FINANCIAL STATEMENT ANALYSIS AND INVESTMENT DECISIONS: AN EMPIRICAL ANALYSIS.

Abstract

Financial statement analysis (FSA) is seen as a tool at the disposal of both individual and corporate investors. Hence this study assessed the influence of FSA on investment decisions. The survey research was used and the population includes financial analysts, accountants, financial managers, managing directors and CEOs, shareholders, and stockbrokers. Purposive sampling was adopted in selecting 20 respondents from each of the categories listed above, hence study sample is 120. The questionnaire was the instrument the study used for data gathering. The data were analyzed using the PPMC and linear regression. The results showed correlation values of 0.796, 0.917, 0.810, and 0.778 and p-value of 0.000 across board, meaning that ratio, trend, horizontal, and vertical analyses of the financial statement have positive significant influence on investment decisions. The linear regression analysis posted r2 value of 0.939 and p-value of 0.000 meaning that the combination of ratio, trend, horizontal, and vertical analyses has significant influence on investment decisions. The study then recommends that investors focus on key ratios to make informed decisions; financial advisors should encourage investors to focus on both revenue and expense trends to forecast future earnings potential; companies and investors use horizontal analysis to compare changes in financial statements over time, examining fluctuations in revenues, costs, and profitability; vertical analysis be used to assess the proportion of different elements of a financial statement relative to a key figures; and various methods of financial statement analysis should be combined before investment decisions are taken. In conclusion, financial statement analysis has strong significant influence on investment decisions.