EFFECT OF CAPITAL STRUCTURE ON EARNINGS PER SHARE OF CONGLOMERATE FIRMS

Abstract

The topic of study is the Effect of capital structure on earnings per share of conglomerate firms in Nigeria. The researcher applied the expo facto research design. The researcher used the correlation and regression. Above methods in the analysis of the data. The findings of the study shows that:  Debt equity influences the earnings per share of conglomerate firms in Nigeria. That time interest earned has significant effect on the earnings per share of conglomerate firms in Nigeria, and that long term debt has significant effect on the earnings per share of conglomerate firms in Nigeria. Based on these findings the researcher recommended the following; the researcher recommends that management of conglomerate should work very hard to optimize the capital structure in order to increase the returns on equity, assets and investment. They can do that through ensuring that their capital structure is optimal. The management of Nigerian quoted firms should increase their commitment into capital structure in order to improve earnings from their business transaction. The management of Nigerian quoted conglomerate firms must caution against the apparent benefits of greater leverage simply as a device for controlling managerial opportunistic behavior. First, debt and equity represent different constituencies with their own competing, and often mutually exclusive, goals. Secondly, as the level of debt increase, the capital structure can change from one of internal control to of external control.

SECTION ONE

1.0 Introduction

1.1 Background of the study

The research topic-effect of capital structure on earning, per share of conglomerate firm in Nigeria is a topic of interest to many people and many experts have given some definitions to the element in the topic such definitions to the element in the topic such as capital structure, earning per share etc. Zakari (2008) defined capital structure as “the firms mix of different source of finance” that is to say that capital structure is the mixture or collection of both owner’s capital (equity capital) and boned funds (debts) used in running a business .As Emekekwue (1997) pointed out capital structure is made up of long term fund, medium term fund and short term fund.

On the other hand, earning per share is an indicator used widely by investor. Earning per share represent the amount of profit the company has earned during the year for each ordinary share, David Alexander and Ann Britton (1998).

According to Ikpe (2008) earnings per share is computed by dividing net profit after taxes by the number of common shares outstanding. It is stated mathematically this;

Earning per share (EPS) =       Net profit after tax

No of common shares outstanding

Earning per share is a measure of financial performance of a firm. It is a measure of financial viability or unviability of that business .To measure financial performance requires the evaluation or appraisal of some factors. Put differently, financial performance is obtained through performance evaluation of the business.

Okwoh understands performance evaluation as “the cumulative consideration of the factor that may be representative indicators or appraisal of an individual or entity’s activity or performance in reference to some standards over a period of time”. Hansen and Mo wen in Okwo (2012) opine that financial measures focus mainly on figures which may not tell the whole story of the company. However financial measures are commonly used to evaluate performance.