Optimizing Return on Assets through Investment in Property, Plant and Equipment: Evidence from Listed Nigerian Manufacturing Companies

Joseph O Udoayang,Akabom I Asuquo,Uwem E Uwah*

doi:10.35940/ijmh.j0950.0641020

Abstract

This study examined the extent to which investment in property, plant & equipment (PPE) made by listed manufacturing companies in Nigeria relate with the return on assets (ROA). The non-usage of composite appraisal techniques, other than traditional budgeting techniques was seen as a major problem of investment decisions on PPE. The study adopted the quantitative panel methodology of the ex post facto and correlational research design. Secondary data were extracted from the fact books of the Nigerian Stock Exchange for the period, 2013 – 2018. The number of manufacturing companies listed in the Stock Exchange during this period was 83, which was also taken as the population of the study. The sample used in the study was 69. Three hypotheses were tested at 0.05 level of significance. Multiple and simple regression analyses were used on the data collected, to find the relationship between the independent and dependent variables. The hypotheses tested indicated in the findings that property, plant and equipment had a significant relationship with return on assets of listed manufacturing firms in Nigeria when there is a joint relationship between variables of property, plant & equipment (PPE) and return on asset (ROA). Based on the findings and conclusion, it was recommended that management of manufacturing companies should ensure a holistic use of all techniques, exploring the real and growth options analyses as well as portfolio management techniques involving productive non-current assets, to earn the benefit of return on assets invested.

Highlights

IntroductionPlant and equipment as noncurrent assets require that adequate returns on the investment are realized at the optimum level
Capital investment in property, plant and equipment as noncurrent assets require that adequate returns on the investment are realized at the optimum level
Hypothesis 2: There is no significant relationship between purchase price of asset (PPA) and profit after tax (PAT)

Summary

Introduction

Plant and equipment as noncurrent assets require that adequate returns on the investment are realized at the optimum level. The Nigerian economic environment is a growing one, and for a growing economy to have a place in the comity of nations, the real sector must be developed and sustained. It is apparent that manufacturing is the pivot of the real sector of an economy, and it goes with capital assets. Capital assets have deferred expenses and determine the production capacity of a manufacturing firm. Such assets have cash outlay at the initial point of investment, but the benefits accrue over a long time period. It is the strategic investments which have long-term commitments of corporate policy that enhances particular technologies, products, and markets (Desai, Wright & Chung, 2012)

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Conclusion