The Effect Of Equity Financing On The Cost Of Fund Of A Business Firm (A Case Of ABC Transport Plc)

Project and Seminar Topics with material for Banking and Finance

Project and Seminar Topics with material for Banking and Finance


The broad objective of this project work is to study the importance of equity as an alternative source of funding business organizations. Chapter one dealt with the various definitions of equity, which is the core study of this work. The statement of problems, statement of objectives, statement of hypothesis scope of study and its limitations were discussed.

Chapter two talked about literature review, concept of equity. Involving types, where it can be raised, source of obtaining new share/equity, and other sources of funds. The methods of data collection was discussed in chapter three, the oral interview, and questionnaires were said, the researcher also made use of some selected sample population and analysis of information collected by the researcher were discussed in chapter four while chapter fine death with the summary, conclusion and recommendations.

Table Of Content

Preliminary Page(s)

  • Title page
  • Approval page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 General overview of the study
  • 1.2 Statement of problems
  • 1.3 Objective of study
  • 1.4 Scope of study
  • 1.5 Statement of hypothesis
  • 1.6 Significance of research
  • 1.7 Limitation of the study
  • 1.8 Definitions of term

Chapter Two

2.0 Literature Review

  • 2.1 Concept of equity
  • 2.2 The Nigerian stock exchange
  • 2.3 The Nigerian securities and exchange
  • 2.4 Sources of obtaining new share/equity
  • 2.5 Equity and other sources of funds of ABC transport.
  • 2.6 Types of equity
  • 2.7 The global financial meltdown, role played in equity market

Chapter Three

3.0 Research Methodology

  • 3.1 Research design
  • 3.2 Population of study
  • 3.3 Data collection technique
  • 3.4 Methods of data analysis
  • 3.5 Method of data presentation and analysis

Chapter Four

4.0 Data Presentation and Analysis of Data

  • 4.1 Data presentation
  • 4.2 Data analysis
  • 4.3 Test of hypothesis

Chapter Five

5.0 Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • Bibliography
  • Appendix

Chapter One

1.0 Introduction

1.1 General Overview Of The Study

Finance as they say is the “life wire of every business organization. Finance has often been a hindrance to the survival of many businesses and many firm fail to achieve some of their objective due to inadequate finance and as we know this has adverse effects on business.

According to Osubor (2003:3) finance is the study of the feature and function of any means of payment” equity (common stock) is defined as a variable income security issued by various firms. Equity is the sum of preferred and common-stock. Equity is usually divided into smaller units known as shares.

As the owners, common stock holders contribute the risk capital of the firm and they rank last in the order of claims on the firm’s income on liquidation of the firm. Gitman (1988:104) states that investors in equity own the firm.

Equity financing can be defined as the funds that are obtained by the firm through retaining the profits a firm has made through investment of more money by the owners (issuance of shares through capital market.

1.2 Statement Of Problems

This section is essentially concerned with the statement of the problem which have led the researcher to center his study on equity finance as an alternative source of funding business firms. In this regard, stringent efforts, will be made to state the principal factor that constitute the research problem.

The problem associated with other sources of funding business firm such as debentures and unsecured stocks, convertible debentures and loan stocks, preference shares, warrants, factoring, leading and debt financing etc. have caused a lot of impediments to the development of most business firms.

For instance, preference shares generally are regarded as non growth stock and because of this it is been seen as debt. In addition because preference share dividend is not expected to grow, holders of preference share insist on the payment of their dividend annually. This therefore becomes a serious liability to the business firm.

Therefore the research topic is being selected so as to evaluate an alternative source of funding business firms.

1.3 Objective Of Study

The objective of this work is to study the importance of equity as an alternative source of funding business firm or organization over the other source of funding business firm they are as follows:

  1. To evaluate the alternative source of funds for business.
  2. To assess the costs of alternative source of funds
  3. To evaluate the advantages of equity over other source
  4. To make recommendation based on the empirical evidence.

1.4 Scope Of The Study

In carrying out this research work only ABC transport Nigeria Ltd Owerri branch which is the case study will be visited for collection of primary data but its finding, shall be deemed to be applicable to every other firms.

This assertion is so because it is my believe that equity is an alternative source of funding business firm.
The time frame for this work will be from 2004-2008.

1.5 Statement Of Hypothesis

  • H1: There is a significance relationship between equity financing and capital growth of business firm.
  • H2: Equity financing is the cheapest source of funding business firm.

1.6 Research Question

  1. Has there been any observable significant effects of the choice of the capital structure on a company’s profits? This also becomes a pertinent issue of necessity to look into.
  2.  Does equity financing have more effects on a firm’s profits than its debt financing capital?
  3. How does inclusion of more ploughed back funds (retained earnings or reserves) influence corporate overall performance in terms ofmaintaining both adequate returns and or liquidity due to (the nature of) its capital structure composition?

These are some of the relevant questions that will be addressed in the present study

1.7 Significance Of Study

This centers on the importance of the study and its impact on the economy generally. As it was clearly pointed out in the statement of problems, the study is crucial as it aims at evaluating an alternative source of funding for business firms. The study is relevant to the following

  1. The research will benefit from it as it will form part of the requirement for the award of the higher national diploma (HND certificate)
  2. It will serve as a reference material to other student or classes who may be researching on related topic
  3. Managers of firm: this study will provide them with the knowledge of an alternative source of fun ding their firms
  4. It creates opportunity for students who are studying financial management and other related courses to have in-dept knowledge of equity financing
  5. Researcher: it gives the researcher an insight of equity financing as a source of funding business firms.

1.8 Limitation Of Study

In carrying out research, the researcher encountered some constraints, which includes

(1) Financial Constraints:

Generally, cost of living is high, researcher work like this one takes a lot of money to complete as a result for this particular study, the researcher did not find it easy since the financial involvement was much.

(2) Time Constraints:

As already mentioned, the research work was conducted along side other academic, activities as well as the researchers paid employment, therefore the allocation of time among the activities in order to achieve a balance between academic demands and office work was not easy

(3) Research Data Acquisition Constraints:

given the nature of the research work and data needed. It was not easy to acquire all the data needed. Many of the workers refused to release some of the data needed for fear of leaking classified information.

This problem persisted in spite of fact that they were informed that the workers was only for academic purposes Eventually with some assistance, a number of the material needed was realized.

1.9 Definition Of Terms

1. Broker:

A middlemen who brings together buyers and sellers of the same product, service commodity or security for this source.

2. Brokerage:

The fee or commission paid a client to a broker for the execution of this order.

3. Capital Market:

It is market where loan medium term securities are bough and sold.

4. Stock Exchange:

Is a market place where government and private companies are able, by the issue of new share and shares to raise money to finance their operations.

5. Jobber:

Is a person who specialize and deals in certain securities or middlemen who buys from wholesale dealers and sells to retailers.

6. Equity Capital:

This is fund pounded for business by the owners of the firm this can be done by selling shares to the public for them to subscribe.

7. Shareholders:

They are those that risk their fund by buying shares from a company that wants to get more funds for their business.

8. Stockholder:

This is an individuals or firm who engage in the business of selling securities for firm.

9. Divided:

This is payment made out from the profit made by a firm to the shareholders or stock holders. It is paid according ton the number of shares bough by the investor or shareholders.

10. Bond:

Are interest bearing certificate of debt usually issued by obligates to itself to pay the principal amount and interest a specified time

11. Blue clip:

This is highly priced and valued for its security or the ordinary shares of the highest class of firms.

12. Retained Earnings:

This is profit made by a firm which is plough back into the business of the payment of taxes.

13. Maturity Date:

This is the length of time between the issue and repayment period of share price.

14. Financial Market:

This is a market where only securities are traded on a regular basis. People seen in this market are brokers and jobbers and others.

15. Cost Of Equity:

This is the rate which must effectively be paid in order to maintain the present market value of the equity.

16 Debt:

This means debenture, bond creditor and long term loan. This attracts interest which must be paid whether a form makes profit or not.

17 Capital Structure:

This is the permanent financial of a firm represented primarily long term debt, preferred stock and common equity.

18 Prospectus:

This is a form issued to the public by the firm for those who wish to subscribe for the firms share.

19 Allotment:

This is a part of an issued stock appointed by an investment firm to a purchaser on investor or subscriber.

20 New Issue:

This seen as those stock or share sold by corporation or firm for the first time.

21 Firm:

This is an independently administered business unit carrying out production, constructions or distribution activities.

Chapter Five

5.0 Summary, Conclusion & Recommendations

5.1 Introduction

This chapter focuses on summary, conclusion and recommendations. In this research, an attempt has been made to assess the impact of Equity financing on the cost of funds of ABC transport PLC.

5.2 Summary.

In his research work, it is worthy of note to summarize in a nutshell the various chapter highlights. The first highlighted the various definitions of finance and elaborate study of this work. The statement of problem, objective, statement of hypothesis, scope of study and limitation.

The second chapter discussed the review of related literatures. It went further to highlight the concept of equity involving types, where I can be raised, sources of funds new share/equity other sources of funds and comparing equity with dept financing. The chapter three highlighted the methodology of the research work they include the research design, primary and secondary data, oral interview, population and sample size of the method of analysis.
In the fourth chapter, the presentation and analysis of information obtained in the course of the study made during the finding were based on the response made during the unit, reply to questionnaires distributed to the staff and management of ABC Transport Company Ltd Owerri branch. Discussion and observation were involved. The test of hypothesis using the questions stated in chapter one both null hypothesis and alternative hypothesis necessary decisions were made based on the responses of the respondent. Throughout in the hypothesis the alternative hypotheses were accepted while the null hypotheses were rejected.

5.3 Conclusion.

In conclusion, this work which is on equity financing as an alternative source of funding business firm. It is worth while to mention that study was a resounding, receding and interesting one which exposed the researcher to different components associated with equity and business in particular.

From the general observation discussion, many corporations (public limited liability copy) will conclude that it is a source of business found which is a widely used source of fund from the study, one can conveniently conclude that a firm can raise equity in two ways. It can sell additional shares of stock to the public or it can retain a portion of its profit. A firm can also raise new issues through direct issue, or offer for subscription, private placing, stock exchange introduction and right issue. All these methods can raise founds to the firm for its further business dealings.

Dividend represents the interest of the share holders since no fixed to paid to the shareholders as dividend, the firm have to adopt a developed payment policy that will provide the company with a reasonable amount of retained earnings the internal expansion purpose and also hold an appeal to the investors that the public issues of securities will sell at a favourable price. This implies that a firm with low dividend pay out policy may find investor shipping away from its shares vice versa. Dividend could be paid cash or stock depending on the intention of the management. Also there are other sources of funds open to a business organization where equity is not used. They are depreciation, sale of fixed assets because the money got from depreciation is used for expansion purpose.

If a firm purchases machinery, it adopts different methods of providing for the wear and tear. Source of monies provided may not be used to replace the assets which it is earning. A firm may make profit and deem it not enough to be declared as dividend and therefore put it back in business for further yields. This is why it is said that retained earning is a type of equity, since it is the profit which should have been dollars to the shareholders as dividend; in fact it is internal equity.

In concluding, it will be necessary to mention that bonds, one held by firms that are sure of this steady income, thus meeting fixed claims of the investors or creditors. Some are also held by investors who want stable for bonds will also rise. However, considering the tax nature of debt and it’s low cost, it is summarily said that it is the choice of many firms.

5.4 Recommendations

As we all know finance is the life-wire of any organization and if mismanaged the organization will crumble and vice versa. This study having revealed the importance of equity as an alternative source of funding business organization as a means, way should be sought to improve the easiness through which it can be raise.
Sequel to the above, and based on our finds I recommend as follows:

  1. The stake practices or their agents need to be mentioned. In this regard, there should be a time limit of 30 days for holding stock without offering it for sale in the market.
  2. The regulatory institution that is Securities and Exchange Commission (SEC) needs to be encouraged to perform their functions properly its advance the development of capital market.
  3. The central bank of Nigeria (CBN) should produce effectives, code of conduct or guidelines for market operators, which should include sanctions of defaulters.
  4. Government should ensure that more branches of stock exchanges are granted. In this regard, it will encourage people to know the impact the impact of equity as a source of funds.
  5. Banks should involve in enlightenment campaign to encourage genera participation mostly the illiterate in capital market.

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