EFFECT OF GEARING ON SHAREHOLDERS WEALTH A CASE STUDY OF PEUGEOT AUTOMOBILE NIGERIA LTD

📄 Project 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 ...