EFFECT OF GEARING ON SHAREHOLDERS WEALTH A CASE STUDY OF PEUGEOT AUTOMOBILE NIGERIA LTD
EFFECT OF GEARING ON SHAREHOLDERS WEALTH A CASE STUDY OF PEUGEOT AUTOMOBILE NIGERIA LTD
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Date
1997-07
Authors
UDE, SYLVANUS AKWU.
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Abstract
Peugeot Automobile Nigeria Limited (PAN) as associate (Company to Automobiles Peugeot (AP)
France is 60% Nigerian and 40% French. Very little capital is invested while the large chunk
of the "Working Capital" is borrowed from local banks and finance houses. The Annual Report
and Accounts for five years (1992 - 1996) was analysed and it was discovered that PAN spends
between 249% and 1485% of its fully paid Capital in servicing the loan finances.
An all equity structure was simulated and analysed alongside the existing highly geared structure.
The results obtained show that three out of the five years (60%) favoured the all equity structure
in the Earnings per share while four out of the five years (80%) favoured the all equity structure
in the profitability ratios. All show that PAN is not earr ing enough returns on its assets at the
moment.
The measures of short-term solvency show that PAN's short-term asset holdings cannot
sufficiently repay short-term liabilities if the latter were forced to be paid all at once.
Concerning the ways of minimizing interest payments, ittention was drawn on the difference
between nominal and effective rates of interest with an emphasis on the need for the
recalculation of bank charges as enormous amounts have teen recovered in the process. Without
such recoveries, the interest expenditure posted in PAN records could have been much higher.
It is observed that one of the ways of controlling profitability is to increase sales volumes.
Under the present economic climate in Nigeria, PAN which is producing 24 to 26 cars a day
(10% of installed capacity) cannot easily increase sales volumes because the car prices are very
high.
Some recommendations were made on the possible ways of improving sales volumes in the
present economic circumstances.
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Description
A PROJECT PRESENTED TO THE
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF BUSINESS ADMINISTRATION
AHMADU BELLO UNIVERSITY, ZARIA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF MASTER OF BUSINESS ADMINISTRATION (MBA) DEGREE
JULY, 1997
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Keywords
EFFECT,, GEARING,, SHAREHOLDERS,, WEALTH,, CASE STUDY,, PEUGEOT AUTOMOBILE,, NIGERIA LTD.