Methods on Economy - Research Proposal Example

RESEARCH METHODS “Is the investment decision and the growth of European firms financially constrained” The paper provides an analytical comparison of 12 countries for ten financial years. The paper will provide an insight into the various investment options of countries and the individual investor will be benefited to the core from the article in comparing the various countries and arriving at an investment decision on a country basis. The variables selected for analysis are Investments, Assets, Liabilities, Debt, Equity, and Earnings per share, Return on Assets, Return on Investment, Asset Turnover, Current Ratio, Quick ratio. The paper starts with explaining the basic concepts and a brief description of the various variables considered. The objectives of the study are listed. The sample and research design are stated. Data is collected for all variables for all countries for ten financial years. Each country is analyzed for each variable separately using time series analysis. The interpretation for each measure of performance is explained. The limitations of the study are listed. Introduction Economic liberalization and globalization have brought about a new and competitive environment for the common and small investors who are willing to participate in the equity of the corporate sector in our country. Understanding the firm’s investment decisions under imperfect market conditions is one of the central issues of the financial economics. Studying firm’s investment in such environment can provide insight into the dynamics of its growth as a function of internal and external financial sources. Fazzari et al. (1988) argue that in the presence of financing constraints the firm’s investment vary not only with the availability of the profitable investment projects, but also with the internal funds. Consequently, the severity of the financing constraints is proposed to be measured by the magnitude of the cash flow sensitivity of investment. Aims and Objectives 1. To find out the pattern of investment in various countries. 2. To find a relation between Assets and Liabilities 3. To find a relation between Debt and Equity 4. To find the earning potential of all countries 5. To analyse the financial performance of countries Review of relevant literature and theory. In this paper, the authors propose an alternative perspective to investigate the relationship between financing conditions and the sensitivity measure. First, they argue that in the real world it is hard to identify a group of firms in the absence of the financing constraints. Kaplan and Zingales (1997) also argue that just considering the external relative to the internal costs of financing we could hardly find any unconstrained firm. The paper concludes by stating that financing conditions may determine investment and growth of the European Firms. - Firm’s investment under financing constraints - A euro area investigation By Rozália Pál, EuropeanUniversity Viadrina and Roman Kozhan, The University of Warwick, June 2006 Methodology and Data SAMPLE: The sample for the research is based on the excel sheet provided. The research relies on the secondary data for analysis and interpretation. It is a descriptive study. ANALYTICAL TOOLS AND METHODS:     The research performs a trend analysis in each period for each country based on the selected variables. This is followed by a time series analysis which covers ten years of data for each country and the interpretations are given. The variables selected for analysis are Investments The various ways of dispersing the money by a company is called investments. Investments occur as a result of saving and improving business performance and profits. Assets This includes both fixed and variable assets include Land and building, Plant, Machinery, cash in hand etc. Liabilities This indicates the cost structure of the company. Debt The borrowings of a company are termed as debt. Equity The shareholders funds are defined as equity Earnings per share The earnings received as a result of one share is termed as Earnings per share. Return on Assets This is a fundamental financial performance measure. It is a percentage figure representing profit before interest against the money that is invested in the business. ((profit before interest and tax/capital employed) x 100) Return on Investment This is another fundamental financial and business performance measure. Strictly speaking Return on Investment is defined as Profits derived as a proportion of and directly attributable to cost or book value of an asset, liability or activity, net of depreciation. In simple terms this the profit made from an investment. The investment could be the value of a whole business (in which case the value is generally regarded as the companys total assets minus intangible assets, such as goodwill, trademarks, etc and liabilities, such as debt. N.B. A companys book value might be higher or lower than its market value); or the investment could relate to a part of a business, a new product, a new factory, a new piece of plant, or any activity or asset with a cost attached to it. The main point is that the term seeks to define the profit made from a business investment or business decision. Bear in mind that costs and profits can be ongoing and accumulating for several years, which needs to be taken into account when arriving at the correct figures. Current Ratio This is a measure of current assets to current liabilities. Quick ratio This is the same as the Acid Test. It is the relationship between current assets readily convertible into cash (usually current assets less stock) and current liabilities. It is a sterner test of liquidity. Results and Discussion Table 1. Investments in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 4972 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 2. Total Assets in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 387418 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 3. Total Debt in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 193173 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 4. Total Equity in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 28094 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 5. Total Current Liabilities in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 17106 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 6. Equity Per Share in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria (7.3) 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 7. Return on Assets in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 1417 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 8. Return on Investments in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 703 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 9. Current Ratio in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 6.3 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Table 10. Quick ratio in various countries ($Million) S.No Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total 1 Austria 2.07 2 Belgium 3 Finland 4 France 5 Germany 6 Greece 7 Ireland 8 Italy 9 Luxembourg 10 Netherland 11 Portugal 12 Spain Source: Primary Conclusions and recommendations References Firm’s investment under financing constraints - A euro area investigation By Rozália Pál, EuropeanUniversity Viadrina and Roman Kozhan, The University of Warwick, June 2006   Albert J. Fredman and Russ wiles, “How mutual funds works”, first edition, prentice hall of India private limited, New Delhi, 1997. William F. Sharpe – Gordon J. Alexander, Jeffery V. Bailey, Investments, Prentice Hall of India, sixth edition Donald E. Fischer, Ronald J. Jordan, Security Analysis and Portfolio management, Prentice Hall of India, Sixth Edition Bhole.L.M, “Financial Institutions and Markets”, Third Edition, Tata McGraw hill, New Delhi, 2002. Preethi Singh, “Investment Management”, 11 edition, Himalaya Publishing House, Mumbai, 2005. Khan.M.Y, “Financial services”, third edition, Tata McGraw hill, New Delhi, 2004. Nahini Prava Tripathy, “Financial Instruments and Services” first edition, prentice hall of India, new delhi.2004. Bhalla.V.K, “Investment Management”, 11 edition, Sultan Chand And Company Limited, New Delhi, 2001. Gordan Natarajan, “Financial Markets and Services” second revised edition, Himalaya Publishing House, Mumbai, 2003. Sadhak.H, “mutual funds in India” third edition, response books, new delhi,2005. WEBSITES: www.myiris.com www.moneycontrol.com www.mutualfundsindia.com www.amfiindia.com Read More