Pre and Post M&a Performance in Accounting Ratio

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CHAPTER 1: INTRODUCTION Background of pre and post M&A performance in accounting ratio There are loads of tools to measure the performance of a financial performance of an entity but financial ratios is probably the best known tool which is mainly to analyze the performance of an entity by comparing the present to the past relative figures taken or composed from the financial statement . The few categories of ratios are liquidity ratios, profitability ratios, efficiency ratios, debt ratios and market ratios which will be able to describe the entity’s characteristics. Ratios show the true performance and position of the entity. In order for investors to determine their choices of entity to invest in, financial ratios play an important…show more content…
All the units selected for the study were sick, but after takeover five out of eight revived (Rao & Sanker, 1997). The acquiring firms had performed above the industry average and the acquired firms were below the industry average in term of size and profitability (Cosh et al., 1998). The firms recorded meaningful increase in their net earnings, and those with the successful merger of the firms, the return on capital employed and return on total assets, increased substantially with a significant percentage. The variability in the earnings (risk) of the pre-merger firms was significantly higher than that of post-merger firms (Agundu & Karibo, 1999). Pilloff (1996) finds no significant change in post merger ROE, however, when he utilizes operating income before provision instead of net income to calculate ROE, there is a significant increase in post-merger returns. Deficiencies in studies Unfortunately, most studies do not distinguish between healthy and troubled companies due to the relative scarcity of outright failures as an indicator of the latter. Data are not readily available to every person and critical data is only available to top level management, which causes analysis on company performance not accurate. Accounting ratios usage in studies are not standardized for number of ratios used and types of ratios used, making comparisons of this study to previous studies almost impossible. Some of the studies only find out
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