THE EFFECT OF FINANCIAL STRATEGIES AND LEVERAGE ON COMPANY PERFORMANCE IN NIGERIA

CHAPTER ONE

INTRODUCTION

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.

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:

i) At some point in time there exist indiscriminate issue of common shares to the general public, to this background, it result in the dilution of corporate control. This is usually the case, if there are no pre-emptive rights entrenched in the regulation of the company.

ii) The use of order dept instruments and common stock give the new common stock owners the right to enjoy the same source of profit as the long standing holders of common stock in the organization. This is unfair to the existing shareholders, who have toiled over the years with the firm.

1.3       OBJECTIVE OF THE STUDY

The objective of the study includes the following:

1. To analysing the possible effects of financing leverage on the performance of the company.

2. To establish the relationship between the level of dept carried by the company.

3. Also with regard to the economic condition that prevail, to find out its effect on the company cost of capital.

4. To analysis the dept and equity which might result in over capitalization of the firm.

5. To investigate and underwriting stocks and dept in the excess of the cost used in issuing dept instrument.

6. Finally, the sector of the economy within the company operated would be critical reviewed in order to find out how it affects the operational of the firm therein. 

1.4       RESEARCH QUESTION

In-order to elicited information from respondents, the following research question were generated:

1. How can the effects of financial leverage be analysis on the performance of a company.

2. What are the relationships between the levels of dept carried out by the company?

3. In which can the economic condition prevail to find out its effect on the company cost capital.

4. In analyzing the dept and equity of the company performance (The Nigeria Bottling Company), on capitalization, what are the things are likely to result.

1.5       RESEARCH HYPOTHESIS

HYPOTHESIS 1

HO: The economy environment without the period of study does not affect 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.  

HYPOTHESIS  2

HO: The level of dept financing employed does not affect the performance of the firms under study.

HI: The level of dept financing employed effects the performance of the firms under study.

HYPOTHESIS 3

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.

1.6       SIGNIFICANCE OF THE STUDY

The significant of the study is to enable us to evaluate how the economy affects 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.

1.8       DEFINITION OF TERMS

1. FINANCE

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

2. FINANCING INVESTMENT 

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.

3. FINANCIAL LEVERAGE

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.