STOCK VALUATION AND PROFITABILITY

1.0 Introduction

Stock is one of the largest and most valuable current assets of any trading or manufacturing concern. They are items of value held for use or sale by a firm which include goods awaiting sales, most at times called finished goods, goods in the course of production, also called work in progress (WIP) and goods to be consumed in the course of production, called raw material. Conversely, it excludes long term assets subject to depreciation, called fixed assets and those that are subject to amortization, called intangible assets.

Nevertheless, stock of manufacturing firms constitutes the second largest item after fixed assets in the balance sheet in terms of monetary value; hence it is paramount to attach importance to the control and management of stock and its usage by the firm.

Valuation is a measurement process, hence by stock valuation, we refer to the assignment of monetary value to stock the value attached to stock at the end of every financial year would go a big was to determine the level of profitability of a firm at the particular year.

This research work therefore, centers on investigating the relationship between stock valuation and profitability and improper stock records maintenance in a firm with reference to Unilever Nigeria Plc as a study.

1.1 Background of the Study

This study in based on Unilever Nigeria plc, which outfit is located at Aba, Abia state. It was formally known as the West Africa Soap Company Limited in 1923 initial its change to Unilever Brother's Nigeria limited in 1955.

It first started with importing cold water detergent into counting which was white in colour with some blue greenish sparkles. In 1947, the firm introduced the OMO blue detergent which completed with cold water test. The firm started diversity its manufacturing plant which leads to the establishment of Aba Plant in 1949.

Initially, the firm manufactures scope was based on local palm oil and now they have strengthened to foot hold and drink business by merging with Lipton Nigeria Limited in product industries on December 1988 and become giant in personal production process.

In accordance with the Nigeria enterprise promotion decree of 1972 and 1977, 69 percent of the company's equity is held by Nigerian citizens and institutions while remaining 340 percent is held by Unilever overseas holding limited Lipton Tea Company limited and chesebrough pound's international limited.

Today, brothers Nigeria Aba as a heading company in the industrial sector, engaged in the manufacture and marketing of a wide range of households cleaning, personal washing, skin care, dental care, industrial to baking products. Through efficient and shapely focused management, the manufacturing sites have been nationalized some years ago for the current three Leading to significant saving & cost effectiveness, first “Apapa, the premier and site, procedures of soap, as sunlight, oxber, lux breeze life bury, astra and personal products close up pepsodent, Vaseline or ponds.

The second plant is devoted in the production of non soaping detergent powder and bars. Here, the company at factory road in Aba behind Nigeria breweries Aba makes such popular brands as OMO, RIM and use powder. The third and newest of all the plant commissioned in 1983, it is the ultra modern food factory in Agbara, where the company produces Royce, Blue Band Plants tree top and branding.

The company is fully committed to backward integration and self sufficiency and has made considerable progress in the company that has build a large palm kernel will at its Aba factory to improve its local sources.

Unilever Nigeria plc's range of quality products is distributed and sold at uniform price cell over the country through an established and tested distribution network using appointed distribution, supervised and well trained sales fire. The company has direct staff strength of 2,224 employees in its three factories and various distribution points throughout the country; of this number, only six are expatriate.

This is the extent which the company has gone at training and development local management resources. The objective is to bring in expatriate to give the business an international flavor and in exchange for its own managers going overseas to work and obtain foreign experience rather than as a matter of necessity. The company also provides employment for over 6000 supplies and distributors who in turn employ thousands of people.

Unilever Nigeria Plc has been dedicated to the production to top quality brand for Nigeria for over 70 years with over 30 strength in Aba plant, with these, there super brand remain a must in every home.

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1.2 Statements of Problem

The validity of stock and work in progress affects the true and fair view of the profit and loss account as well as the balance sheet. Surprisingly many enterprises are ignorant of these facts. Some enterprises too, who are aware of this fact in most cases over look it. These enterprises and up recording understated or overstated stock value and profit in their financial statement.

The problem of understated or overstated profit or net income could be attributed to one of the common financial statement fraud known as inventory fraud. This problem is sufficiently severe and therefore calls for serious attention. Inventory fraud for instance has tempted many firm and fooled more auditors. Even auditors at the top allowing firms are often fooled. It is a quick way to paid profits and is often revealed only when concern collapses.

When companies are desperate to stay afloat, inventory fraud is the easiest way to produce instant profits and dress up the balance sheet. Some small businesses purposely have understated ending inventory, in their income tax returns as an easy through fraudulent means of understanding taxable income.

This research project is therefore designed to address the above problem, be examining closely in effect of improper stock valuation on profitability and emphasizes on the need for proper stock valuation.

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1.3 Objectives of the Study

Companies believe that the more efficient and productivity, they become under such conditions. This study aimed at:

1. To find out the problem of inventory facing management of manufacturing firms.
2. To find out if these problems can be prevented or minimized.
3. The study will also ascertain the level of challenges they face in the course of taking inventory.
4. The study also x-rays the prospects of inventory in the manufacturing firms.
5. The study will proffers some recommendations on way forward to achieving good inventories in manufacturing firms.
6. To know what causes the problem in the company. The researcher embarks on this research work to recommend avenues for solving those problems to enhance productivity.

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1.4 Research Question / Hypothesis

In order to facilitate an easy approach to the study, the following research question and hypothesis were formulate.

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1.5 Research Question

1. Is there any significant relationship between method of stock valuation and the level of profit reported by business organization?
2. Is there any significant relationship between the valuation of the closing inventory and the amount of profit recorded by business organization?
3. Is proper stocktaking and valuation needed for a true and fair view of the state of affairs of an undertaking?
4. Is accurate and up-to-date record, required for effective stock control?

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1.5 Hypothesis

Hypothesis I

Ho: there is no significant relationship between stock valuation and profitability.

Hi: there is a significant relationship between stock valuation and profitability.

Hypothesis II

Ho: Improper stock valuation is not one of the factors responsible for understated or overstated profits in business organizations.

Hi: improper stock valuation is one of the factors responsible for understated and overstated profits in business organization.

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1.6 Significance of the Study

This study will find some useful information regarding the problems of Unilever Nigeria Plc, Aba with their effect and hence, the solution that will lead to increase in efficiency and productivity in the accounting department.

Information gained from the study could be used by management of Unilever and any other similar organizations for their planning and execution of appropriate motivation package for its accounting department.

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1.7 Scope of the Study

The researcher is concerned with the problems and prospects in Unilever Nigeria Plc and how these problems affect the efficiency and productivity in the accounting department. The study is based only in accounting department at Aba.

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1.8 Limitations of the Study

Every work while ventures have some problems militating against its progress. This study is not exception collecting information required for the research was not an easy task due to suspicious. Non — challant attitude towards respondent.

Some respondents were very un-cooperative and unwilling to help some entertained fear victimization for disclosing information despite all explanation and assurance to treat it with utmost confidence. No source of finance and the problem were more complex. The transportation problems compounded with bad roads which sky reacted the transport fairs.

There should be worth of mention that a study of this requires a lot of patience and persistence. Despite all these mentioned, it is not worthy that the researcher made that this study has researchable degree of reliability.

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1.9 Definition of Terms

For better and easy understanding of the study, the following terms were used in the content of this research:

Stock:

This is current assets items held for sales in an ordinary course of business i.e. material used in production of other goods and devices which are meant for sales.

Merchandise:

These are goods a trading or manufacturing company sells to its customers. These are goods acquired in a finished condition, which are ready for sale without any further processing.

Profit:

This is the financial gain which arises from the trading or business transaction; it is an increase in wealth. It is the excess of sales revenue over cost or expenditure.

Sales:

this is the exchange of goods for money. It is the goods sold to customer within the period of account.

Current Assets:

These are items which can be easily be converted into cash within an operating cycle without interfering the normal business operation.

Valuation:

This is a measurement process which demonstrates its usefulness and worth.

Raw-Material:

This is an input to be converted into finished products. It is a material produced either a natural as manufactured condition.

Finished Goods:

These are fully manufactured products awaiting for dispatch for consumption.

Manufacturing Concerns:

These are form engage into the process of production on a large scales of goods.

Management:

These are the mechanism involve on the corporate discussion making of a firm by seeing the smooth running of the organization in order to achieve its goals.

Work-In-Progress (WIP):

These are partially manufacture goods which are held in intermediate stage of completion and require further processing before distribution.

Stock-Out:

This is a situation that pertains when the balance of the physical stock of a particular commodity has been used and none remains in store.

Stock Valuation:

This is the valuation of stocks of raw materials work in progress and finished goods. Stocks are values at the lower of cost or net realizable and the costs incurred up to the stage of production reached i.e. production process should include both fixed and variable production cost (statement of standard accounting practice 9)

Buffer Stock:

This is additional unit of stock above the minimum number requires to maintain production level.

True and Fair View:

This simply means that items in the accounts (financial statement) do not mislead when taken individually or collectively. This term is used to describe statements that are prepared within the acceptable parameters (GAAPs).

Opening Stock:

This is the stock held by a firm at the beginning of an accounting period as raw material, work in progress or finished goods. The closing stocks of one period become the opening stock of the succeeding period.