The impact of financial ration on share return

• Main Authors: Chan, Chee Kian, Kang, Soon Lee, Tan, Khim Chuan
• Other Authors: Perinkolam K Chandrasekaran
• Format: Final Year Project
• Language: English
• Published: 2015
• Subjects: DRNTU::Business::Finance
• Online Access: http://hdl.handle.net/10356/63740
• Institution: Nanyang Technological University

This is an empirical based study with the main purpose of examining the existence of any structural relationship between 9 selected financial ratios (independent variables) and the return on share investment (dependent variable), by means of a regression model. 3 categories of analysis were identified, namely, Combined, Sector and Year-by-Year. In the Combined analysis, a total of 551 data points were used in the regression. In the Sector analysis, the 551 data points were sub-classified into the Industrial & Commercial, Property, Finance and Hotel sector. In the Year-by-Year analysis, the 551 data points were sub-classified into yearly data from 1975 to 1990. Two regression tests were performed for each of the categories of analysis. They are the t-test and the F-test. The t-test serves to detect a relationship between a specific financial ratio and the share return whereas the F-test serves to detect a relationship between financial ratios taken together and the share return. The results of the tests indicate that there is an absence of a strong relationship between financial ratios and share return. Some possible explanations for this observation are limitations of Ratio Analysis, Historical Nature of Financial Information and Importance of Non-Financial Information. A minor questionnaire survey was also done but the result was inconclusive due to the lack of response.