Role of financial statement analysis on decision making for financial institutions in Rwanda, a case Study of Equity Bank Headquarters (2019-2022)

Abstract

The purpose of this study is to find out the role of financial statement analysis on decision making for financial institutions in Rwanda. The specific objectives: to examine the effectiveness of financial statement analysis in Equity Bank and to identify the relationship between financial statement analysis and decision making in Equity Bank. This study follows a descriptive and co-relational surveys design (Fanning, 2015). Therefore, it relates variables after description of their characteristics in order to provide meaningful analysis. The total populations of this research were 103 people. Thus, a sample size was 82 employees as respondents were considered representative of the total population. Purposive sampling technique was used for this study. Data collected was analyzed using descriptive statistics because the data obtained in this study was quantitative. According to Quang and Hong (2009), quantitative data are observations measured on a numerical scale. Based on the results of table 3.9 obtained after estimating the model, the adjusted coefficient of determination, R-2=0.993 means that all independent variables used in this study jointly explain 99.4% of total variation in decision making for financial institutions, in other words this model is statistically appropriate to measure the relationship between financial statement analysis and decision making for financial institutions and R-2 is less than estimation statistics value showing that the model is not spurious so we cannot accept the model. The researcher also concluded that forecasting future financial performance (23%), to assess financial performance (27%), to make financial performance policies (14%), to compare variations in financial performance (9%) and to compare with expectations of financial performance (27%). Financial decision of Equity Bank is described as good because of the benefits that accrue from financial statement analysis. The cooperative has therefore taken full advantage of financial statement analysis. Last but not least, the researcher concluded that the benefits of financial statement analysis in cooperatives are facilitating making of realistic plans and policies, increased financial performance and, leads to earning of more profits, increasing a cooperative reputation, large market share and correcting mistakes made in time and that there is a positive relationship between financial statement analysis and financial decision of Equity Bank. The researcher recommended that the government of Rwanda should help different financial institutions in the country through capacity building trainings on the benefits of financial statement analysis so as to help them perform better. The researcher further recommended that Equity Bank should continue carrying out financial statement analysis because it has greatly helped Equity Bank to perform. All the employees in finance department should continue focusing on the practice. Other financial institutions in Rwanda should imitate Equity Bank if they are to improve their financial performance. They should carry out thorough analysis of their financial statement and then determine the way forward. Last but not least, the researcher recommended that employed of deferent financial institutions should try as much as possible to ensure that the financial statements prepared are able to produce positive results in case they are analyzed.