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THE EFFECT OF FINANCIAL LEVERAGE ON COMPANY PERFORMANCE
TABLE OF CONTENTS
1.1 Background of he study
1.2 Statement of the problem
1.3 Objective of he study
1.4 Research question
1.5 Research hypothesis
1.6 Significant f the study
1.7 Scope and limitation
1.8 Definition of terms
CHAPTER TWO Literature review
2.1 background of the company under study
2.2 The concept of financial leverage
2.3 The degree of financial leverage
2.4 The effects of financial leverage
2.5 Business risk
CHAPTER THREE Research design and methodology
3.1 Research design
3.2 Population of he study
3.3 Sample and sampling techniques
3.4 Source of data collection
3.5 Method of data collection
3.6 Method of data presentation
3.7 Method of data analysis
CHAPTER FOUR Presentation and analysis of data CHAPTER FIVE
1.1 BACKGROUND OF THE STUDY
Firms at every stage of growth and development, from concept to maturity need found in order to survive. The aim of every business is to maximize the wealth and welfare of its owners.
Without finance, the aim of every business cannot be met. This finance can be said to be the life wire of any firm without which there can be no survive
Financing is the acquisition of cash or other assets through means such is the sale of stocks, retaining net profit and increasing of dept. A firm’s capitalization consists of internally generated founds and due to the fact that a company may not be able to rise al the founds which it requires internally, it may depends on additional external financing.
This capitalization of the firm would therefore incorporate both internally generated founds and external found which comprises loons both short terms and long terms and bonds.
Financial leverage, the subject matter of this study, has to do with the use of external, founds in generating profit for the firm which is primarily the maximization of shareholders wealth and welfare. Leverage invalids the use of external financing to act as qa higher than could be reached without its use. Usually, there exist varying financing structures. A simple common stock structure is one whereby no use is made common stock structure does not have the ability of enjoying the advantages of financing leverage. The use of financing leverage causes the financial structure of a firm being simple and also the impact the owners have on the firm increases by the issuing of common stuck whereas the claim creditors have on the firm increases with the use of borrowed founds.
Leverage therefore is greatly considered when investment is being undertaken by investors. By this investors prefer a firm that is less levered than one that is highly levered.
However, the level of activity that can take place in a firm depends on the level of activity that goes on in the economy. The economy has a direst effect on the activity of the firm and as such firms with debt financing also.
1.2 STATEMENT OF THE PROBLEM
Companies that use dept and equity as a source of financing are bound to face some ups and downs. The Nigeria Bottling PLC tend to face:
iii) Dividend payment to the owners of the equity are not a tax deductible expense. To (Nigeria Bottling Company) dept instrument were used for financing, to this effect, interest payment on such instruments should be tax deductible.
1.3 OBJECTIVE OF THE STUDY
The objective of the study includes the following:
1.4 RESEARCH QUESTION
In-order to elicite information from respondents, the following research question were generated:
1.5 RESEARCH HYPOTHESIS
HO: The economy environment without the period of study does not effect the level of dept financing by the firms under study.
HI: The economic environment within the period of study effect the level of financing by the firms under study i.e. the Nigeria Bottling Company.
HO: The level of dept financing employed does not effect the performance of the firms under study.
HI: The level of dept financing employed effects the performance of the firms under study.
HO: The state of economy measured by the grass domestic project does not affect the performance of Nigeria Bottling Company PLC.
HI: The state of the economy measured by the grass domestic products the performances of the firm under study.
HO: Implies Null Hypothesis
HI: Implies Alternative Hypothesis.
1.6 SIGNIFICANCE OF THE STUDY
The significant of the study is to enable us to evaluate how the economy effect the performance of the Nigeria Bottling Company PLC.
This study will therefore enhance an understanding on how financial leverage can be said to thrive well in an economy that is forming in that as dept employed more founds to increase, for investment and as such profit fends to increase.
The study will be of almost importance to the school library, students in management and for future project writers and research who will wish to use it as reference to their own study.
1.7 SCOPE AND LIMOTATION OF THE STUDY
The scope of this study centers around the company within the manufacturing sector of the Nigerian economy. “NIGERIA BOTTLING COMPANY PLC”. Analysis on the company. I.e. historically. Operationally and structurally. Ration analysis would also be carried out in order to reach a final objective conclusion
The limitation of the study includes data, since data used are only data in published reports for financial analysis. The confidentially of such data the firm reserved to themselves. Given the economic trend i.e. inflationary effects which affects the level of activity of the firm, which includes firm with dept financing also.
1.8 DEFINITION OF TERMS
This is the system by which the income of a company is raised and administered. It deals with methods for supplying capital needed to acquire, development and operate real property
This id the purchase of sound stock or bound compared to real investment in a capital asset such as real estate or plant and machinery.
This is the use of external financing in order to raise the profit of the company that employs it. It has effect on the per share earnings of the common stock of a company when large sums must be paid for bound interest or preferred stock dividend on both, before the common stock is established to share in earning
Financial leverage may be advantageous for the common stock when earning are good enough but may work against the common stock when earning decline.
This is the long term borrowing of money for business, usually in exchange for dept securities, for the purpose of obtaining working capital or other founds necessary to operational needs
This is the acquisition of money for capital or operating purposes in exchange for a share or shares in the business being financed.
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