Dividing Long Term liabilities by Equity Shareholders Funds - Assignment Example

1. A. EARNINGS PER SHARE. The result generated when earnings are divided by the total outstanding shares. EPS ratio is a necessary tool in investment decisions like which company is worth putting our hard earned cash investment. It is better to deposit in a business entity with a higher earnings per share. dividends. are distributed to stakeholders if there is income generated during the accounting period. B. GEARING.  The result arrived at by dividing long term liabilities by equity shareholders’ funds. The standard ratio is that the capital investment should be equal to or more than the total liabilities of the business enterprise. Liabilities should be less than capital. We should invest in companies with a lower gearing ratio. 2 I. LEISURE INDUSTRY - The total population is 40 businesses in the leisure industry. Thirty sample corporations were taken. II. PHARMACEUTICALS INDUSTRY - From the total population of 40 companies in each group, 30 sample companies were randomly chosen. Random sampling  was used. Companies under both the leisure group and pharmaceutical group are ranked based on the EPS ratio as follows: LEISURE EPS GEARING PHARMACEUTICALS EPS GEARING Are 1.90 20.30 Ar -20.50 -189 Tra 2.31 22.03 Vec -8.60 -9.27 Cha 5.56 15.25 Yor -5.29 -25.9 New 5.68 9.85 Vas -5.28 -101.00 Int 6.20 22.87 Ske -4.44 -75.9 Tot 6.63 16.60 Pro -4.21 -27.6 Man 8.29 7.40 Sky -2.38 113.10 Mill 8.56 15.56 Syn -1.94 -86.6 Rea 9.65 35.28 Med -1.72 -39.7 New 9.85 5.68 Pro -1.04 -60.3 Ran 10.50 44.06 Med 0.00 0.46 Cha 11.25 56.90 Yor 0.10 14.10 Llo 14.60 54.36 All 0.20 11.10 Wem 15.48 27.56 Ful 0.90 6.20 She 15.56 8.56 Gol 1.60 13.10 Key 15.93 42.96 Pre 2.72 55.3 Pla 17.58 29.54 Pfi 3.10 12.00 Mea 18.78 12.98 Pho 3.20 0.00 All 19.31 22.89 Gra 5.52 -4.61 Top 20.30 1.90 Bio 5.70 2.30 Sou 20.48 45.94 Cyp 6.80 4.30 Fir 22.87 6.20 Con 15.00 8.80 Pla 29.54 17.58 Phi 21.00 47.00 Key 42.96 15.93 War 23.00 15.00 Cel 44.06 10.50 Ast 33.37 0.81 Cng 45.25 14.10 Cor 47.10 410.00 Sou 45.94 20.48 All 47.70 40.50 Roh 49.13 26.50 Gls 74.80 158.10 Cro 54.36 14.60 Gla 75.00 70.60 Hol 56.90 11.25 Pro 227.50 1.40 Comparison and contrasting between both leisure and pharmaceutical in relation to A) LEISURE Under the leisure group of companies, the three lowest companies, in terms of EPS are (1)Arena Leisure with EPS of 1.90, Trappers with an EPS of 2.31, Champion Games with an EPS of only 5.56. The top three companies under the leisure group, in terms of EPS are: Rohan Ventures with EPS of 49.13, Crown Sports with EPS per share of 54.36 and the topnotcher is Holiday break with an EPS of 56.90. B. PHARMACEUTICAL GROUP The bottom three companies in terms of earnings per share are: Ardana with EPS rate of -20.50, followed by Vectura Group with EPS of -8.60. The third lowest is York Pharma PLC with an EPS of -25.9. The top three companies under pharmaceuticals in terms of earnings per share are: GLS with EPS of 74.80, next is Glaxo Smith Kline with an EPS of 75. The topnotcher is Proteome Sciences with a very high EPS of 227.50. This shows that the leisure group of companies is better than pharmaceutical group. C. COMMENTS: Under the leisure group of companies, the highest three companies in terms of gearing are: the 3rd placer is First Choice Holidays with gearing of 6.20. This is followed by the second placer company in terms of EPS of 5.68. The champion company in terms of gearing is Topkapi with a gearing of 1.90. The lowest three companies under the leisure group in terms of gearing are: Southampton Leisure with gearing of 45.94. The next is Lloyd Sports with a gearing of 54.36. The company with the lowest gearing in leisure group is Channel Breaks with a gearing of 56.90 In pharmaceutical, the top three companies in relation to gearing are : The top three companies in terms of gearing are: 3rd placer Synairgen with gearing of -86.6. Second placer is Vastox with gearing of -101. The topnotcher is Ardana company with gearing of -189. The lowest three companies in terms of gearing are : third to the lowest Skyepharma with gearing of 113.10. The second to the lowest in terms of gearing is GLS with gearing of 158.10. The company with the lowest gearing is Coriander with gearing of 410. Income is generated, per income statement ,by deducting expenses of the business from the revenues generated. The companies could reduce their expenses, The net earnings are then divided by the number of shares to come up the earnings per share. Histogram Pharmaceutical EPS method used. The graph shows that the mean of the EPS of pharmaceutical group of companies is 17.9637 and the standard deviation is 45.80265 there are almost fourteen companies that have an earnings per share of zero to 25. The companies are more concentrated within the -25 to50 EPS. Histogram Pharmaceutical Gearing In the histogram of pharmaceutical group of companies under gearing, the mean is 12.143 and the standard deviation is 98.31245. More than 15 companies are concentrated on the area where gearing is between zero to 100. Histogram leisure EPS The graph above shows that around ten companies are having an earnings per share of between zero to ten. Around two companies have an earnings per share of between 50 and 60. The mean is 21.1803 and the standard deviation is 16.637. Histogram Leisure Gearing The gearing graph above shows that almost ten companies are earning between 10.00 to 20.00. Around only one company has a gearing of 30.00 to 40.00. Based on the histogram, the gearing of leisure resulted to almost ten companies having a very high gearing of between 10.00 to 20.00. The mean is 21.8537 whereas, the standard deviation is 14.54491. The two companies that have the highest gearing under Leisure under Topkapi with a gearing rate of 1.9 and Carnival PLC with a gearing of 2.31. The two lowest ranked in the Pharmaceutical industry are Lloyd Sports with a gearing of 54.36 and Channel Breaks with a gearing of 56.9. Based on the Histogram, Pharmaceutical Group of companies generated the top two companies namely: Coriander with gearing of 410 and GLS with a gearing of 158.10. The lowest two companies under pharmaceutical group are Vastox with a gearing of negative 101 and Ardana with a gearing of negative 189. As stated earlier, More than 15 companies, based on SPSS above, had an average gearing of from 10 to 20. Based on the above data, the gearing of leisure give us a better investment data that will entice us to invest our hard earned money to invest in. The mean of 20.0893 of Leisure group is far, far better the gearing group of Pharmaceutical. 4. Descriptive Statistics N Minimum Maximum Mean Std. Deviation Skewness     Statistic Statistic Statistic Statistic Statistic Statistic Std. Error EPS 30 -20.5 227.5 17.9637 45.80265 3.625 0.427 Gearing 30 -189 410 12.143 98.31245 2.161 0.427 Valid N (listwise) 30             Based on the mean value for pharmaceutical the mean of EPS is greater than the gearing. If they differ in the mean, therefore their normality differs with each other. Descriptive Statistics N Minimum Maximum Mean Std. Deviation Skewness     Statistic Statistic Statistic Statistic Statistic Statistic Std. Error EPS 30 1.9 56.9 21.18033 16.63710549 0.945857 0.426892 Gearing 30 1.9 56.9 21.85367 14.54491106 1.03976 0.426892 Valid N (listwise) 30             Based on the mean value for leisure the mean of EPS is almost equal to the gearing. They almost the same when it comes to their normality. Basically comparing the two companies, the leisure is near the normal distribution than the pharmaceutical company. 5. Correlations EPS Gearing EPS Pearson Correlation 1 -.195 Sig. (2-tailed) . .303 N 30 30 Gearing Pearson Correlation -.195 1 Sig. (2-tailed) .303 . N 30 30 Null Hypothesis: There is no significant relationship between the gearing and the EPS under the leisure. Alternative Hypothesis: There is a significant correlation between the gearing and the EPS under the leisure. Analysis of the result: There is low correlation between the gearing and EPS under Leisure. If we compare the value of the pearson r of gearing to EPS the value are not close to each other. We conclude that we use the Null hypothesis under leisure. It means that there is a very low probability in the relationship between the two. Correlations EPS Gearing EPS Pearson Correlation 1 .298 Sig. (2-tailed) . .109 N 30 30 Gearing Pearson Correlation .298 1 Sig. (2-tailed) .109 . N 30 30 Null Hypothesis: There is no significant relationship between the gearing and the EPS under the Pharmaceutical. Alternative Hypothesis: There is a significant correlation between the gearing and the EPS under the Pharmaceutical. Analysis of the result: There is correlation between the gearing and EPS under Pharmaceutical. If we compare the value of the pearson r of gearing to EPS the value are almost close to each other. We conclude that we use the alternative hypothesis under Pharmaceutical. It means that there is a very high probability in terms of relationship between the two groups. 6. On the basis of their relationship between the EPS and Gearing under the two companies. We use the correlation analysis bivariate to determine if there is a high correlation or low correlation between the two. We also correlate the two companies, the pharmaceutical; and the leisure under the influence of the two factors that affect the companies. 7. Based on the graph there is an accumulation of data above. Which means that there is a relationship between the EPS and the gearing results coming from the different company under the pharmaceutical. In terms of the hypothesis use the alternative hypothesis. There is a scattering of data which means that there is a relationship between the EPS and the gearing results coming from the different company under the leisure. In terms of the hypothesis use the null hypothesis. 8. EPS Gearing Pharmaceutical 1 .298 Leisure 1 -0.195 Based on the result above, there is no difference under the earnings per share of pharmaceutical and leisure. If we take a look on the gearing under the pharmaceutical and leisure there is a big difference between the two. If we analyze the result, the leisure company has a good gearing than the pharmaceutical. The rule is that the company with lower gearing is better choice for investment. Under EPS they are equal, it means that the two companies, namely, the pharmaceutical group and the leisure group are in good condition. 9.. For Pharmaceutical: Null Hypothesis: There is no significant difference between the EPS to Gearing under the Pharmaceutical Company. Alternative Hypothesis: There is a significant difference between the EPS to Gearing under the Pharmaceutical Company For Leisure: Null Hypothesis: There is no significant difference between the EPS to Gearing under the Leisure Company. Alternative Hypothesis: There is a significant difference between the EPS to Gearing under the Leisure Company 10 Paired Samples Test Paired Differences t Df Sig. (2-tailed) Mean Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference Lower Upper Pair 1 EPS - Gearing 5.82067 95.26558 17.39304 -29.75208 41.39342 .335 29 .740 Based on the table there is a big error under standard error of mean. There is a small difference between the two, the EPS and the gearing under Pharmaceutical. Paired Samples Test Paired Differences T Df Sig. (2-tailed) Mean Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference Lower Upper Pair 1 EPS – Gearing -.67333 24.13512 4.40645 -9.68554 8.33887 -.153 29 .880 Based on the table there is a small error under standard error of mean. There is a small difference between the two, the EPS and the gearing under leisure group. Leisure company performs better than the pharmaceutical company, comparing their standards of error. The t test of pharmaceutical > t test of leisure group meaning leisure group perfoms better than pharmaceutical group. References: Hilton, R, Managerial Accounting, Page 770-772, McGrawhill publishing,USA,1999 Stickney, C & Weil, R, Financial Accounting 8th ed. Page 10 Dryden Press, Florida 1997 Bized, (www.bized.ac.uk/compfact/ratios/gearing1.htm) investorwords.com[http://www.investorwords.com/1623/Earnings_per_Share.html] UNCTAD[http://www.unctad.org/Templates/Page.asp?intItemID=3179&lang=1 Bizminer, (http://www.bizminer.com/search/content/industries/total-liabilities-to-net-worth.asp) investopedia[www.inv=http://www.investopedia.com/terms/d/dividend.asp] invest-faq.com[http://invest-faq.com/] leisure industry research center,[http://www.shu.ac.uk/schools/slm/lirc.html] abpi[http://www.abpi.org.uk/] method (statistics.com http://www.statistics.com/]) used. statistics.com,[statistics.com http://www.statistics.com/] Read More