Research Statistics and Financial Accounting - Case Study Example

School of Management (PG) Earnings per share.(Meigs & Meigs, Accounting:Basis for Business Decisions, Page 561-564, McGrawhill, USA, 1991)It is computed by dividing net income by the number of outstanding shares. This shows how much each share of stock, whether traded or not, in the stock exchange(Brigham, E & Gapenski, L, Financial Management, Page 96-99, Dryden Press,Ohio, 1994) has generated income. This income is the result of selling goods and services to the public and deducting all expenses incurred by the business, irregardless of what that business is. We should study earnings per share, because earnings per share is a major criteria used by present shareholders(Management global perspective, page 16, 10th ed. Mcgrawhill USA, 1993) and future prospective shareholders as to their decision to continue maintaining money in the stocks which they have already invested or for future investors, to invest in stocks of companies. The earnings per share will give the investor one of the major factors in stocks investment. Between two or more companies, the investor is advised to invest in the company with the higher, or even highest, earnings per share. For if we apply probability here, if the company has a very high earnings per share and the earnings per share thru the many years of operation is increasing or remains the same, income producing, for the many years of historical experience, then this company is a very wise investment alternative. Gearing.( www.bized.ac.uk/compfact/ratios/gearing1.htm) is generated by dividing long term liabilities (Stickney, C & Weil, R, Financial Accounting 8th ed. Page 10 Dryden Press, Florida 1997) by equity shareholders’ funds. We should also study Gearing because the definition of gearing mean the relationship between long term liabilities has and the capital investment employed. The gearing ratio gives us a tip on which investment to invest our money in. The ideal situation is that the capital investment balance should be more than the liabilities or loan balance. Liabilities refers to both short term (loans payable within one year after the end of the balance sheet[Spiceland, D & Sepe, J, Intermediate Accounting, Page 212, McGrawhill, 1998, USA] date) or long term liabilities ( loans payable for more than one year after the end of the balance sheet date.) The accounting equation ( this formula is the one presented in the balance sheet) is Total assets ( includes cash, receivables from customers, inventory, buildings, office equipment, factory equipment, land, other items that is owned by the corporation either bought thru cash or loan agreements) is equal to the sum of all liabilities ( already explained above) and total capital. Capital includes the investments of the stockholders plus income generated during the accounting period, usually one year, and less losses, again usually occurred during the entire one year accounting period). Capital stock is usually divided into common stock, which is lower price than preferred stock, and preferred stock, which means that in case the corporation issues dividends because it has earned money from normal business operations during the year, the dividends are first distributed to the stockholders with preferred dividends at a fixed percent or amount. The declared to be distributed to stockholders because of income generated, after deducting the dividends given to the preferred stockholders, will be given to the common stockholders on record as of a given date. Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders funds being significantly larger than the long term liabilities. ( © 1996-2005 Biz/ed) The Population is composed of 40 companies belonging to the Leisure industry (leisure industry research center [http://www.shu.ac.uk/schools/slm/lirc.html] and another 40 companies belonging to the pharmaceuticals industry. The thirty samples were chosen by randomly selecting ten companies to remove. This is a good statistical method (statistics.com http://www.statistics.com/]) used. The two groups of companies arranged according to increase in earnings per share. LEISURE EPS PHARMACEUTICALS EPS Trappers 2.31 Ardana - 20.50 Champion Games 5.56 Vectura Group - 8.60 International Travel 6.20 York Pharma PLC - 5.29 Tottenham Hotspur PLC 6.63 Skelton - 4.44 Leeds United 7.40 Synairgen - 1.94 Manchester Ltd 8.29 Protel - 1.04 Millwall Holdings 8.56 Alpha Pharma - 0.29 Newcastle United 9.85 Henderson Morley - 0.14 Channel Breaks 11.25 York Pharma Plc 0.10 Grange 12.98 Allergy Thera 0.20 Lloyd Sports 14.60 Sunspot 0.60 Goals Soccer 15.25 Fulcrum Pharma 0.90 Wembley Group 15.48 Ransom (William) & Sons 1.05 Shepperton 15.56 Goldshield Group 1.60 Keyworld Investments PLC 15.93 County Pharm 1.83 Birmingham City 16.60 Marshall Edwards Com Shs 2.00 Playgolf 17.58 Premier Res 2.72 Topkapi 20.30 Pfizer Com Stock 3.10 Southampton Leisure 20.48 Phosphagen. Ord Npv 3.20 Carnival PLC 22.03 Grange 5.52 First Choice Holidays 22.87 Biofocus 5.70 Titan Move PLC 22.89 Cyprotex 6.80 Clipper Ventures 26.50 GW Pharmaceuticals 7.80 Keyworld Investments PLC 42.96 Consorta 15.00 Celtic 44.06 Philpot James 21.00 CNG Travel Group PLC 45.25 WarnerChilcott 23.00 Southampton Leisure 45.94 Shire Pharmaceuticals 31.00 Rohan Ventures 49.13 AstraZeneca 33.37 Crown Sports 54.36 Alliance UniChem 47.70 Holidaybreak 56.90 GLS 74.80 The thirty companies generated for Leisure are as follows ; Trappers, Champion Games, International travel, Tottenham Hotspur PLC, Leeds United, Manchester Ltd, Millway Holdings, Newcastle United, Channel Breaks, Grange, Lloyd Sports, Goals Soccer, Wembley Group, Shepperton, Keyworld Investments PLC, Birmingham City, Playgolf, Topkapi, Southampton Leisure, Carnival PLC, First Choice Holidays, TitanMove PLC, Clipper Ventures, Keyworld Investments PLC, Celtic, CNG Travel Group PLC, Southampton Leisure, Rohan ventures, Crown Sports and , Holiday Break. The thirty companies generated for Pharmaceuticals are as follows: Ardana, Vectura Group, York Pharma PLC, Skelton, Synairgen, Protel, Alpha Pharma, Henderson Morley, York Pharma PLc, Allergy Thera, Sunspot, Fulcrum Pharma, Ransom (William) & Sons, Goldshield Group, County Pharm,Marshall Edwards Com Shs, Premier Res, Pfizer Com Stock, Phosphagen Ord Npv, Grance, Biofocus, Cyprotex, GW Pharmaceuticals, Consorta, Philpot James, Warner Chilcott, Shire Pharmaceuticals, Astra Zeneca, Alliance Unichem, and also GLS. Comparison and contrasting between both leisure and pharmaceutical in relation to Earnings per share and Gearing ratio. Based on the histogram of Leisure, almost seven companies generated an earnings per share of 5.00 to 10.00 based on the SPSS graph below. The mean for leisure based on the histogram is 22.1233. The standard deviation is, according to SPSS, is 15.98. Under Pharmaceuticals, almost 15 companies had an earnings per share of 0.00 to 10.00 per share. The standard deviation in 18.445395. Meanwhile, the mean for the entire leisure industry here is 18.445. Based on the histogram of Pharmaceuticals, almost The company earned the highest earning per share is GLS with an earning per share of 74.80. Whereas, the lowest earnings per share is York Pharma PLC with an earnings per share of -5.29. This means that this company, the entire one year accounting period had an operating loss. The investors are advised to study whether to continue holding on with their hard earned money and continue owning York Pharma PLC or to sell their shares to the public and invest their recovered money in other companies that will earn money for the investors. By comparing the lowest two companies of Leisure and Pharmaceuticals, we find that the lowest two companies for leisure are trappers with a small earnings per share of only 2.31 and Champion Games with another low earnings per share of 5.56. As for Pharmaceuticals, the lowest two companies are Ardana with an earnings per share of negative 20.50 and Vectura Group with an earnings per share of negative 8.60. This indicates that both pharmaceuticals companies losses for the current year of business operation. As for the top two earners for both groups of companies, the top earners for Leisure group are Crown Sports with an earnings per share of 54.36 and Holidaybreak with an earnings per share rate of 56.90. On the other side of the business arena, the top two earners for Pharmaceuticals are Alliance Unichem with an earnings per share of 47.70 and GLS with earnings per share of 74.80. Based on these four companies, we can easily see that the most customer persons prefer to spend their hard earned money to buy products for their relaxation and leisure activities like watching soccer, traveling and the like. Another reason could also be that since income is generated, as shown in any income statement,(Managerial accounting, page 770-772, McGrawhill,USA, 1999) by deducting all expenses of the business from the revenues it has garnered from sale of its products and services, the companies could have reduced their expenses , we call it “tightening of the belt”, thus the net income from operations and other related activities resulted in (revenues less expenses basic formula) net income. The income or net earnings are then divided by the number of shares outstanding to come up with the earnings per share of stock. By comparing the earnings per share and gearing ratio of both the leisure group and the pharmaceutical group, it is very evident that the leisure group has a big financial investment advantage over the pharmaceutical group of companies. Histogram Pharmaceutical EPS method (statistics.com,[statistics.com http://www.statistics.com/]) used. The gearing histogram shows that there is more than 15 companies with a very high low gearing ratio of zero to 30 gearing. The higher the gearing ratio, the lower is the gearing rank of the company. Histogram Pharmaceutical Gearing Histogram Leisure For the business arena we call pharmaceuticals, Earnings per share table shows that there is a mean of 22.1233 earnings per share. The standard deviation is 15.98211. The graph shows that there are almost 7 companies in the earnings per share column of 5.00 to 10.00. Histogram leisure EPS Histogram Leisure Gearing Based on the histogram, the gearing of Leisure resulted to almost ten companies having a very high gearing of between 10.00 to 20.00. The mean is 20.0893 whereas, the standard deviation is 15.47725. The two companies that have the highest gearing under Leisure under Topkapi with a gearing rate of 1.9 and Carnival PLC with a gearing of 2.31. The two lowest ranked in the Pharmaceutical industry are Lloyd Sports with a gearing of 54.36 and Channel Breaks with a gearing of 56.9. Based on the Histogram above, Pharmaceutical Group of companies generated the top two companies namely: Coriander with gearing of 410 and GLS with a gearing of 158.10. The lowest two companies under pharmaceutical group are Vastox with a gearing of negative 101 and Ardana with a gearing of negative 189. As stated earlier, More than 15 companies, based on SPSS above, had an average gearing of from 10 to 20. Based on the above data,(Melichen, R & Norton, E, Finance: introduction to insitutions, investments & management, page 414-455, Southwestern College Publishing, Ohio,2000) the gearing of leisure give us a better investment data (Sanders, D & Smidt, R, Statistics, first approach, page 49, Mcgraw hill, 2000, USA) that will entice us to invest our hard earned money to invest in. The mean of 20.0893 of Leisure group is far, far better the gearing group of Pharmaceutical. 7. Normality Based on the mean and the standard deviation compare the two result in EPS and Gearing under leisure and under Pharmaceutical. Under the Gearing, the mean of Leisure is computed, by SPSS again, to be 20.0893, whereas, under gearing, the mean of Pharmaceuticals is -3.186. The standard deviation of leisure, under gearing, is 15.48, whereas the standard deviation of pharmaceutical group gearing is the very high 54.695. Under earnings per share, the mean of leisure group is 22.12, whereas, the mean of pharmaceutical is 15.982. The deviation of Leisure is 15.982, whereas the deviation of Pharmaceutical is 18.445. In this normality situation, the normality shown by Leisure shows a better promotional tool to entice prospective and present stockholders to invest in the stocks under the Leisure group than in a pharmaceutical. This shows that the normality of leisure group of companies is better than the normality of the pharmaceutical group of companies 8. Formulate the Hypothesis under Pharmaceutical Correlations EPS Gearing EPS Pearson Correlation 1 .716(**) Sig. (2-tailed) . .000 N 30 30 Gearing Pearson Correlation .716(**) 1 Sig. (2-tailed) .000 . N 30 30 ** Correlation is significant at the 0.01 level (2-tailed). Pharmaceutical Null Hypothesis: There is no significant relationship between EPS and Gearing under Pharmaceutical. Alternative Hypothesis: There is a significant relationship between EPS and Gearing under pharmaceutical. Conclusion: Highly correlated. Therefore, there gearing has an effect on the outcome of the earnings per share. Another conclusion also is that, earnings per share can cause a change in the results of the gearing. Use the Alternative Hypothesis: Looking at the scatter plot. (Scatter plot is shown in this paper [Managerial accounting, Page 86, Southwestern publishing, Ohio, 1997]) Points are closed to each other. Therefore there is a relationship between the EPS and Gearing under pharmaceutical. 9. The pharmaceutical is highly correlated than the leisure if we compare and get the relationship between the EPS to gearing. Formulate the Hypothesis under Pharmaceutical Correlations EPS Gearing EPS Pearson Correlation 1 .716(**) Sig. (2-tailed) . .000 N 30 30 Gearing Pearson Correlation .716(**) 1 Sig. (2-tailed) .000 . N 30 30 ** Correlation is significant at the 0.01 level (2-tailed). Pharmaceutical The Correlation table above shows that pearson of EPS which is 1 is very near the pearson result of gearing which is a high 0.716 Null Hypothesis: There is no significant relationship between EPS and Gearing under Pharmaceutical group of companies. Alternative Hypothesis: There is a significant relationship between EPS and Gearing under pharmaceutical group of companies. Conclusion: Highly correlated Use the Alternative Hypothesis: Looking at the scatter plot. Points are closed to each other. Therefore there is a relationship between the EPS and Gearing under pharmaceutical group of companies. Correlation coefficients between EPS and Gearing Test for differences 10. Scatter plot for pharmaceutical 10.Scatterplot for leisure Formulate the Hypothesis under Pharmaceutical Correlations EPS Gearing EPS Pearson Correlation 1 .716(**) Sig. (2-tailed) . .000 N 30 30 Gearing Pearson Correlation .716(**) 1 Sig. (2-tailed) .000 . N 30 30 ** Correlation is significant at the 0.01 level (2-tailed). The pearson correlation under earnings per share is 1.0 The Pearson correlation under gearing is .716. There is no significant difference since the significance in the table computed under SPSS is .000. 12. PHARMACEUTICAL Paired Samples Statistics Mean N Std. Deviation Std. Error Mean Pair 1 EPS 8.22500 30 18.445395 3.367653 Gearing -3.18567 30 54.695057 9.985906 Paired Samples Correlations N Correlation Sig. Pair 1 EPS & Gearing 30 .716 .000 Based on the Paired samples correlation above, the correlation of EPS and Gearing is 0.716 with a significance of zero, Paired Samples Test Paired Differences T df Sig. (2-tailed) Mean Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference Lower Upper Pair 1 EPS - Gearing 11.410667 43.443733 7.931704 -4.811490 27.632823 1.439 29 .161 Based on the paired samples test table above, again generated by EPSS, the mean of the pair of EPS and gearing is l11.4107, whereas the standard deviation is 43.44 with a standard error mean of 7.93. the t is 1.439 with the df computed by SPSS to be 29 and significance of this 2 tailed test is .161 Null Hypothesis: There is no significant difference between the EPS and Gearing under Pharmaceutical. Alternative Hypothesis: There is a significant difference between the EPS and Gearing under Pharmaceutical. CONCLUSION:There is significant difference between the EPS And Gearing Level of significance at 0.01 and 0.05 is 1.699127 and 2.46202 Leisure: Paired Samples Statistics Mean N Std. Deviation Std. Error Mean Pair 1 EPS 22.1233 30 15.98211 2.91792 Gearing 20.0893 30 15.47725 2.82575 Paired Samples Correlations N Correlation Sig. Pair 1 EPS & Gearing 30 -.086 .650 Paired Samples Test Paired Differences T df Sig. (2-tailed) Mean Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference Lower Upper Pair 1 EPS - Gearing 2.03400 23.18964 4.23383 -6.62515 10.69315 .480 29 .635 Null Hypothesis: There is no significant difference between the EPS and Gearing under Leisure. Alternative Hypothesis: There is a significant difference between the EPS and Gearing under Leisure. There is significant difference between EPS and Gearing. Level of significance at 0.01 and 0.05 is 1.699127 and 2.46202 CONCLUSION: Based on the gearing and earnings per share of both the pharmaceutical group of companies and the leisure group of companies, it is a better choice to invest our hard earned money in some of the companies under the leisure group. Based on earnings per share the top three companies are Rohan Ventures with EPS of 49.13, Crown sports with EPS of 54.36 and the topnotcher is Holidaybreak with a very high EPS of 56.90. The group of company with the lower gearing is a better place to put your finance The gearing data tells us that the gearing of lower than zero of the pharmaceutical group gives makes pharmaceutical company a better choice for stock investments. But if we compare both the gearing and earnings per share together, The leisure group of companies is the better choice. Basically if we compare both companies (pharmaceutical and leisure) the leisure company performs better than the pharmaceutical company, comparing their standards of error. We can see from table above that the t test of pharmaceutical is greater than the leisure company. By comparing the t test from the table above, leisure group of companies performed better than the pharmaceutical group of companies. References: Sanders, D & Smidt, R, Statistics, firs approach,page 49, Mcgraw hill, 2000, USA Stickney, C & Weil, R, Financial Accounting 8th ed. Page 10 Dryden Press, Florida 1997 Cavalris, S & Obloi, K, Management global perspective, page 16, 10th ed. Mcgrawhill USA, 1993 Spiceland, D & Sepe, J, Intermediate Accounting, Page 212, McGrawhill, 1998, USA Hilton, R, Managerial accounting, page 770-772, McGrawhill,USA, 1999 Meigs & Meigs, Accounting:Basis for Business Decisions, Page 561-564, McGrawhill, USA, 1991 Dominiak, G & Louderback, J, Managerial accounting, Page 86, Southwestern publishing, Ohio, 1997 Melichen, R & Norton, E, Finance: introduction to insitutions, investments & management, page 414-455, Southwestern College Publishing, Ohio,2000 Brigham, E & Gapenski, L, Rinancial Management, Page 96-99, Dryden Press,Ohio, 1994 Other website references: Bized, (www.bized.ac.uk/compfact/ratios/gearing1.htm) leisure industry research center,[http://www.shu.ac.uk/schools/slm/lirc.html] method (statistics.com http://www.statistics.com/]) used. statistics.com,[statistics.com http://www.statistics.com/] Read More