PROJECT PROPOSAL

This research will be based on an evaluation of capital structure and

profitability of business organisation. The capital structure is the long-term

capital requirement of the company which shows how the firm will be finance.

And how the profitability of this company will be determined whether it will

remain in business or not especially in the long-run.

In the course of doing this we will bring about the problems that will

crises, the significance, objective of the study and the limited and the scope of

the study.

Chapter two will deal with the collection of information from companies

and textbooks i.e. (secondary source of data). This will aid to develop our

question for developing of chapter three.

Chapter three will define the research methodology and sources of data

used which can be with questionnaire or interviews method. This will help us

to acquire information from field works ie our case study.

1

Chapter four will deal with the presentation, analyzing and interpretation

of data by using the sample size to determine the population to conduct

research.

Chapter five will deal with the conclusion, summary and the

recommendation including the bibliography.

2

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgement

List of tables abstract

CHAPTER ONE: INTRODUCTION

1.1 Background of the study

1.2 Statement of the problem

1.3 Objective of the study

1.4 Significance of the study

1.5 Scope and limitation of the study

1.6 Research hypothesis

1.7 Definition of terms

Reference

3

CHAPTER TWO: LITERATURE REVIEW

2.1 Implication of capital structure

2.2 Determinants of capital structure

2.3 Feature of appropriate capital structure

2.4 Concept of cost of capital

2.5 Capital structure theories

2.6 Existence of optimum capital structure traditional view

2.7 Criticism of traditional view

2.8 Modigliani and miller propositions

2.9 criticisms of Modigliani and miller propositions

2.10 Capital structure and corporate tax

2.11 Concept of profit and profitability

Reference

CHAPTER THREE: RESEARCH DESIGN AND

METHODOLOGY

3.1 Research design

3.2 Sources of data

4

3.3 Population and determination of sample size

3.4 Methods of investigation

Reference

CHAPTER FOUR: PRESENTATION, ANALYSIS AND

INTERPRETATION OF DATA

4.1 Analysis of data

4.2 Test of Hypothesis

CHAPTER FIVE: SUMMARY OF FINDING CONCLUSION AND

RECOMMENDATION

5.1 Summary of finding

5.2 Conclusion

5.3 Recommendations

Bibliography

Appendices

5

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF STUDY

The most important decision all corporate managers should take into

consideration is the way in which the long-term capital requirements of their

companies should be financial. Capital structure is the permanent financing of

a firm represented primarily by equity and long-term liability without including

all short-term credits. Many factors have to surface in order to determine the

capital structure of a business organisation. These factors are what the financial

managers consider first in order to determine appropriate capital structure

suitable to his firm. Some of the factors are: cost of capital, floation costs, size

of the company, government policies and market condition. The combination

of debt and equity has some implication. The first is that debt-equity ratio,

which is regarded as an indicators of risk. According to Samuel etal (1992:44)

high fixed interest commitment which must be paid by the business

organisation irrespective of whether profits are made or not. Debt capacity

6

which is the ability of a firm to service its debt payment of interest and

principal is usually measured. On eof the ways of measuring debt capacity is

by raising the ratio of net cash inflow to interest charges.

Pandey (1998-656) has it that the ratio indicates the number of times the

interest obligation are covered by the next cash inflows generated by the

company. The greater the coverage the lower the risk arising from the debt in

the capital structure. Conversely, the lower the coverage the higher is the risk

arising from the debt in capital structure. And failure of a company to pay its

interests obligation can lead to bankruptcy. Furthermore, left for the business

owners, they will employ more of debt in their capital structure as to increase

profit. All things being equal will accrue to them and they only have to pay

interest to provide of debt capital. Thus less amount of tax is paid by the

company with debt capital.

In determining whether to employ more of debt and less of equity or

more of equally and less of debt in its capital structure, the financial managers

of the firms concerned should take into account, the profit objectives of that

business. They should consider how the capital structure will affect the

profitability of their business organisation. The profitability of any business

7

organisation will determine whether it will remain in business or not especially

in the long run. Profitability is normally measured using return on capital

employed return on equity, earning per share, return on assets, net profit

margin and gross profit margin.

1.2 STATEMENT OF PROBLEM

The owners of a company will not like to loose the control they have in

their company by issuing more shares to the public in order to finance their

capital projects. Instead, they to borrowing, this means using debt instrument

like debenture stock. These owners of the business should not fail to know that

whether there is profit or not that the debentures should be settle their interest.

Nobody can perfectly predict the future, there can be business boom and there

can equally be stump in business.

The problem then is how can business combine debt and equity

financing in order to ensure profitability?

1.3 OBJECTIVE OF THE STUDY

8

1. To critically evaluate the variations in capital structure used by different

companies under study.

2. To see how the capital structure affects the profitability of the business

organizations concerned.

3. To identify some of capital structure problems encountered by these

companies.

4. To recommend solutions to these problems.

1.4 SIGNIFICANCE OF THE STUDY

Business financing is a very important business decision. Corporate

financial managers have to decide whether to employ more of debt or more of

equity whichever measure is adopted has effects. Everybody should bear in

mind that the main objective of every business is to make profit of which this

research work will through its findings achieve the followings:

1. To convince corporate managers of the relationship between capital

structure and profitability of business organisation and will enable them

make appropriate decision to that effect.

9

2. It will help intending investors to plan their capital structure very well

from the statement in order to maximize profit.

3. This will be of good advantage to future researchers in their research

work.

1.5 SCOPE AND LIMITATION OF THE STUDY

Not minding that capital structure has many implications on a company

such as profitability, market value of shares and financial distress, this study

took at the relationship between capital structure and profitability of business

organisation. Business organisation studied was manufacturing companies and

oil servicing companies quoted in Nigerian Stock Exchange.

In course of the research work, the researcher encountered some

problems that bring up their ugly heads. Business organizations should some

elements of indifference in relating to their financial statement. Also, there was

problems of dund and some gate men who refused that the researcher could not

meet the financial managers e.g. Nigerian Bottling Company 9 th Mile Corner

Enugu.

10

However, the researcher was not discouraged by the problems. Through

the mercy of God enough information were collected form general securities, a

member of Nigerian Stock Exchange, Apes a member of Nigerian stock

exchange all in Enugu, and University of Nigeria Enugu Campus Library.

1.6 RESEARCH HYPOTHESIS

The following hypothesis have been formulated to guide the study.

(a) Ho: There is a relationship but not strong between capital structure and

profitability of business organizations as measured be return on equity.

Hi: There is a strong relationship between capital structure and

profitability of business organizations as measured by return on equity.

(b)Ho: There is a relationship but no strong between capital structure and

profitability of business organizations as measure by return on

investment.

Hi: There is a strong relationship between capital structure and

profitability of business organisation as measured by return on

investment.

11

1.7 DEFINITION OF TERMS

1. FINANCIAL LEVERAGE: This is the use of fixed charges source of

fund such as debt and preference capital along with the owner’s equity in

the capital structure.

2. DEBENTURE STOCK: These are loans that companies raise by the

issue of stocks to members of the public. A fixed rate of interest is

offered and the rights of the investors in the event of non-payment of

either interest or principal. Mortgage debenture shows that the deeds of

title to property have been deposited with the trustee in which case the

property can be sold to repay the debenture hoders in the event of the

company or defaulting.

3. PREFENCE STOCK: These are stocks which give the holders the right

to stated rate of dividend, such sums being due for payment out of the

company’s profits before any dividend is paid to the holders of ordinary

stock. Preference stock holders are members of the company but do not

12

usually have voting rights. It is a hybrid security because it has qualities

of debt and equity instrument.

4. DEBT: Debt is loan borrowed from outsider to finance a business. It is

repayable and receives a return in form of interest charged on the

amount of debt outstanding. The holders of debt instruments are legally

creditors of the borrowing company. Debenture is an example of debt.

5. EQUITY: It is a permanent investment in a company. Equity investment

makes a person a part owner of the company. This is also a method of

long-term financing. It includes share capital, share premium and

reserves.

6. DIVIDENDS: These are cash payments to shareholders when credited

accounts are published the company may declare dividend and this is

under the approval of the shareholders at the annual general meeting. In

a bad year, a company may wish to pay a larger dividend that total

earning allowed. The difference must be paid from reserves which are

accrued profits from previous years.

7. CAPITAL COMPONENTS: These are items on the left hand side of the

balance sheet on the old method of computation of balance sheet

13

statement. The item viz: various types of debts, preferred stock, and

common equity. According to J. F. Weston at al (19977:695) any net

increase in assets must be financed by an increase in one or more capital

components.

8. EARNINGS BEFORE INTEREST AND TAX (EBIT): Earning before

interest and tax is the earnings of a business organisation before

deduction of interest and tax. In this research work, it is denoted by

EBIT

PLEASE, print the following instructions and information if you will like to order/buy our complete written material(s).

Remember that our websites are www.careerslight.com or www.writers.com.ngand our official phone numbers are 08169533305, 08158646653, 08126773402. Save our website in your phone or write it down.

HOW TO BUY OR RECEIVE COMPLETE PROJECT MATERIAL(S) After paying the appropriate amount into our bank Account, send the following information to 08169533305 or careerslight@gmail.com

(1)Your project topics(2) Your Email Address(3) Depositor’s Name

14

(4)Teller Number(5) Bank Location(6) Amount Paid

We will send complete project materials (Chapter One to Five which also include: Abstract, Proposal, References, Questionnaires, etc) to your email immediately we confirm your payment.

You will receive your materials within 1- 5 hours the same day you made the payment. Guaranteed

Please, we DON’T accept MTN, Glo or any other Card. All payment should be made through our bank account or in person.

BANK ACCOUNTS

Visit careerslight.com/account to view our bank accounts

Or

Call 08169533305, 08158646653, 08126773402 to send Bank Account to you.

CONTACT OFFICEVisit careerslight.com/contact to view our office contact address.

HOW TO IDENTIFY SCAM/FRAUDAs a result of fraud in Nigeria, people don’t believe there are good online businesses in Nigeria.

But on this site, we have provided “table of content” and “Chapter One” of all our project topics and materials in order to proof that we have the complete materials.

15

That you see this chapter one shows that this material is available. We removed Chapter Two to Chapter five from this material. We will send Complete material (Chapter One to Chapter Five) to your Email immediately after payment.

Visit this website: careerslight.com to see more than 10,000 Project Topics/Materials and 40 Departments

Please, BEFORE YOU ORDER make sure your topic or related topic is on this website. We only provide already written materials for Topics on this website. Please, DO NOT PAY/ORDER IF YOU TOPIC OR RELATED TOPIC IS NOT ON THIS SITE.

Please, if you are satisfied with our services/materials, tell your friends about us.

CAUTION/WARNINGPlease, DO NOT COPY any of our materials on this website WORD-TO-WORD. These materials are to assist, direct you during your project. Study the materials carefully and use the information in them to develop your own new copy. Copying these materials word-to-word is CHEATING. If you must copy word-to-word, please do not order/buy our materials.That you ordered this material shows you have agreed not to copy word-to-word.

ALTERNATIVE WAY OF COLLECTING MATERIALSPlease if you can’t afford to order this material, there is an alternative. Visit your school library and borrow a research material. But it will also cost you little amount of money for Photocopy.

16

For any other inquiries, call Evang. Emezue (Manager) - 08169533305, 08158646653, 08126773402. Please DO NOT send SMS for inquiries. God bless you.

17