CHAPTER life) 3.3 DEPENDENT VARIABLES For dependent

CHAPTER 3: RESEARCH
METHODOLOGY

3.1
RESEARCH FRAMEWORK

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INDEPENDENT VARIABLE

DEPENDENT VARIABLE

·       Free
Cash Flow
-Dividend Payout
– Depreciation
 (Kamran.
M. R et al, 2017)
(Sindhu. M. I, 2014)

·       Net
Investment or Net Capital Expenditure
(Kamran. M. R et al, 2017)
 

 

 

3.2
INDEPENDENT VARIABLES

Muzammal Ilyas
Sindhu (2014) stated that free cash flow is defined as accessible cash flow for
resource providers after paying all business expenses, which are necessary for
keeping it into operating form. It is calculated as operating income before
depreciation, less interest expense on debt, less income taxes, less preferred
and common dividends. Thus, free cash flow can be calculated as follows:

 

1)     FCF
= Operating Income + Depreciation – Interest Expense – Income Taxes – Expected
loan (less repayment) – Dividends

 

2)     Dividends
payout = Dividend per Share / Earnings per Share

 

3)     Depreciation
= ((Initial asset cost-terminal value)/economic useful life)

 

 

3.3
DEPENDENT VARIABLES

For
dependent variable, to measure the net investment of firms, capital expenditure
can also be a proof of net investment of the firm. Briefly, capital expenditure
is a type of funds where a company invest fixed assets like equipment during
the year and acquiring subsidiaries. Other than that, it is known as a payment
of a business for basic assets such as property, fixtures, or machinery, which increases
the value of company assets and improve productivity. However, it is not for
day-to-day operations such as payroll, inventory, maintenance and advertising. Thus,
net capital expenditure can be calculated as below:

Net
Capital Expenditure = (Current Year – Previous Year)

 

3.4
DATA ANALYSIS PROCEDURE

REGRESSION MODEL

In order to
understand and model a relationship between two variables, linear regression is
used to observe and analyze the data. These two variables are independent
variable and dependent variable.

Before
starting research model, researcher must determine whether there is an existing
relationship between the two variables. Even though the other variable does not
affect other variable, a significant relationship between the two variable must
be clear and exists. After putting in the data in the SPSS software for the
research’s results, plotting a scatter graph is suitable to decide the capability
of the relationship of the two variables.

 

However, if
the results does not show a significant relationship between the two proposed
variables, it shows that the linear regression model is not fit as a research
model.

 

Thus, a linear regression line has an
equation of the form,

Y= ?+bX+?

Where ,

X= the
independent variables

Y= the
dependent variables

b and ?=
intercept (the value of y when x=0)

 

In this research, it shows that there is actually more than one
independent variables, so there will be more X stated in this equations.  Therefore, the complete formula for regression model can be
explained as follows:

 

Y =B0 +B1X1
+B2X2 +B3X3 + et

Where:

Y = NCE –
Net Capital Expenditure

B0 –
constant

B1, B2, B3, –
regression coefficients

X1 = Free
Cash Flows (FCF)

X2 =
Dividends Payout Ratio

X3 = Depreciation

et
=
Error term/Disturbance term

As this study uses
more than one independent variable, it is more suitable to use a multiple
linear regression model. This type of method is convenient for a research that
requires many factors as it is easier to analyze the results separately. Thus,
the effect of each part can be estimated. This type of research is beneficial
to identify the effect of various simultaneous influences upon a single
dependent variable. The data used for the variables within the selected period
of time were analyzed through descriptive statistics.

 

3.5
SCOPE OF STUDY

This
study will be done among 32 listed company under Finance sector. All of the
companies are companies that are listed under Bursa Malaysia. In order to get
an accurate result, this study will be conduct using two calculations with the
data from the annual financial report.

This
research will be conduct by calculating for 10 years annual report financial
report from year 2006-2016. All the data collected is from secondary data and
it will be collected in Bursa Malaysia website since the company chosen is
listed in Bursa Malaysia itself. So that, it will become easy in order to
collect the data instead by the company website itself. Other than that, the
data will be collected from Thompson Reuters as a backup for any missing data
that cannot be found in annual financial report.

 

3.6
RESEARCH HYPOTHESIS

This
research is being conducted in order to measure the relationship of free cash
flow and investment by calculating free cash flow and capital expenditure of
the company.

Regression
Hypothesis:

H01
: Free cash flow has no relationship with Investment

H11:
Free cash flow has a relationship with Investment

CHAPTER 3: RESEARCH
METHODOLOGY

3.1
RESEARCH FRAMEWORK

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INDEPENDENT VARIABLE

DEPENDENT VARIABLE

·       Free
Cash Flow
-Dividend Payout
– Depreciation
 (Kamran.
M. R et al, 2017)
(Sindhu. M. I, 2014)

·       Net
Investment or Net Capital Expenditure
(Kamran. M. R et al, 2017)
 

 

 

3.2
INDEPENDENT VARIABLES

Muzammal Ilyas
Sindhu (2014) stated that free cash flow is defined as accessible cash flow for
resource providers after paying all business expenses, which are necessary for
keeping it into operating form. It is calculated as operating income before
depreciation, less interest expense on debt, less income taxes, less preferred
and common dividends. Thus, free cash flow can be calculated as follows:

 

1)     FCF
= Operating Income + Depreciation – Interest Expense – Income Taxes – Expected
loan (less repayment) – Dividends

 

2)     Dividends
payout = Dividend per Share / Earnings per Share

 

3)     Depreciation
= ((Initial asset cost-terminal value)/economic useful life)

 

 

3.3
DEPENDENT VARIABLES

For
dependent variable, to measure the net investment of firms, capital expenditure
can also be a proof of net investment of the firm. Briefly, capital expenditure
is a type of funds where a company invest fixed assets like equipment during
the year and acquiring subsidiaries. Other than that, it is known as a payment
of a business for basic assets such as property, fixtures, or machinery, which increases
the value of company assets and improve productivity. However, it is not for
day-to-day operations such as payroll, inventory, maintenance and advertising. Thus,
net capital expenditure can be calculated as below:

Net
Capital Expenditure = (Current Year – Previous Year)

 

3.4
DATA ANALYSIS PROCEDURE

REGRESSION MODEL

In order to
understand and model a relationship between two variables, linear regression is
used to observe and analyze the data. These two variables are independent
variable and dependent variable.

Before
starting research model, researcher must determine whether there is an existing
relationship between the two variables. Even though the other variable does not
affect other variable, a significant relationship between the two variable must
be clear and exists. After putting in the data in the SPSS software for the
research’s results, plotting a scatter graph is suitable to decide the capability
of the relationship of the two variables.

 

However, if
the results does not show a significant relationship between the two proposed
variables, it shows that the linear regression model is not fit as a research
model.

 

Thus, a linear regression line has an
equation of the form,

Y= ?+bX+?

Where ,

X= the
independent variables

Y= the
dependent variables

b and ?=
intercept (the value of y when x=0)

 

In this research, it shows that there is actually more than one
independent variables, so there will be more X stated in this equations.  Therefore, the complete formula for regression model can be
explained as follows:

 

Y =B0 +B1X1
+B2X2 +B3X3 + et

Where:

Y = NCE –
Net Capital Expenditure

B0 –
constant

B1, B2, B3, –
regression coefficients

X1 = Free
Cash Flows (FCF)

X2 =
Dividends Payout Ratio

X3 = Depreciation

et
=
Error term/Disturbance term

As this study uses
more than one independent variable, it is more suitable to use a multiple
linear regression model. This type of method is convenient for a research that
requires many factors as it is easier to analyze the results separately. Thus,
the effect of each part can be estimated. This type of research is beneficial
to identify the effect of various simultaneous influences upon a single
dependent variable. The data used for the variables within the selected period
of time were analyzed through descriptive statistics.

 

3.5
SCOPE OF STUDY

This
study will be done among 32 listed company under Finance sector. All of the
companies are companies that are listed under Bursa Malaysia. In order to get
an accurate result, this study will be conduct using two calculations with the
data from the annual financial report.

This
research will be conduct by calculating for 10 years annual report financial
report from year 2006-2016. All the data collected is from secondary data and
it will be collected in Bursa Malaysia website since the company chosen is
listed in Bursa Malaysia itself. So that, it will become easy in order to
collect the data instead by the company website itself. Other than that, the
data will be collected from Thompson Reuters as a backup for any missing data
that cannot be found in annual financial report.

 

3.6
RESEARCH HYPOTHESIS

This
research is being conducted in order to measure the relationship of free cash
flow and investment by calculating free cash flow and capital expenditure of
the company.

Regression
Hypothesis:

H01
: Free cash flow has no relationship with Investment

H11:
Free cash flow has a relationship with Investment

x

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