Nizwa College Earning per Share Performance in Sultant of Oman Paper Fix my teacher comments that’s mention in red color. You will find the attachments in

Nizwa College Earning per Share Performance in Sultant of Oman Paper Fix my teacher comments that’s mention in red color. You will find the attachments in “My work” uploaded file. Investment in the Sultanate of Oman 1
Investment in the Sultanate of Oman 2
EARNING PER SHARE (EPS) PER FORMANCE IN SULTANT
OF OMAN.
A Dissertation
By
AMNA GATSHAN OBAIED AL-MADHNE.
ID- 2013694001
Submitted to the College of Applied Sciences Nizwa
in partial fulfillment of the requirements for the degree of
BACHELOR OF ACCOUNTING.
SUPERVISOR
Dr. Ahmed AL-Hadi
Project report submitted for the degree of Bachelor of Accounting
Department of International Business Administration
College of Applied Sciences, Nizwa
March,2019
Investment in the Sultanate of Oman 3
Table of Contents
List of Tables …………………………………………………………………………………………………………………. 4
List of Figures ………………………………………………………………………………………………………………… 4
Chapter 1: Introduction ……………………………………………………………………………………………………. 5
1.0 Background …………………………………………………………………………………………………………… 5
1.1 Objectives ……………………………………………………………………………………………………………… 7
1.2 Research Questions ………………………………………………………………………………………………… 7
Hypothesis ………………………………………………………………………………………………………………….. 8
1.3 Motivation …………………………………………………………………………………………………………….. 8
1.4 Contribution ………………………………………………………………………………………………………….. 8
1.5 Summary of next sections ……………………………………………………………………………………….. 9
Chapter 2 Literature Review …………………………………………………………………………………………… 10
2.1 Popularity if Earning per Share ………………………………………………………………………………. 10
2.2 Limitations of Earning Per Share ……………………………………………………………………………. 11
2.3 Why Earnings per Share Matters ……………………………………………………………………………. 13
To assess the effect of EPS on MVS ……………………………………………………………………………….. 21
Chapter 3: Methodology ………………………………………………………………………………………………… 23
3.1 Sample ………………………………………………………………………………………………………………… 23
3.2 Method ……………………………………………………………………………………………………………….. 23
3.3 Variables……………………………………………………………………………………………………………… 24
Chapter 4: Results and Discussion …………………………………………………………………………………… 24
4.1 Descriptive Statistics …………………………………………………………………………………………….. 25
4.2 Mean Test ……………………………………………………………………………………………………………. 28
4.3 Correlation …………………………………………………………………………………………………………… 30
4.4 Regression …………………………………………………………………………………………………………… 30
Chapter 5: Conclusion……………………………………………………………………………………………………. 33
Investment in the Sultanate of Oman 4
List of Tables
Table 1: The table illustrates the measure of central tendency (Data Source: Muscat Stock
Exchange, 2019) …………………………………………………………………………………………………………… 25
Table 2: The table illustrates the measure of variation (Data Source: Muscat Stock Exchange,
2019) …………………………………………………………………………………………………………………………… 26
Table 3: The table illustrates the mean test (Data Source: Muscat Stock Exchange, 2019) ……… 29
Table 4: The table illustrates the Correlation between EPS and Investments (Data Source:
Muscat Stock Exchange, 2019)……………………………………………………………………………………….. 30
Table 5: The table illustrates the ANOVA (Data Source: Muscat Stock Exchange, 2019) ……… 31
List of Figures
Figure 1: The figure illustrates the investment trend between 2010 and 2018(Data Source:
Muscat Stock Exchange, 2019)……………………………………………………………………………………….. 27
Figure 2: The figure illustrates the investment trend between 2010 and 2018(Data Source:
Muscat Stock Exchange, 2019)……………………………………………………………………………………….. 28
Investment in the Sultanate of Oman 5
Investment in the Sultanate of Oman
Chapter 1: Introduction
1.0 Background
Investment in Oman has been critical to the economic development and growth of the
sultanate. The sultanate has embarked into practices of encouraging investment in its territory over
the last four decades and has consequently transferred the benefits to the development of
infrastructure and the economy in general. In so doing, the sultanate has been able to achieve
sustainable development (Magd and McCoy, 2014, p. 1639). The sultanate has developed facilities
and infrastructures vital for facilitating both national and foreign investment in Oman. The
geographical location, as well as the availability of international and regional sea-lanes together
with the existence and functionality of the Omani ports, has been critical in enhancing both local
and international trade in the region. The stability of the economy and the robust infrastructure and
qualified human resources has been crucial in promoting investments in the Sultanate of Oman.
The sultanate has also put in place regulations that are vital in the process of opening the economic
direction focused to increase the rates of foreign investments in the Sultanate (AlMaimani and
Johari, 2015, p. 680). In addition, Sultanate of Oman is on the continuous search for increasing
investment through entering into various trading agreements to support trade and investment in its
territories.
The incentive offered by the Sultanate of Oman for both foreign and local investors include
the competitive pricing of services, tax exemption for the first five years upon establishment of
business, individual exemption from taxes, freedom of capital and profit transfer as well as the
ability to exchange foreign currency with fixed exchange rates (Mellahi et al., 2003, p 435). The
investors also have full foreign property rights, availability, and excellent services for running of
Investment in the Sultanate of Oman 6
operations in the Sultanate. While several advantages exist for carrying out business and
investment activities in Oman, it is critical that investors determine the returns for investments to
estimate the benefits from their investments.
Earnings per Share
Earnings per share (EPS) refers to the portion of a firm’s profits allocated for distribution
to each outstanding equity share. The measure is critical as it indicates the profitability of a
company and allows investors to carry put comparisons in coming up with the most profitable
companies among the one, he/she wants to invest in. The ratio gives a relative earning power of
various firms and is critical for investors supporting their decision-making regarding making an
investment. The determination of the EPS of companies over some time is vital in determining the
trends of growth or decline in the earning power of a firm and informs investor decisions regarding
such companies (Hunjra et al., 2014, p. 112). It is worth noting that investors assess the EPS of
potential companies for investment and would be interested in companies with growth in EPS as
this is a sign of profitability.
It is worth noting the EPS measure is a critical metric for investors as it critically assesses
the profitability of firms. EPS is the only measure that isolates net income to determine what
shareholders gain from investing in a firm. Consistency in EPS is an indication that shareholders
are consistently receiving a share of a company’s profits. Additionally, the measure indicates that
the company is committed to creating values for its shareholders. EPS is also an indicator of
dividend payout for investors accruing from the profits of the company (Kama 2009, p. 38).
Investors like the steady incomes associated with the dividend payouts from investments in various
firms and companies. They also associate EPS with positive and robust growth for the company.
Investment in the Sultanate of Oman 7
An association of EPS to investment is critical to the determination of investments options
and growth in the Sultanate of Oman. It is essential to note that investors associate the profitability
and stability of a company to an increase in EPS. The determination of the overall EPS in the
Sultanate of Oman is critical in establishing the shareholder and investor options in choosing to
invest in other countries in the Middle East.
1.1 Objectives
The objectives of this study included:
•
Determining the relationship between the share prices of firms and their recorded earnings
per share
•
Establishing whether earnings per share trends for firms affect their market performance
and their ability to obtain finances in the market through equity investments.
•
Evaluating the growth and stability of EPS for significant firms in the Sultanate of Oman
as listed in the Muscat Securities Market.
•
Determining if EPS is the only factor that boosts the levels of investments in the Sultanate
•
Evaluating factors that significantly affect the performance of firms and investments
1.2 Research Questions
It is critical that the research answers various questions in a bid to determine the
relationship between investment and the EPS of multiple companies in the Sultanate of Oman as
listed in the country’s securities exchange market. In this case, the research questions included:
I.
Is there any relationship between an increase in investment in a company to its Earnings
per share ratio?
II.
Do companies have availability of information regarding the EPS posted by firms affect
the operations of buying and selling of shares in the Muscat Securities Market?
Investment in the Sultanate of Oman 8
III.
Are investors aware of the EPS ratios of major firms in the Sultanate of Oman?
IV.
Do they apply this information in making investment decisions involving the acquisition
of shares in the companies listed in Muscat Securities exchange?
Hypothesis
The study tested the following hypothesis:
I.
Earnings per share bear significant impact on the levels of investments in firms in the
Sultanate of Oman
II.
The relationship between the dependent and the independent variable is an affirmative
showing that the stability and growth of EPS positively affect investments in firms listed
in Muscat securities.
1.3 Motivation
Investment is a vital element towards a nation’s economic development and growth
including the entire economy. Additionally, earning per share is indispensable in determining the
profitability of shareholders investment in an organization. Therefore, the motivation to this study
is attributable to the desire to understand comprehensively the role of earning per share in
influencing organizations and individual’s investment in Sultanate of Oman. In fact, there is far
less research in EPS performance in Oman, additionally, yet there is no research investigates EPS
performance during the oil drop period in Oman. This study will fill this gap in literature.
1.4 Contribution
This study finding elaborates the effect of earning per share in individual and organization
investment capabilities. The relationship between earning per share and investment fosters the
capacity of the organizations to have adequate insights on ways of increasing their EPS to attract
more investors in their companies. In addition, the research provides adequate information to
Investment in the Sultanate of Oman 9
investors, thereby helping potential investors to make informed financial decisions. This facilitates
a high number of investors making investments in different enterprises, which aid in boosting
Sultanate of Oman’ s economy spurring the country’s economic development and growth.
Therefore, this study not only contribute to the lieterure of EPS in Oman specifically, but also
provides overview to firm’s performance to investors and regulator during panic period
particularly Oil dropping event.
1.5 Summary of next sections
The next section encompasses the background study of EPS and Investment in Oman,
including the regulation, rules, standards, and government intervention. The literature review
entails a review of previous studies related to earning per share.
Investment in the Sultanate of Oman 10
Chapter 2 Literature Review
2.1 Popularity of Earning per Share
de Wet (2013) asserts that even today, earning per share is considered the single most
significant and largely utilized financial performance benchmark in most organizations. A study
conducted by Graham, Harvey, and Rajgopal (2004) revealed that the majority of the United States
companies used earning per share as their financial performance measure. Accordingly, EPS has
been considered crucial in making informed strategic decisions such as management performance,
acquisitions and merger, incentive plans and share valuations. Earnings per share are easy to
compute and easy to comprehend and, thus, in an indication of company growth when a positive
EPS is recorded. Most shareholders are aware of the valuation manifold, the price to earnings ratio,
which has earnings per share as the core denominator. According to Dhar and Aziza (2018), the
popularity of earning per share is attributable to its ability to summarize the earnings yielded for
shareholders. De Wet (2013) infers that short term earning per share performance is significant for
upcoming firms for which future development and growth anticipations are sensitive likened
present performance as compared to older organizations with longer business operating history.
EPS and EPS growth has been considered as a critical measure for share valuation methodology.
The obsessions to EPS by investors are attributed to the fact that the crucial test summarizes the
earnings generated for shareholders as well as affecting the shareholders’ view to both the
management and the investors (Ghosh, Gu, and Jain, 2005, p. 41). The growth in EPS is critical to
younger companies with future expectations of growth, and it has been established that investors
assess this measure to estimate the possibility of extension for the firm essential for an enhanced
return on their investments.
Investment in the Sultanate of Oman 11
2.2 Limitations of Earning Per Share
Failure of earning per share to reflect a company’s shareholders value creationaccording to de Wet (2013), the goal of increasing the long-term market value of an organization
has its roots in over 200 years study in finance and economics. The level of risk and timing of the
future free cash flows of given enterprise aid in assessing and determining shareholders value.
Accordingly, equity assessment methods utilize discounted cash flows tactics to approximate the
current value of organization impending cash flows. This helps in determining the present value
of the shares. Organizations practically pursue the objective of value maximization by speculating
in programs with returns that are above the cost of capital, thus generating a positive net present
value (NPV). In addition, de Wet (2013) assert that value of generated by investing in new
programs with a positive NPVs, downsizing or disinvesting in previous projects with a undesirable
net present value, and enhancing or expanding existing programs with positive NPV by elevating
the anticipated cash flows. It is worth noting that the association between present earning and a
company future cash flow is unclear and earnings can serve in most cases, as a show of sign of
positive size, uncertainty, and timing of future cash flows. De Wet (2013) infers that organizations
that manage EPS are risking and to support his point, the author purports that one of the primary
reasons for Enron’s downfall was attributable over focusing on EPS. The fundamental issue with
earning per share is the fact that an organization can take a financial decision, which elevates
earning per share but ends up destroying shareholder’s value. Subsequently, obsessing on earning
per share performance could cause organization management to underinvest, for example,
willingly, thereby limiting vital development expenditures with the focus of meeting the quarterly
earnings benchmarks. The short-term thinking and decision making ends up hindering
management from making a long-term strategic decision as well as losing insights on crucial
Investment in the Sultanate of Oman 12
strategic factors, such as growth and future sustainability of a company. Notably, earning per share
does not consider the cost of equity and, thus, fails to reflect the full amount of running and
operating a business. Organizations with large debt obligations shown in the high magnitude of
financial gearing often end up having a high cost of equity because of the elevated risk. Thus, de
Wet (2013) states that organizations can augment their EPS by elevating their debt, nonetheless,
more debt does not create more shareholder value.
Earning management – organization management does and can resort to accounting
malpractice to maximize earning per share than increasing the shareholder value. According to de
Wet (2013), the financial accounting issues and the manipulation of an organization earnings to a
point of employing exaggerated earnings, are on the increase. For instance, referring to Enron, the
author states that the firm was caught up in the vicious of earning per share management to a point
that they had to utilize deceitful accounting strategies to conceal the amount of debt the firm
utilized to finance the earning per share growth. Therefore, it is worth noting that the present
earnings are inadequate to speculate the future earnings. Thus, investors should use more
information in the financial statement, such as a balance sheet to assess the quality of a company’s
earnings.
EPS signify the share of an organization’s earnings, preferred stock dividends, and
disposable taxes, apportioned to every share of ordinary stock. Accordingly, EPS serves as a major
sign of a firm’s efectiveness. EPS is computed as net income minus preferred divided over average
outstanding shares. Earnings per share can be computed through two methods namely the fully
and basic diluted methods. The fully diluted earnings per share refer to factors in the possibly
dilutive effects of stock options, warrants, and securities are convertible to common stock.
Investment in the Sultanate of Oman 13
Accordingly, earnings per share can be divided according to the period involved. In addition,
training earnings, current e…
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