ROLE OF FINANCIAL STATEMENT ANALYSIS TOWARD EFFECTIVE DECISION-MAKING OF FINANCIAL INSTITUTIONS IN RWANDA: A CASE OF BANK OF KIGALI PLC PERIOD: 2019 - 2023

Abstract

The study aimed to analyse the role of financial statement analysis toward effective decision-making of financial institutions in Rwanda: a case of Bank of Kigali Plc. The specific objectives of the study were to analyse the financial statement analysis practices in Bank of Kigali Plc, to assess the process of decision-making in Bank of Kigali Plc and to find out the relationship between financial statements analysis and decision-making in Bank of Kigal Plc. The sample size of the study was 60 observations from financial statements for 5 years, through the ratios of profitability, liquidity, leverage, assets quality and growth. The study used a quantitative research design and the data were collected using a documentary from the financial statements of Bank of Kigali Plc and analysed through Excel and SPSS. The results indicate that all assessed factors such as profitability, liquidity, leverage, asset quality, and growth significantly influence decision-making. Profitability, with a coefficient of 0.539, shows that a unit increase in profitability improves decision-making by 53.9%, and this effect is statistically significant with a p-value of 0.041. Liquidity also plays a crucial role, with a coefficient of 0.503, suggesting that each unit increase in liquidity enhances decision-making by 50.3%. Its impact is statistically significant, as indicated by a p-value of 0.010. Leverage, with a coefficient of 0.514, demonstrates a 51.4% improvement in decision-making for each unit increase in leverage, with a p-value of 0.002, highlighting its strong significance. Asset quality is found to be the most influential factor, with a coefficient of 0.713. This suggests that a unit increase in asset quality results in a 71.3% improvement in decision-making, with a p-value of 0.000, underscoring its critical importance. Growth, with a coefficient of 0.553, shows that each unit increase in growth improves decision-making by 55.3%, with a p-value of 0.004, further confirming its significance. In conclusion, the study establishes that financial metrics profitability, liquidity, leverage, asset quality, and growth play a significant role in shaping decision-making at Bank of Kigali PLC. Among these, asset quality is the most influential, followed by growth. The statistical significance of these variables highlights the importance of thorough financial statement analysis in facilitating effective decision-making processes. Based on these findings, several recommendations are proposed. Firstly, the bank should prioritize enhancing and monitoring asset quality due to its substantial impact on decision-making. Secondly, effective liquidity management practices should be strengthened to support operational and strategic decisions. Additionally, the bank should focus on optimizing strategies to improve profitability and foster growth while balancing these with appropriate risk management practices. Finally, while leverage positively influences decision-making, the bank should manage its leverage levels carefully to mitigate associated risks. Overall, integrating comprehensive financial statement analysis into the bank's decision-making processes is essential for strategic improvements and sound financial management.