................................2
1.4 Objectives of the study...........................................................................................................3
1.4.1 General objectives.........................................................................................................3
1.4.2 Specific objective............................................................................................................3
1.5 Significance of the study........................................................................................................3
1.6 Scope of the study..................................................................................................................4
1.7 Limitations of the study.........................................................................................................4
1.8 Organization of the paper.......................................................................................................4
CHAPTER TWO: LITERATURE REVIEW..................................................................................5
2.1 Financial performance............................................................................................................5
2.2 Financial performance analysis..............................................................................................5
2.3 Areas of financial performance analysis................................................................................6
2.4 Significance of financial performance analysis.....................................................................6
2.5 Types of financial performance analysis:..............................................................................7
2.6 Techniques/tools of financial performance analysis:.............................................................7
2.6.1 Ratio Analysis.................................................................................................................8
2.6.1.1 Liquidity Ratios............................................................................................................8
2.6.1.2 Financial Leverage Ratio (insolvency).......................................................................10
2.6.1.3 Profitability Ratio.......................................................................................................11
2.6.1.4 Asset Turnover Ratio (Activity Ratio).......................................................................11
Advantages of Ratios Analysis:.................................................................................................13
Limitations of Ratios Analysis:..................................................................................................13
2.6.2 Common-Size Financial Analysis.................................................................................14
2.6.3 Trend Analysis..............................................................................................................14
2.7 Advantages of Financial Statement Analysis:.....................................................................15
2.8 Limitations of Financial Statement Analysis:......................................................................15
 2.2 Empirical study....................................................................................................................16
2.2.1 Manufacturing in Ethiopia.............................................................................................16
2.2.2 Limitations of Financial Statement Analysis:...............................................................17
B) The Need to Look Beyond Ratios:........................................................................................17
CHAPTER THREE: RESERCH DESIGN AND METHODOLOGY..........................................18
3.1 Area of the study..................................................................................................................18
3.2 Data sources.........................................................................................................................18
3.3 Target population.................................................................................................................18
3.3. Tools and method of data collection...................................................................................18
3.4 Sampling techniques............................................................................................................19
3.5 Methods of data analysis and interpretation........................................................................19
CHAPTER FOUR: TIME AND BUDGET SCHEDULE.............................................................20
4.1...............................................................................................................................................20
4.2. Budget schedule..................................................................................................................21
Reference.......................................................................................................................................22
APPENDIX....................................................................................................................................24
 CHAPTER ONE: INTRODUCTION

1.1 Background of the study

Financial performance refers to the act of performing financial activity. In broader sense,
financial performance refers to the degree to which financial objectives being or has been
accomplished.

The word performance is derived from the word ‘parfourmen’, which means to do, to carry out
or to render. It refers the act of performing, execution, accomplishment, fulfilment etc. In
broader sense, performance refers to the accomplishment of a given task measured against preset
standards of accuracy, completeness, cost and speed. In other words, it refers to the degree to
which an achievement is being or has been accomplished. Performance is used to indicate firm’s
success, conditions and compliance.

It is the process of measuring the results of a firm’s policies and operations in monitory terms. It
is used to measure firm’s overall financial health over a given period of time. It can also be used
to compare similar firms across the same industry or to compare industries or sectors in
aggregation.

The analysis of financial statements is a process of evaluating the relationship between

component parts of financial statements to obtain a better understanding of the firm’s position
and performance.

The financial performance analysis identifies the financial strengths and weaknesses of the firm
by properly establishing relationships between the items of the balance sheet and the income
statement. In short financial performance analysis is the process of selection, relation and
evaluation.

Generally, financial statements capture and report on four key business activities planning,
financing, investing, and operating activities. Knowing what information is to be found plus
where to find it and how to use it in financial statement is imperative to intelligently
understanding, analyzing, and interpreting financial data. Financial statement analysis is useful

1
as a tool in selecting investment or merger candidates, as a forecasting tool or future financial
conditions, as an evaluation tool for managerial and other business decisions (Pamela P, 2010).

To sum up, analysis of financial statements provides the essential concepts and tools needed by
security analysts who make decisions on the basis of information found in financial statements
(Pamela P, 2010).

1.2 Background of the organization

REPI SOAP & DETERGENT S.CO formerly known as REPI Soap Factory was established
1974.   Less than a year after its formation, it was nationalized by the Ethiopian government &
was managed under the direct supervision of the National Chemical Corporation and was re-
established as a public enterprise in 1992 by the council of Ministers.

At that time, the company’s main vision was   to compete   against   local & imported powder
detergent products through its famous brand “ROL”, due to the machinery age and technological
issues there was an issue of wastage which nearly bankrupted the company but thanks to a
pioneering idea of creating detergent bar (cake) in 1979, Repi gave birth to a new line of product
and a new brand  “Ajax”. Again in 1994 production of a liquid detergent was introduced under
the brand name ‘LARGO”

Following the earmarking of REPI Soap factory by the government for joint venture partnership,
LINA PLC undertook a series of studies on the factory with the aim of concluding a joint venture
agreement with the government. The joint venture arrangement lasted one year followed by a full
takeover of the share company LINA PLC after settling of the remaining 49% share previously
held by the Ethiopian government.

1.3 Statement of the problem

Assessment of financial performance is highly useful to identify the financial strengths and
weaknesses of the firm by properly establishing the relationship between the items of balance
sheet and profit and loss account (Drake, 2010). It also helps in short-term and long-term
forecasting and growth can be identified with the help of a financial performance analysis.

Financial analysis (also referred to as financial statement analysis or accounting analysis) refers
to an assessment of the visibility, stability and profitability of a business, sub –business or
project. It is performed by professionals who prepare reports using ratios that make use of
information taken from financial statements and other reports. Those reports are usually
presented to top management as one of their bases in making business decisions such as continue
or discontinue its main operation or part of its business, make or purchase certain materials in the
manufacture of its product, Acquire or rent/ lease certain machineries and equipment in the

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production of its goods, make decisions regarding investing or lending capital and other
decisions that allow management to make an informed selection on various alternatives in the
conduct of its business.

Generally, when we will be assessing different researches worked on Repi Soap and Detergent
PLC. There is no enough research that shows the real financial performance of the company. As
a result, the researcher will be assessing the exact financial performance of the company by using
different accounting techniques. In addition to assessing the financial performance of the
company the researcher finds out any problem related to the financial performance of the
company such as insufficient profit, cash shortage, loan repayment and shortage of inventory etc.
Thus in order to know the exact performance of the company related to finance the following
three questions will be carefully answered: -

1) Does The firm be able to earn income and sustain growth in both short term and long
term? (Profitability).
2) What extent the firm able to pay its obligation to creditors and other third parties in the
long term? (Insolvency).
3) Does the firm be able to maintain in positive cash flow, while satisfying immediate
obligations? (Liquidity).

1.4 Objectives of the study

1.4.1 General objectives
The overall objective of this study is to assess the financial performance and evaluate financial
healthiness of Repi soap and Detergent PLC.

1.4.2 Specific objective

In line with the broad objective highlighted above the following specific objective will be
formulated.

 To evaluate the company profitability.

 To measure the short-term liquidity position of the company.
 To analyse the long-term liquidity position of the company.
 To find out the attractiveness of the company as investment by examining its ability to
meet its current and expected financial obligation.

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1.5 Significance of the study

The study under the title assessment of financial performance of Repi soap and Detergent S.C try
to show the current position of the company, identify the company current strength and
weakness, and help the management to take corrective actions for the problem faced relating to
the profitability, the solvency and the liquidity. In general, the researcher quietly sure that the
manager of the company used as guide line in overcoming the problem that face related to the
financial performance of the company. The last but not least, this study also helps for other
researchers who conduct their research on the same title.

1.6 Scope of the study

The study mainly focuses on assessing the financial performance of Repi soap and Detergent
S.C. The report is proposed mainly based on secondary data even though the primary data used
in some extent. The secondary data was collected from the annual Audited financial statement of
the company. Particularly income statement and balance sheet not include statement of retained
earnings and statement of cash flow for the period of (2007-2011 GC). In addition to this extra
secondary information also search from recent audit report.

1.7 Limitations of the study

When conducting this research work, there are various problems hinders. Some of them are The
shortage of time especially for analysis part due to the change in teaching curriculum, Un
willingness of the company to provide the detail documents, The shortage of fund and The
researcher was used secondary resource only (i.e. the secondary source is not absolute by itself).

1.8 Organization of the paper

The study will have five chapters. The first chapter discussed the background of the study,
statement of the problem, and objective of the study, significant of the study, scope and
limitations of the study. Chapter two will deal with review of related literature theoretical and
empirical. Chapter three will discuss research design and methodology. Chapter four is going to
be discussing data presentation and analysis of data. Finally, chapter five will be discussing
summary, conclusion and recommendations. As this is the proposal for the research paper the
researcher will only be including the first three chapters and will give a brief explanation about
some of the points especially in chapter two. Detailed explanation of all topics will be included
on the research paper.

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 CHAPTER TWO: LITERATURE REVIEW

2.1 Financial performance

In broader sense, financial performance refers to the degree to which financial objectives being
or has been accomplished. It is the process of measuring the results of a firm's policies and
operations in monetary terms. It is used to measure firm's overall financial health over a given
period of time and can also be used to compare similar firms across the same industry or to
compare industries or sectors in aggregation.
2.2 Financial performance analysis
In short, the firm itself as well as various interested groups such as managers, shareholders,
creditors, tax authorities, and others seeks answers to the following important questions:
1. What is the financial position of the firm at a given point of time?
2. How is the Financial Performance of the firm over a given period of time?
These questions can be answered with the help of financial analysis of a firm. Financial analysis
involves the use of financial statements. A financial statement is an organized collection of data
according to logical and consistent accounting procedures. Its purpose is to convey an
understanding of some financial aspects of a business firm. It may show a position at a moment
of time as in the case of a Balance Sheet, or may reveal a series of activities over a given period
of time, as in the case of an Income Statement. Thus, the term ‘financial statements’ generally
refers to two basic statements: the Balance Sheet and the Income Statement.

The Balance Sheet shows the financial position (condition) of the firm at a given point of time. It
provides a snapshot and may be regarded as a static picture. “Balance sheet is a summary of a
firm’s financial position on a given date that shows Total assets = Total liabilities + Owner’s
equity.”
The income statement (referred as the profit and loss statement) reflects the performance of the
firm over a period of time. “Income statement is a summary of a firm’s revenues and expenses
over a specified period, ending with net income or loss for the period.” However, financial
statements do not reveal all the information related to the financial operations of a firm, but they

5
furnish some extremely useful information, which highlights two important factors profitability
and financial Soundness. Thus analysis of financial statements is an important aid to financial
performance analysis.
The analysis of financial statements is a process of evaluating the performance analysis includes
analysis and interpretation of financial statements in such a way that it undertakes full diagnosis
of the profitability and financial soundness of the business. Relationship between component
parts of financial statements to obtain a better understanding of the firm’s position and
performance.

The financial performance analysis identifies the financial strengths and weaknesses of the firm
by properly establishing relationships between the items of the balance sheet and profit and loss
account. The first task is to select the information relevant to the decision under to consideration
from the total information contained in the financial statements. The second is arranging the
information in a way to highlight significant relationships. The final is interpretation and drawing
of inferences and conclusions. (Pamela P, 2010)
In short, financial performance analysis is the process of selection, relation, and evaluation.

2.3 Areas of financial performance analysis

Financial analysts often assess firm's production and productivity performance, profitability
performance, liquidity performance, working capital performance, fixed assets performance,
fund flow performance and social performance.
2.4 Significance of financial performance analysis
Interest of various related groups is affected by the financial performance of a firm. Therefore,
these groups analyze the financial performance of the firm. The type of analysis varies according
to the specific interest of the party involved.
Trade creditors: interested in the liquidity of the firm (appraisal of firm’s liquidity)
Bond holders: interested in the cash-flow ability of the firm (appraisal of firm’s capital
structure, the major sources and uses of funds, profitability over time, and projection of future
profitability)
Investors: interested in present and expected future earnings as well as stability of these earnings
(appraisal of firm’s profitability and financial condition)

6
Management: interested in internal control, better financial condition and better performance
(appraisal of firm’s present financial condition, evaluation of opportunities in relation to this
current position, return on investment provided by various assets of the company, etc)(Pamela
P,2010)
2.5 Types of financial performance analysis:
Financial performance analysis can be classified into different categories:-
1. External analysis
This analysis is undertaken by the outsiders of the business namely investors, credit agencies,
government agencies, and other creditors who have no access to the internal records of the
company. They mainly use published financial statements for the analysis and as it serves limited
purposes.
2. Internal analysis
This analysis is undertaken by the persons namely executives and employees of the organization
or by the officers appointed by government or court who have access to the books of account and
other information related to the business.
3. Horizontal Analysis
In this type of analysis financial statements for a number of years are reviewed and analyzed.
The current year’s figures are compared with the standard or base year and changes are shown
usually in the form of percentage. This analysis helps the management to have an insight into
levels and areas of strength and weaknesses. This analysis is also called Dynamic Analysis as it
based on data from various years.
4. Vertical Analysis
In this type of Analysis study is made of quantitative relationship of the various items of
financial statements on a particular date. This analysis is useful in comparing the performance of
several companies in the same group, or divisions or departments in the same company. This
analysis is not much helpful in proper analysis of firm’s financial Analysis as it based on position
because it depends on the data for one period. This analysis is also called Static data from one
date or for one accounting period.
2.6 Techniques/tools of financial performance analysis:
An analysis of financial performance can be possible through the use of one or more tools/
techniques of financial analysis. One of the most common techniques is accounting techniques. It

7
is also known as financial techniques. Various accounting techniques such as Comparative
Financial Analysis, Common-size Financial Analysis, Trend Analysis and Ratio Analysis may be
used for the purpose of financial Analysis.(Modern corporate finance, 1994)
2.6.1 Ratio Analysis
In order to evaluate financial condition and performance of a firm, the financial analyst needs
certain tools to be applied on various financial aspects. One of the widely used and powerful
tools is ratio or index. Ratios express the numerical relationship between two or more things.
This relationship can be expressed as percentages (25% of revenue), fraction (one-forth of
revenue), or proportion of numbers (1:4). Accounting ratios are used to describe significant
relationships, which exist between figures shown on a balance sheet, in a profit and loss account,
in a budgetary control system or in any other part of the accounting organization. Ratio analysis
plays an important role in determining the financial strengths and weaknesses of a company
relative to that of other companies in the same industry. The analysis also reveals whether the
company's financial position has been improving or deteriorating over time. Ratios can be
classified into four broad groups on the basis of items used: (1) Liquidity Ratio, (ii) Capital
Structure/Leverage Ratios, (iii) Profitability Ratios, and (iv) Activity Ratios. (Pamela P, 2010).
2.6.1.1 Liquidity Ratios
Liquidity ratios provide information about a firm’s ability to meet its short-term financial
obligations. These ratios are calculated to comment up on the short-term paying capacity of a
concern or the firm’s ability to meet its current obligations. Two frequently used liquidity ratios
are the current ratio (or working capital ratio) and the quick ratio cash ratio is the most
conservative liquidity ratio.

A. Current Ratio

Current ratio may be defined as the relationship between current assets and current liabilities.
This ratio is also known as ‘working capital ratio’. It is a measure of general liquidity and is most
widely used to make the analysis for short term financial position or liquidity of a firm. It is
calculated by dividing the total of the current assets by total of the current liabilities.

Current Assets
Formula: Current Ratio =
Current Liabilities

8
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time and when they become due. On the other hand, a relatively low
current ratio represents that the liquidity position of the firm is not good and the firm shall not be
able to pay its current liabilities in time without facing difficulties. An increase in the current
ratio represents improvement in the liquidity position of the firm while a decrease in the current
ratio represents that there has been deterioration in the liquidity position of the firm. A ratio
equal to or near 2:1 is considered as a standard or normal or satisfactory. The idea of having
doubled the current assets as compared to current liabilities is to provide for the delays and losses
in the realization of current assets. However, the rule of 2:1 should not be blindly used while
making interpretation of the ratios. Firms having less than 2:1 ratio may be having a better
liquidity than even firms having more than 2:1 ratio. This is because of the reason that current
ratio measures the quantity of the current assets and not the quality of the current assets.

B. Quick Ratio (Acid Test)

It is an instrument to measure the liquidity position of the company. This ratio is the same as the
current ratio except that not include inventory account and prepaid expenses. The two
components of quick ratio are liquid assets and liquid liabilities. Liquid asset include all current
asset except inventory and prepaid expenses. Inventories can’t be termed as liquid assets because
it can’t be converted in to cash immediately without a loss of value. In the same manner, prepaid
expenses are also excluded from the list of liquid assets because they are not expected to be
converted in to cash similarly, liquid liabilities means current liabilities.

Liquid Assets
Formula: Quick Ratio =
Current Liabilities

C. Cash Ratio

The cash ratio is the most conservative liquidity ratio. It excludes all current assets except the
most liquid cash and cash equivalents.

Cash+ Marketable securities

Formula: - Cash Ratio =
Current Liabilities

9
2.6.1.2 Financial Leverage Ratio (insolvency)
Long term solvency or leverage ratios convey a firm’s ability to meet the interest costs and
payment schedules of its long term obligations.

A. Debt to Equity Ratio

It is a significant measure of solvency since a high degree of debt in the capital structure may
make it difficult for the company to meet interest charges and principal payment of a maturity.
This ratio reflects the relative claims of creditors and share holders against the asset of the
company.

Total debt
Formula: Debt to Equity =
Total Equity

B. Debt Ratio

The debt ratio compares total liabilities from total asset. It shows the percentage of total funds
obtained from creditors. Creditors would rather see low debt ratio because there is a great
cushion for creditor’s losses if the firm goes bankrupt. It tells the amount of other people’s
money being used in attempting to generate profits. A high ratio indicates more of firms asset are
provided by creditors relative to owner.

Total debt
Formula: Debt Ratio =
Total Asset

C. Time Interest Earned

This ratio serves as one measure of firm’s ability to meet its interest payment and thus avoid
bankruptcy. In geranial the high the ratio, the great the probability that the company could cover
its interest payment without difficulty. It also shows light on the firm’s capacity to take on new
debt.

10
 EBIT
Formula: Time Interest earned =
Interest Expense

2.6.1.3 Profitability Ratio

Profitability ratios measure the results of business operations or overall performance and
effectiveness of the firm some of the most popular profitability ratio are:-

A. Gross profit Ratio

Gross profit ratio is the ratio of gross profit to net sates expressed as a percentage. It expresses
the relationship between gross profit and sales.

B. Net Profit Ratio

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage.

Net profit x 100

Formula: –
Net sales

C. Return on Equity Capital (ROEC)

ROEC is the relationship between profits of accompany and its equity. It is the bottom line
measure for shareholders, measuring the profits earned for each birr invested in the firm’s stock.

¿
Formula: - Return on Equity ¿ Shareholder equity

D. Return on Asset (Investment)

It is the ratio of net income to share holder’s investment. It is the relationship between net
income and share holder’s. This ratio establishes the profitability from the share hobbler’s point
of view. The ratio is generally calculated in percentage.

Net profit after tax

Formula:- Return on asset =
Total assets

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2.6.1.4 Asset Turnover Ratio (Activity Ratio)
Asset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are
referred to so efficiency ratios, asset utilization rations, or asset management ratios. Two
commonly used asset turnover ratios are receivables turnover and inventory turnover.

A. Receivables Turnover

Receivables turnover is an indication of how quickly the firm collects its account receivables. In
simple words it indicates the number of times average debtors (receivable) are turned over during
a year.

Annual credit sales

Formula:- Receivable Turnover =
Accounts receivable

B. Inventory Turnover/Stock Turnover

Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet
the requirements of the business. But the level of inventory should neither be too high nor too
low. A too high inventory means higher carrying costs and higher risk of stocks becoming
obsolete whereas too low inventory may mean the loss of business opportunities. It is very
essential to keep sufficient stock in business inventory turnover ratio indicates the number of
time the stock has been turned over during the period and evaluates the efficiency with which a
firm is able to manage its inventory. This ratio indicates whether investment in stock is within
proper limit or not.

COGS NS
Formula:- Inventory Turnover Ratio ¿ =
inventory inventory

C. Fixed Assets Turnover Ratio

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the
efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive
utilization of fixed assets. Lower ratio means under utilization of fixed assets.

12
 sales
Formula: - FAT =
NFA

Advantages of Ratios Analysis:

Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages / Benefits of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements.

Ratios tell the whole story of changes in the financial condition of the business
2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios
highlight the factors associated with successful and unsuccessful firm. They also reveal
strong firms and weak firms, overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assist management,
in its basic functions of forecasting. Planning, co-ordination, control and
communications.
4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison
of the performance of different divisions of the firm. The ratios are helpful in deciding
about their efficiency or otherwise in the past and likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the case of investors
and lending decisions in the case of bankers etc.

Limitations of Ratios Analysis:

The ratios analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from serious limitations.

1. Limitations of financial statements: Ratios are based only on the information which has
been recorded in the financial statements. Financial statements themselves are subject to
several limitations. Thus ratios derived, there from, are also subject to those limitations.
For example, non-financial changes though important for the business are not relevant by
the financial statements. Financial statements are affected to a very great extent by

13
 accounting conventions and concepts. Personal judgment plays a great part in
determining the figures for financial statements.
2. Comparative study required: Ratios are useful in judging the efficiency of the business
only when they are compared with past results of the business. However, such a
comparison only provide glimpse of the past performance and forecasts for future may
not prove correct since several other factors like market conditions, management policies,
etc. may affect the future operations.
3. Ratios alone are not adequate: Ratios are only indicators; they cannot be taken as final
regarding good or bad financial position of the business. Other things have also to be
seen.
4. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of the company. The financial statements,
therefore, be adjusted keeping in view the price level changes if a meaningful comparison
is to be made through accounting ratios.
5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are
no well accepted standards or rule of thumb for all ratios which can be accepted as norm.
It renders interpretation of the ratios difficult.
6. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To
make a better interpretation, a number of ratios have to be calculated which is likely to
confuse the analyst than help him in making any good decision.
7. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios
have to interpret and different people may interpret the same ratio in different way.

2.6.2 Common-Size Financial Analysis

Common-size statement is also known as component percentage statement or vertical statement.
In this technique net revenue, total assets or total liabilities is taken as 100 per cent and the
percentage of individual items are calculated like wise. It highlights the relative change in each
group of expenses, assets and liabilities.

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2.6.3 Trend Analysis
Trend analysis indicates changes in an item or a group of items over a period of time and helps to
drown the conclusion regarding the changes in data. In this technique, a base year is chosen and
the amount of item for that year is taken as one hundred for that year. On the basis of that the
index numbers for other years are calculated. It shows the direction in which concern is going.
2.7 Advantages of Financial Statement Analysis:

There are various advantages of financial statements analysis. The major benefit is that the
investors get enough idea to decide about the investments of their funds in the specific company.
Secondly, regulatory authorities like International Accounting Standards Board can ensure
whether the company is following accounting standards or not. Thirdly, financial statements
analysis can help the government agencies to analyze the taxation due to the company.
Moreover, company can analyze its own performance over the period of time through financial
statements analysis.

2.8 Limitations of Financial Statement Analysis:

Although financial statement analysis is highly useful tool, it has two limitations. These two
limitations involve the comparability of financial data between companies and the need to look
beyond ratios.

A) Comparison of Financial Data

Comparison of one company with another can provide valuable clues about the financial health
of an organization. Unfortunately, differences in accounting methods between companies
sometimes make it difficult to compare the companies' financial data. For example if one firm
values its inventories by LIFO method and another firm by the average cost method, then direct
comparison of financial data such as inventory valuations and cost of goods sold between the
two firms may be misleading. Sometimes enough data are presented in foot notes to the financial
statements to restate data to a comparable basis. Otherwise, the analyst should keep in mind the
lack of comparability of the data before drawing any definite conclusion. Nevertheless, even
with this limitation in mind, comparisons of key ratios with other companies and with industry
average often suggest avenues for further investigation.

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B) The Need to Look Beyond Ratios:

An inexperienced analyst may assume that ratios are sufficient in themselves as a basis for
judgment about the future. Nothing could be further from the truth. Conclusions based on ratios
analysis must be regarded as tentative. Ratios should not be viewed as an end, but rather they
should be viewed as starting point, as indicators of what to pursue in greater depth. They raise
many questions, but they rarely answer any question by themselves.

In addition to ratios, other sources of data should be analyzed in order to make judgment about
the future of an organization. The analyst should look, for example, at industry trends,
technological changes, changes in consumer tastes, changes in broad economic factors, and
changes within the firm itself.

2.2 Empirical study

2.2.1 Manufacturing in Ethiopia
The Ethiopian manufacturing sector had been progressive in the imperial period until the
overthrow of the regime in 1974. During the following Dreg regime, the private sector was
discouraged because of nationalization of companies and the ceiling imposed on the amount of
capital the private sector could invest. The economy was governed by a central command system
which left limited space for market forces to operate. This results in slower progress in most
sectors of the economy and economic growth was at its bare minimum.

In the meantime, the government of Ethiopia liberalized the economy since 1991 and the
government has designed and adopted agricultural development led industrialization strategy to
enhance economic growth. However, the country’s industrial development strategy, value adding
private sector is considered the engine of the sectors’ growth. Accordingly, currently in Ethiopia
light manufacturing industries, such as leather, textile, metal and cement are considered as
strategic sub-sectors for the socio-economic development of the country. This is because the
nature and ability of the industries to absorb a significant labor force, contribute to export
earnings and tendency to facilitate multiple linkage with the rural population in line with the
country’s industrial development strategy is paramount. In addition, the country endowment with
rich source of raw material makes the sectors very important in competing in the international
market. Even though Ethiopia is a land of huge natural resources, but we have improperly used

16
these resources for the development. Industries were not properly used local resources for as an
input on their manufacturing processes. As a result, they depend on imported materials rather
than local resources. Consequently, of these the manufacturing sector is still infancy and have
full of problems. Also, even if, the tremendous efforts made and the economic growth achieved,
the Ethiopian economy remains beleaguered by structural problems. In specific, study showsthat,
due to skill man power

2.2.2 Limitations of Financial Statement Analysis:

Although financial statement analysis is highly useful tool, it has two limitations. These two
limitations involve the comparability of financial data between companies and the need to look
beyond ratios.

A) Comparison of Financial Data

Comparison of one company with another can provide valuable clues about the financial health
of an organization. Unfortunately, differences in accounting methods between companies
sometimes make it difficult to compare the companies' financial data. For example, if one firm
values its inventories by LIFO method and another firm by the average cost method, then direct
comparison of financial data such as inventory valuations and cost of goods sold between the
two firms may be misleading. Sometimes enough data are presented in foot notes to the financial
statements to restate data to a comparable basis. Otherwise, the analyst should keep in mind the
lack of comparability of the data before drawing any definite conclusion. Nevertheless, even
with this limitation in mind, comparisons of key ratios with other companies and with industry
average often suggest avenues for further investigation.

B) The Need to Look Beyond Ratios:

An inexperienced analyst may assume that ratios are sufficient in themselves as a basis for
judgment about the future. Nothing could be further from the truth. Conclusions based on ratios
analysis must be regarded as tentative. Ratios should not be viewed as an end, but rather they
should be viewed as starting point, as indicators of what to pursue in greater depth. They raise
many questions, but they rarely answer any question by themselves.

17
In addition to ratios, other sources of data should be analyzed in order to make judgment about
the future of an organization. The analyst should look, for example, at industry trends,
technological changes, changes in consumer tastes, changes in broad economic factors, and
changes within the firm itself.

CHAPTER THREE: RESERCH DESIGN AND METHODOLOGY

3.1 Area of the study

The study conducted on the assessment of financial performance of Repi soap and detergent S.C
which is located in Addis Ababa on the main road of Jimma.

3.2 Data sources

In this study, both primary and secondary data would be used to conduct this research. The
researcher believed that secondary source has greater and paramount role for the study since the
information related to the study would be obtained directly from the company annual report and
primary source of data was collected from the employees is required to give supplementary
information with regard to variables of the study. The primary data source would give
information on financial performance of Repi soap and detergent S.C.

3.3 Target population

The study tried to assess the financial performance of Repi soap and detergent S.C. To attain this
objective of the study, the researcher has used both primary and secondary data. The data used in
this study is predominantly from secondary source. However, the researcher has used primary
data to support secondary data analysis. Out of total 80 employees of Finance Department of
Repi soap and detergent S.C, the researcher has taken 24 employees as a sample size to judge
about total population, which is 30% of total populations.

3.3. Tools and method of data collection

The source of data for this study will be predominantly from secondary sources. However, the
data need for this study will gather from both Secondary and primary sources. The audited
annual financial reports for Repi soap and detergent S.C during the year 2011 to 2015 E.C.
would have used as a source of secondary data in order to compare and evaluate the financial
performance of commercial against the industry average. Help of other sources like those that

18
literature from various books, journals, newspapers, reports of the Repi soap and detergent S.C
and various websites, would also have used as a source of secondary data. Secondary data would
be collect through personal review of the above listed sources and types of data.
Furthermore, in order to support the secondary data for clarification would be required
finance department of the company was communicate through questionnaire. Judgmental
sampling would have used to select the interviewees. This judgmental sampling would have
taken based on who provide the best information for the purpose of this study

3.4 Sampling techniques

It is obvious that involving all population in the study would make the study difficult to manage
and ensure its reliability. So, in order to precise the study, the researcher would have used
nonprobability sampling techniques that will be judgmental technique. The rational to use this
technique allow the researcher to choose those employees who has enough knowledge and
experience on financial ratio analysis of the Repi soap and detergent S.C. This is because the
method gives equal chance for all respondents and they are homogenous. The method employed
would enable the researcher to generalize about the financial performance of the bank.

3.5 Methods of data analysis and interpretation

Having completed the process of data collection from both sources, the researcher would use
descriptive type of data analysis to draw clear conclusion and inferences. This descriptive type
was preferred due to its clarity and simplicity. The data collected has been analyzed and
presented by using tabulation and percentage, which is used to make comparison and inferences.
The findings would computed manually by using pocket calculators. Tabulation would mostly
use since it facilitates easy interpretations. This section of the study explains research design,
target population, sample and sampling method source of data collection and method of data
collection, data analysis and interpretation.

19
 CHAPTER FOUR: TIME AND BUDGET SCHEDULE

4.1 Time schedule

No Activity Feb Mar May Jun

1 Topic selection 
2 Preparation of proposal 
3 Collection of useful material 
4 Data collection 
5 Data analysis and writing of 
final research
6 Submission of research 
7 Presentation of final research 

20
4.2. Budget schedule
Item Quantit Per Total
y unit(birr) Cost(birr)
Equipment and Paper 400 1200 1200
stationary
Pen 12 180 180
Pencil 12 100 100

Binder 1 80 80
8 GB Flash 1 350 350

Miscellaneous 500
Total Cost 2410

Transportation 1000
Personal Cost Internet 5 1000

Printer 45 page 5 225

Typist 45 page 50 2250

Total cost 4475

Contingency 500

Over all total cost 4975

21
 Reference

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Investment. American Journal of Economics and Business Administration, 5, 84-88.

Asres Abite and Dejene Mamo (2012). Evaluation of Financial Performance of Banking

Enterprise; In the Case of Construction and Business Bank. Revista Tinerilor Economisti
(The Young Economists Journal), 1, 82-102.

Berger, A. N. and Humphrey, D. B. (1997). Efficiency of Financial Institutions: International

Survey and Directions for Future Research. European Journal of Operational Research,
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Brigham, E. and Houston, J. (2009). Fundamentals of Financial Management (8th edition).

London, England: Prentice Hall.

Casu, B., Molyneux, P., and Girardone, C. (2006). Introduction to Banking, London, England:
Prentice Hall.

Drake, L. (2010). Efficiency and Productivity Change in UK Banking. Applied Financial

Economics Journal, 11, 557-571.

Frase, L. and Ormiston, A. (2004). Understanding Financial Statements. London England:

Pearson Education Limited.

Hempel, G., Simonson, D., and Coleman, A. (1994). Bank Management: Text and Cases (4th
Edition). New York, USA: John Wiley & Sons, Inc.

Joh,. N. Meyer (2008). Accounting For Non Accountants. New York, USA: Penguin Group
Incorporated.

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Kieso, E., Weygandt, J. and Warfield, D. (2012). Intermediate Accounting (14th edition). New
York, USA: John Wiley Inc.

Mabwe, Kumbirai and Robert, Webb (2010). Financial Ratio Analysis of Commercial Bank in
South Africa. African Review of Economics and Finance, 2, 1.

Nimalathasan, B. (2008). A comparative Study of Financial Performance of Banking Sector in

Bangladesh; An Application of CAMELS Rating System. Annual of University of
Bucharest. Economic and Administrative Series, 2, 141-152.

Peter, S. Rose. (2002). Commercial Bank Management (5th Edition). New Delhi, India: Mc Graw
Hill Limited.

Ginevicius, R. and Askoldas, P. (2011). A Framework of Evaluation of Commercial Banks: In

the case of Lithuanian commercial banks. Intellectual Economics, 5, 37.

Seiford, L., and Zhu, J. (1999). Profitability and Marketability of the Top 55 U.S. Commercial
Banks. Management Science, 45 (9), 1270-1288.

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Assessment of Banks. A Case of Pakistani Public Sector Banks. International Journal of
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23
 APPENDIX

UNITY UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING & FINANCE

The following questionnaire is designed by a researcher to collect data from the employees of
Repi soap and detergent S.C.The purpose of this questionnaire is to gather relevant information
regarding financial performance of Repi soap and detergent S.C; the researcher will use this data
for academic purpose only. Follow the following instructions to answer.

• Put a mark (√ ) in the box provided for the response.

• Write on the blank space given where necessary

Section 1: Demographic feature

1. Gender
Female
Male

2. Marital Status
Single Separated Divorced

24
 Married widowed

3. Age
Below 22 22-30

31-45 46 and above

4. Educational level
Diploma Degree

Masters Others

5. Religion affection
Orthodox Protestant
Muslims Others

Section 2: General questions

1. Do you think the company shows change in its profitability?
Yes

No

2. If your answer for questions number one above is yes, what are your explanations?
………………………………………………………………………………………………

………………………………………………………………………………………………

…………………………

3. Is the company trying show change on its liquidity, leverage and market relationship through
the year?
Yes

No

5. If your response is yes, please tried to justify it how changed through the year?
………………………………………………………………………………………………

………………………………………………………………………………………………

…………………………

25
6. Does the company face a problem in its financial performance
Yes

No

7. If your answer for number six is yes, please list the problem that faced in the company
financial performance.
…………………………………………………………………………………………………

…………………………………………………………………………………………………

……………………………

8. Does the company show future prospect, based on its past performance?
Yes

No

9. If your answer is yes for question number eight above, please list future prospect of the
company based on its past performance.
………………………………………………………………………………………………

………………………………………………………………………………………………

10. If your answer for number nine is no, what are the reasons to show the future performance
based on its past performance?
………………………………………………………………………………………………
………………………………………………………………………………………………
…………………………

11. Do you think there is relationship among liquidity, leverage and activity ratio in the
performance of the company?
Yes

No

12. If your answer is yes for question number 11, what kind of relationships is existing between
those ratios?
Positive

Negative

26
13. If your answer is positive, write positive relationships of these relations
………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………

14. If your answer is negative, write the negative relationship exists these relations
…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

27