EVALUATION OF THE EFFECT OF NON-CURRENT ASSETS ON RETURN ON ASSETS OF CEMENT MANUFACTURING INDUSTRY IN NIGERIA
ATTENTION:
BEFORE YOU READ THE CHAPTER ONE OF THE PROJECT TOPIC BELOW,
PLEASE READ THE INFORMATION BELOW.THANK YOU!
INFORMATION:
YOU CAN GET THE COMPLETE PROJECT OF THE TOPIC BELOW. THE FULL
PROJECT COSTS N5000 ONLY. THE FULL INFORMATION ON HOW TO PAY AND GET THE
COMPLETE PROJECT IS AT THE BOTTOM OF THIS PAGE. OR YOU CAN CALL: 08068231953, 08168759420
EVALUATION OF THE
EFFECT OF NON-CURRENT ASSETS ON RETURN ON ASSETS OF CEMENT MANUFACTURING
INDUSTRY IN NIGERIA
ABSTRACT
The study is on evaluation of the effect of investment on
non-current assets on return on asset of cement manufacturing industry in
Nigeria. The major aim of the study is to ascertain the effects of non-current
assets on the return on assets of cement manufacturing industry in Nigeria. The
period covered is2004-2013. The independent variables are Land and Buildings,
Plant and Machinery, Motor Vehicles, Furniture and Fittings, while the
dependent variable is Return on Asset. Annual accounts and reports were used
for analysis and multiple regressions were used to validate the hypotheses. The
findings show that there is effect of non- current assets on return on asset
but is not significant in Nigeria. It also, shows that the independent variable
Plant and Machinery contributed more to Return on Asset but is not significant.
The recommendations include that there should be more investment in non-current
asset especially plant and machinery in order to increase the return on asset
of cement manufacturing industry in Nigeria. It is also recommended that firms
in Nigeria should invest keenly in motor
vehicles to ease the problem inherent in distribution of cement product in
Nigeria.
CHAPTER ONE
1.0
INTRODUCTION
1.1 Background of the Study
Return on Assets is one of the measures of financial
performance. And financial performance measure is one of the important
performance measures for economic units. Financial performance measures are
used as the indicators to evaluate the success of economic units in achieving
stated strategies, objectives and critical success factors (Katja, 2009). The
main objective of financial performance measuring is to determine the operating
and financial characteristics and the efficiency and performance of economic
unit management, as reflected in the financial records and reports
(Amalenda 2010). Financial ratio
analysis method is an important measure to financial performance analysis in
the economic units because ratio analysis method is the most commonly used
financial tool to evaluate the current and past performance in the economic
unit and to assess its sustainability (Dick, Feenstra and Wang 2000).
Capital expenditure refers to the decisions related to
capital budgeting as replacement of equipment or the expansion of plant. This
expenditure is basically related to financial decisions of a firm. This should
assure that net present value must be generated. Capital expenditure must be
directly related to the corporate income in future. There are two kinds of
assets in the commercial firms, such as current asset and the noncurrent t
assets. The examples of non-current assets are building, land, plant, machinery
and equipment, furniture and fittings and others. The productive capacity can
be generated by investing in such assets which ensures long term profit range.
The kinds of such assets do not change frequently. The basic purpose of the
purchase of such assets is to produce and sale more. Assets have significant
role in determining the profit ratio of a firm (Smith 1980)
There are many reasons why the assets are considered to be
important. The non-current assets are about half of the total assets of the
manufacturing firm and a greater return on investment can be obtained by having
huge level of assets which are not current (Igbal and Mati 2012).
According to Okwo, Ugwunta and Nweze (2012) a firm acquires
plant and machinery and other productive noncurrent assets for the purpose of
generating sales. Therefore, the efficiency of noncurrent assets should be
judged in relation to sales. Generally, a high non-current assets turnover
ratio indicates efficient utilization of non-current assets in generating
sales, while a low ratio indicates inefficient management and utilization of
non-current assets. Thus a firm, whose plant and machinery has considerably
been depreciated, may show a higher non-current assets turnover ratio than the
firm which has purchased plant and machinery recently. By comparing the
non-current assets turnover of the two firms, it cannot be conclusive that the
former is more efficient in managing non-current assets because of the effects
of depreciation. The asset turnover shows how much sales are generated for
every N1(one naira) of capital employed.
A low asset turnover indicates that the business is not using its assets effectively
and should either try to increase its sales or dispose of some of the
assets.
Ibam (2008) opined that a company’s investment in non-current
asset is dependent to a large degree, on its line of business. Some businesses
are more capital intensive than others. Firms in the natural resources just as
firms in the brewery industry and other industry producers require a large
amount of noncurrent asset investment and large capital equipment while,
service companies and computer software producers need a relatively small
amount of noncurrent assets.
Ibam (2008) is more interested in the average noncurrent
assets. This noncurrent asset turnover ratio indicator looked at asset over
time and compares the ratio to that of competitors. This gives the investor an idea of how
effectively a company’s management is, in utilizing noncurrent asset. It is a
rough measure of the productivity of a company’s non-current assets with
respect to generating sales. The higher the number of times turns over, the
better. However investors should look for consistency or increasing non-current
assets turnover rates as positive position in investment qualities Ibam (2008).
According to Albrecht (2005) Return on assets (ROA) is a
financial ratio that shows the percentage of profit a company earns in relation
to its resources. It is commonly defined as Earning before interest and taxes,
it is derived from the income statement of the company and is the profit before
taxes. The noncurrent assets are read from statement of financial position and
include plant, property and equipment as depreciated. ROA is a ratio but
usually presented as a percentage.
The higher the ROA, the better the management. But this
measure is best applied in comparing companies with the same level of
capitalization. The more capital-intensive a business is, the more difficult it
will be to achieve a high ROA. A major equipment manufacturer, for instance,
will require very substantial assets simply to do what it does, the same will
be true for a power plant or cement manufacturing industry. But a fashion
designer, or a software firm, may require only minimal capital equipment and
will thus produce a high ROA, the industry average of ROA for capital intensive
firms is five percent (5%) (Berstern and John 2000)
The difference between a highly capitalized business and one
running largely on creative assets is that in the case of failure, the
capital-intensive company will still have major assets that can be turned into
real money, whereas a concept-based enterprise will fail when its art is no
longer favoured, it will leave a few computers and furniture behind. Therefore
ROA is used by investors as one of several ways of measuring a companywithin an
industry, comparing it with others playing by the same rules.
When cash flow is tight, most owners focus on managing their
current asset by cutting inventory and collecting money owed them by customers,
However, the average business has as much capital tied up in noncurrent asset-the property,
plant and equipment used to create the goods and services to sell. How well the
capital intensive utilize their asset determines the difference between profit
and loss. If the property, plant and equipment assets are idle or not
generating enough cash flow, this may impact on the value and financial health
of the business.
Returns on noncurrent assets like property, plant and
equipment vary greatly among companies. Every industry is different in the type
of operating asset it has and the level of asset required for production. The
industrial level is required to know how well the assets are deriving profits
and cash flow.
Return on Assets (ROA)
ratio illustrates how well management is employing the company’s
noncurrent assets to make profit. The higher the return, the more efficient
management is in utilizing its asset base. The need for investment in current
and noncurrent assets varies greatly among companies. Capital intensive
businesses (with a large investment in noncurrent assets) are going to be more
asset heavy than technology or service businesses. The capital intensive
businesses with a large investment in noncurrent asset will have smaller ROA
than non-capital intensive businesses (with a small investment in noncurrent
assets) because of a low denominator number. It is precisely because businesses
require different sized asset bases that investors need to think how they use
the ROA ratio. It is in the light of the above that the effect of noncurrent
asset on ROA of cement manufacturing company is important.
The manufacturing companies depending on the structure of
assets consist of two types of assets, non-current and current assets. The
manufacturing companies use noncurrent assets to transfer the raw materials
into finished goods. These assets are called property; plant and equipment
include land building equipments, automobiles and furniture (Mawih 2014)
It is the primary concern of business organization to give
significant attention to return on assets because of its implications to
business survival. High Performance reflects management effectiveness and
efficiency in making use of company’s resources and thus in turn contributes to
the country’s economy at large.
Poor utilization of noncurrent assets causes low return on
investment. And low return on investment is an attribute of ineffectiveness and
inefficiency of utilization of assets. Inadequate of noncurrent assets results
to low productive activities because noncurrent assets are like the structure
while current assets are like flesh. And without the structure the flesh cannot
stand. The productive engine is the noncurrent assets in manufacturing
organization.
The problem of appropriate level of investment on noncurrent
assets to current assets in cement manufacturing firms in Nigeria is vital
because more current assets can create high liquidity, surplus cash and high
liquidity impairs profitability. The problem of proper evaluation of investment
on noncurrent assets is necessary because investment cannot be taken on the
hunch, hence investment analysis is very necessary before assets are acquired
for income yielding.
It can therefore be argued that despite the strategic
importance of non-current assets in cement manufacturing firms in Nigeria.
Comprehensive studies on non-current assets are lacking hence the necessity of
this study.
Cement Manufacturing Industry
Establishing a cement factory is highly capital intensive
which makes a cement factory very expensive to install and maintain. The cost
of cement production is very high all over the world, with energy being the
major cost center.
The consumption of cement in Nigeria is determined by factors
influencing the level of housing and industrial construction, irrigation
projects, roads, water supply pipes, drainage pipes, establishment of new
universities by federal government and private individuals. Growth in
population and level of urbanization in major cities like what we are currently
experiencing in Lagos and Port-Harcourt are also other factors that confirm the
imminent demand for cement in Nigeria and other parts of Africa. All these
including the supply gap of cement in Nigeria show that future investments in
Nigeria cement industry will be a viable venture.
The history of cement production in Nigeria
The history of cement production in Nigeria is traceable to
the Pre and immediate Post-independence era which witnessed the introduction of
development plans and import substitution policy and which had impacted on the
cement requirement for development of civil infrastructure of the nation.
(Mojekwu, Idowu and Sode 2012)
They further stated that the basic inputs into cement
manufacture are Lime stone, Red alluvium, Shale and Gypsum. With the exception
of gypsum, which occurs in Nigeria only in thin vein layers, Nigeria is
abundantly endowed with all the other inputs. Limestone, the major input occurs
in all the six geopolitical zones of the country. Apart from the basic raw
material inputs, the other major requirement for cement production is fuel.
Nigeria, as a nation, is rich in all sources of energy: oil, gas, coal and even
other
alternative fuel (waste).
The demand for cement is derived from the demand for
residential and non-residential construction. Of these two, the latter is
predominantly due to government and business activity. Non-residential
construction is therefore highly vulnerable to cut-backs in government spending
and to forces of depression in the private business sector.
Residential housing is by far the largest segment of cement
consumption. The crucial forces on the demand for residential housing are
population pressure and the rent level. It is also noted that the pressure from
these sources is so critical as to make housing an essential commodity.
The post civil war reconstruction activities led to an
explosion in demand for cement. Government response to this was to embark on
massive uncoordinated importation of cement (Makoju 2010).Makoju (2010)
reported that demand for cement increased rapidly and initially all the
requirement was met with imports. For instance, imports which was estimated to
be 80.000tons in 1946 grew by more than double in 1950 and quadruple to 626,500
tons by 1960. All this supply was met entirely with imports until the
establishment of Nigercem in Nkalagu in the then Eastern Region in 1957. This
was followed by the construction of another 600,000tpa plant sponsored by the
then Western Region government in Ewekoro which was commissioned in 1960. Next
was Bendel Cement Plant in Ukpilla in the then Bendel State (150,000mt) in 1964
and Calabar Cement which was commissioned in 1965. In the North, at the Cement
Company of Northern Nigeria (CCNN) in Sokoto a 100,000mt plant was also
commissioned in 1967. These five Plants represented the first generation cement
plants in Nigeria table 1, table 2 is additional capacity between 2003 – 2008
and table 3 is on-ongoing cement plants.
Adapted from Mojekwu J.N, Idowu A. and Sode Oluseyi (2013)
Analysis of the contribution of imported and locally manufactured cement to the
growth of gross domestic product (GDP) of Nigeria (1986 – 2011) African Journal
of Business Management Vol. 7(5), pp. 360-371.
1.2 Statement of Problem
The optimization of investment on non-current assets in order
to achieve satisfactory return on asset is a major problem being suspected by
the researcher in the cement manufacturing industry in Nigeria. Given the huge
investment on noncurrent asset, the return on Asset seems not to be
satisfactory as perceived by the researcher.
This inadequate production of cement in the country with regard to
demand causes high prices of cement and sometimes scarcity in the market. The
problem of scarcity often leads to importation of cement in the country causing
capital flight and foreign exchange. The inadequate plant and machinery creates
low production activities. While surplus investment on land and building does
not affect directly the production of cement in the country, the investment on
furniture and fittings do not create productive activities in the cement
manufacturing industry in Nigeria. The problem of how the assets are performing
or to identify specific assets or groups of assets that are idle or not
performing in order to match the income to specific assets (or groups of
assets) that produce the income. To determine which assets are under-
performing in the business. The older machines and equipment look attractive
and profitable because they have very low depreciation expenses. However the
outdated or run down equipment may be costing more than their worth; if the
necessary overhead to support those assets are considered like repair,
maintenance, utilities, taxes and lost productivity. It may be that the older
depreciated assets are using up too much energy, wasting resources or causing
bottlenecks in the production. This undesirable situation attracted the
attention and interest of the researcher in evaluating the optimization of
investment in non-current asset of cement manufacturing industry in Nigeria in
order to assist the investors and management of the cement manufacturing
industry.
1.3 Objectives of the Study
The main objective is to ascertain the effects of noncurrent
assets on the return on assets of cement industry in Nigeria.
The specific objectives are as follows:-
1. To assess the
effect of investment in plant and machinery on the return on Assets of cement
manufacturing industry in Nigeria.
2. To ascertain the
effect of investment in land and buildings on the return on Assets of cement
manufacturing industry in Nigeria.
3. To evaluate the
effect of investment in motor vehicles on the return on Assets of cement
manufacturing industry in Nigeria.
4. To investigate
the effects of investment in furniture and fittings on Return on Assets of
cement manufacturing industry in Nigeria.
1.4 Research Questions
1. To what extent
does the investment in plant and machinery affect the Return on Assets of
cement manufacturing firms in Nigeria?
2. What is the
effect of investment in land and buildings on Return on Assets of cement
manufacturing firms in Nigeria?
3. To what level
does investment on motor vehicles affect the return on Assets of cement
manufacturing firms in Nigeria?
4. What is the
effect of investment on furniture and fittings on Return on Assets of cement
manufacturing firms in Nigeria?
1.5 Statement of Hypotheses
Ho1 The amount of investment in plant and machinery does not
significantly impact on the return on Assets of
cement manufacturing industry in Nigeria
Ho2 The amount of
investmentonland and buildings does not
significantly affect the Return on Assets of cement manufacturing
industry in Nigeria.
Ho3 The amount of investment in motor vehicles does not
significantly impact on the Return on Assets of
cement manufacturing industry in Nigeria.
Ho4 Investmentin
furniture and fittings does not significantly affect the Return on Assets
of cement manufacturing industry in
Nigeria.
1.6 Significance of the Study
The study was undertaken to evaluate the effect of noncurrent
assets on return on assets of cement manufacturing industry in Nigeria.
The study will be of primary importance and benefit to the
cement manufacturing companies in Nigeria.
Other importance of
the study is its contribution to
knowledge. It would be useful to other
researchers and anyone who is interested on the evaluation of effect of
investment on noncurrent asset on return on assets of cement manufacturing
industry in Nigeria.
1.7 Scope of the Study
The research work was restricted to evaluation of effect of
noncurrent assets on return on assets of cement manufacturing industry in
Nigeria for the period of 2004-2013. The dependent variable is Return on Assets
(ROA) and return on Assets (ROA) was used as the variable for financial
performance, while independent variables are noncurrent assets (Plant and
machinery, land and buildings, motor vehicles, furniture and fittings.
HOW TO GET
THE FULL PROJECT WORK
PLEASE,
print the following instructions and information if you will like to order/buy
our complete written material(s).
HOW TO
RECEIVE PROJECT MATERIAL(S)
After
paying the appropriate amount (#5000) into our bank Account below, send the
following information to
08068231953
or 08168759420
(1) Your project topics
(2) Email Address
(3) Payment Name
(4) Teller Number
We will send your material(s) immediately we receive bank alert
BANK
ACCOUNTS
Account Name: AMUTAH DANIEL CHUKWUDI
Account Number: 0046579864
Bank: GTBank.
OR
Account Name: AMUTAH DANIEL CHUKWUDI
Account Number: 2023350498
Bank: UBA.
HOW TO
IDENTIFY SCAM/FRAUD
As 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 convince you that we have the complete
materials.
Secondly, we have provided our Bank Account on this site. Our
Bank Account contains all information about the owner of this website. For your
own security, all payment should be made in the bank.
No Fraudulent company uses Bank Account as a means of payment,
because Bank Account contains the overall information of the owner
CAUTION/WARNING
Please, 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/
ILLEGAL because it affects Educational standard, and we will not be held
responsible for it. If you must copy word-to-word please do not order/buy.
That you ordered this material shows you have agreed not to copy
word-to-word.
FOR MORE
INFORMATION, CALL:
08068231953
or 08168759420
AFFILIATE
LINKS:
Comments
Post a Comment