Effect Of Capital Structure On Earnings Per Share Of Conglomerate Firms

Effect Of Capital Structure On Earnings Per Share Of Conglomerate Firms

Abstract

The effect of capital structure on earnings per share of conglomerate enterprises in Nigeria is the study’s focus. The expo facto research design was used by the researcher. Regression and correlation were utilized by the researcher. Data analysis using the aforementioned techniques. According to the study’s findings, The earnings per share of conglomerate corporations in Nigeria are influenced by debt equity. Both the amount of long-term debt and the amount of time interest paid have a major impact on the earnings per share of conglomerate corporations in Nigeria. The researcher made the following recommendations based on these findings: The management of conglomerates should put a lot of effort into optimizing the capital structure in order to raise returns on equity, assets, and investments. They can achieve this by making sure their financial structure is ideal. To maximize profits from commercial transactions, the management of Nigerian quoted companies should expand their capital structure commitment. When it comes to using increased leverage as a tool to rein in managerial opportunistic behavior, the management of mentioned conglomerate corporations in Nigeria must be cautious. First of all, debt and equity represent various constituencies, each with their own conflicting and frequently incompatible agendas. Second, as debt levels rise, the capital structure may switch from being under internal control to being under external control.

First Section

One.0 Introduction

1.1 The study’s context

Many people are interested in the research topic, “Effect of Capital Structure on Earning, Per Share of Conglomerate Firm in Nigeria,” and many experts have provided definitions for some of the key terms in the topic, including “capital structure,” “earning per share,” and others. Capital structure is the combination or collection of both owner’s capital (equity capital) and boned money (debts) utilized in operating a business, according to Zakari (2008), who described capital structure as “the firms mix of different source of finance.”Emekekwue (1997) noted that the long-term, medium-term, and short-term funds make up the capital structure.

Earnings per share, on the other hand, is a common measure utilized by investors. According to David Alexander and Ann Britton (1998), earnings per share are the sum of the company’s annual profits for each common share.

Ikpe (2008) states that earnings per share are calculated by dividing net profit after taxes by the total number of outstanding common shares. This is expressed mathematically:

Net profit after taxes (EPS) = Earnings per share.

Common shares outstanding number

The financial performance of a company is gauged by its earnings per share. It serves as a gauge of a company’s financial viability or unviability.The review or appraisal of particular aspects is necessary in order to measure financial performance. To put it another way, financial performance is determined by how well the company is performing.

Performance evaluation, in the words of Okwoh, is “the cumulative consideration of the factor that may be representative indicators or appraisal of an individual’s or entity’s activity or performance in reference to some standards over a period of time.” According to Hansen and Mo Wen in Okwo (2012), financial metrics primarily concentrate on numbers that might not fully convey the company’s operations. However, financial metrics are frequently employed to assess performance.

Situation Of The Problem

Lack of consideration for the capital structure, or the proper capital mix for the business, may frequently make it difficult to get funding for the company’s future operations and may even result in the bankruptcy or liquidation of the company. This is because a bad capital mix can also affect earnings per share. The International Accounting Standard number 33 clarified profits per share into basic earnings per share and fully diluted earnings per share, according to the Institute of Chartered Accountants study pack. Profit on regular activities after tax, before extra-ordinary items, less the preference dividend, divided by the number of ordinary shares in issue and dividend ranking, is the formula for basic earnings per share. The calculation implies that, in cases where there is a cumulative preference share, the full cumulative preference dividend that is due during an accounting year should be subtracted. When cumulative preference shares are included in the capital mix, this will unquestionably have an impact on the computation of earnings per share and will lead to reduced earnings per share. Additionally, more ordinary shares will split the potential profit if all of the issued ordinary shares qualify for dividends. Additionally, they will lower earnings per share. In addition to issues caused by poor capital structure planning, there are other issue areas that have an impact on both the capital structure and earnings per share. Power supply is one such issue. When discussing plans to develop a cement factory in Liberia, the chief executive of the Dangote group warned the president of Liberia that the main problem in Africa is the availability of power, saying “No power, No growth” (the Guardian newspaper of February 12, 2014). He informed the president that the new cement mill would need 1.2 megawatts of electricity and suggested that (as an alternative) his own coal-burning power plant could generate 2.0 megawatts. Due to Liberia’s inability to produce the required 1.2 megawatts, employing the 2.0 megawatts of the Dangote Company would result in an excess of 0.8 megawatts, increasing costs and lowering profit/earnings per share.

The above mentioned Liberia/Dangote Company power/electricity supply problem also applies to Nigerians and has an impact on various industries, including the conglomerates in Nigeria. To unite with their equity fund, the companies must borrow enough money. Due to the high cost of borrowing (owners/interests), poorly planned capital funds, especially debt funds, will undoubtedly have an impact on the capital structure and earnings per share.

Many companies in the conglomerate sectors that had previously made significant contributions to Nigeria’s economy are currently ceasing operations or scaling back. The capital structure and issues with earnings per share are the root of the issue.