Relationship Between Earning, Dividend And The Value Of A Company

Relationship Between Earning, Dividend And The Value Of A Company

Chapter One

Preface

Background To The Study

A company can be defined as an “ artificial person ” with legal reality, perpetual race and a common seal( Wikipedia, 2010). also, accompany has been defined as a complex network of contract binding on colorful interest groups( Ilaboya, 2008121). It takes cognizance of the stake of colorful interest groups in business conditioning of the company. These stakeholders include the shareholders( possessors) of the company, investors, workers, labour unions, government and general public. These colorful stakeholders have different uses for the fiscal statement. The fiscal, statement of a company is the periodic report and account, including the balance distance and profit and loss account, prepared by the company and properly checked by the company’s external adjudicator( s), clones of which are presented to shareholders, the duty authorities, the Corporate Affairs Commission and other applicable persons bodies( Igben, 200594). According to Statement of Accounting Standard( SAS)No. 2, fiscal statements are the means of communicating to interested parties, information on the coffers scores and performance of the business reality.

Section 21 of the Company and kindred Matters Act( CAMA) 2004, specified three( 3) different types of companies. These are, companies limited by shares, companies limited by guarantee and unlimited companies. still, whether limited by shares, limited by guarantee or unlimited, a company can either be a private company or public company. still, for the purpose of this exploration work our focus will be on quoted companies.

Section 24 of the Companies and Allied Matter Act( CAMA) 2004 countries that, any company other than a private company shall be a public company, and it shall be stated in its memorandum of association that it’s a public company. The prescribed minimal class of a public is seven( 7) without a ceiling. Public company can raise capital through the issues of shares and similar shares are transmittable. They must have minimum of two directors.

The power and operation of a public company are separated which makes the directors render acceptable or proper services to the shareholders. The fiscal statement which is the sole responsibility of the directors to prepare must contain the fiscal report which enables the colorful stakeholders to find out the true performance of the company.

It has been observed that important opinions that involve huge fiscal responsibility on the part of investors are made on the base of information available on the fiscal report of the company. therefore, it’s veritably important that the information contained in similar fiscal report goes a long way in bogarting similar investors of the true value of the company. The commercial value of the company is known as the value of the company. For the purpose of this exploration work, the request value of the company would be representing the commercial value. The exploration work seeks to corroborate the relationship that exists between the earnings of the company, the tip it pays out, it trading volume and the values of the company. This is because piecemeal from the fact that a company uses the earnings to pay tip to its shareholders, it can also plough or invest portion of similar earnings back into the business. The decision of what portion of earnings tore-invest is generally made in the light of certain factors. The exploration work thus seeks to find out what effect similar decision has on the commercial value.

Statement Of The Exploration Problem

In Nigeria moment, numerous investors especially in the manufacturing sectors, invest lot of plutocrat in shares with the stopgap of maximizing profit in form of tip without taking in to consideration the earnings and request values of the company. Since earning and request values of a company is an important decision variable, it needs to be handled with care if an investor must maximize profit and remain in business.

In view of these complications and significance girding earnings, tips, trading volume and request values of the establishment. This exploration work has tried to offer results to the problem put in question form as stated below

What influence do the earning of a company as reflected in the Earnings Per Share( EPS) has on the values of the company?

What influence does the tip Per Share( DPS) paid by the company has on the value of the company?

Does the earning yield of a company affect the request value of the establishment?

Objects Of The Study

An investor’s return entered from a particular company for putting his plutocrat in such a company is generally in form of tip. similar tip depends on the quantum of earning which the company made that fiscal time. similar earnings help to indicate the performance of the company. thus, it’s veritably important for us to establish whether there’s any relationship between the earnings of a company and the commercial value.

The objects that this exploration work seeks to achieve include

To ascertain whether there’s any relationship between the earnings of a company as reflected in the Earnings per Share( EPS) and the value of the company.

To determine whether there’s any relationship between the quantum of tip per Share( DPS) paid by a company to its shareholders and the value of the company.

To ascertain whether or not there’s a relationship between Earnings Yield of a company and its request value.

The Compass Of The Study

immaculately, this exploration work should cover all the companies quoted on the Nigerian Stock Exchange but due to some egregious constrains, we’ve named companies in a particular assiduity. The compass of this study covers at least ten( 10) companies in the manufacturing assiduity from 1996 – 2009, so that a useful cross sectional analysis can be carried out.

Significance And Applicability Of The Study

The nonsupervisory agencies function is to insure that terrain for investments encourage investors. The quality of counting information which the companies made available to the public for decision timber is veritably important issue to these agencies. Hence, this study seeks to enable the following see that similar information is contained in the fiscal statements of companies.

Investors To investors, it’ll enable them when making investment decision to take a close look at the value of the company which they’re interested in investing their coffers so that they can appreciate and understand the type of relation that exists between the earnings of a company and the value of similar company.

scholars To scholars, it’ll increase their knowledge and better understanding of earning, as well as tip of a company. Also, how the tip pays out by a company to its shareholder affects the request value of the company.

Experimenters To experimenters in the field, they can make use of the exploration design as it’ll serve as a companion for intending experimenter in the future, bearing in mind that, this exploration will expose all that is, to know bout the relation that exists between the earnings of a company, other variable and its commercial values.

General Public This exploration is salutary to the public by furnishing them with an understanding of the meaning, purpose of companies earning as well as its relationship to its commercial value.

In general, this study will help to expand one’s knowledge on share price movement in Nigeria. thus, experimenters and reading public will find the work extremely useful.

Statement Of Research Hypothesis

H0 There’s no relationship between earning per share of a company and its commercial value.

H1 There’s a relationship between earning per share of a company and its commercial value.

H0 There’s no relationship between tip payout of a company and its commercial value.

H1 There’s a relationship between tip payout rate of a company and its commercial value.

H0 There’s no relationship between earnings yield of a company and commercial value.

H1 There’s a relationship between earnings yield of a company and commercial value.

Limitation Of The Study

Every exploration work has aspect in which it falls short of idea which the experimenter has established or recognizes. According to Ibrahim( 201015), limitations are factors beyond our control which tend to stymie the accomplishment of the objects. On this note, the following are the limitation of this study

The sample may be too small in relation to the entire population.

squishy dimension of variables.

The slice system espoused isn’t a tale, because we aren’t probing everyone in the population.