To investigate whether there is a relationship between Dividend Payout Ratio and company stock prices. To investigate whether there is a relationship between Earning Per Share and company stock prices. To investigate whether there is a relationship between Return On Earning and company stock prices. Significant Contribution of the
3. Introduction to Financial Ratios Financial ratios are dealings determined from a firm's financial information and used for comparison purposes in financial means. Some of the financial ratios are Profitability ratios, Liquid ratios, Capital structure ratios, Assets management ratios and Market value ratios. Sub-categories of these ratios are defined below. 3.1 Profitability Ratios A category of financial metrics used to evaluate a business's ability to generate profit as compared to its expenses and other relevant costs earned during a specific period of time.
Computing the changes in current net operating assets, the cash component of earnings comes about (as implied). The net operating assets are defined as current operating assets minus the current operating liabilities. The current operating assets are equal to total current assets minus cash and cash equivalents assets. So, Current operating liabilities = total current liabilities – (short term debt +current portion of long term debt + income taxes payable). A positive accrual component indicates that accruals have increased net income and should be deducted (for negative accrual component it must be added respectively) from net income in order to obtain the implied cash component Sloan tried to forecast next year’s earnings using as explanatory variable the current year’s earnings.
CAPITAL MARKET THEORY The Concept of Capital Market Theory is that it tries to describe and evaluate the advancement of capital and likewise financial market over a certain period of time. The Capital Market Theory in general tries to clearly define and foresee the development and advancement of capital. It is also known to be a common term that is used for the study of securities. In terms of the relationship between rate of returns seeked by all investors and likewise the inheritance of risk that comes along. The main purpose of this capital market theory model is that seeks to “price assets” but more popularly “shares” among investors.
This is calculated by determining the weight average cost of capital. Similarly the cost of capital is made up of equity and debt. Hence for the firm to maximise profit and obtain shareholders wealth the organisation must sell goods, contributing to the total revenue minus the total cost. Therefore the remainder or excess surplus is known as profit maximisation. In light of this when profits are maximised the firm make decisions to access shareholders wealth through the means of equity.
Financial ratios: a percent, rate, or proportion that expresses a mathematical relationship between two financial quantities Liquidity ratios: evaluates how quickly a company can convert short-term assets and liabilities into cash Current ratio: evaluates a company’s ability to pay its short-term debt (current liabilities) Comparing financial data: examining financial data from multiple years to see trend lines for key measures such as net income, revenues, cost of goods sold, operating expenses, and gross margin Acid-test ratio: a more conservative liquidity ratio that evaluates how quickly cash, short-term investments, and accounts receivable can be converted into cash Inventory turnover: how long a company holds onto its services or products (inventory) Profitability ratios: measurements which reflect a company’s ability to use its assets efficiently to produce profits Return on sales/profit margin: provides insight into how efficiently and profitably a company is being run, determined by dividing net income after taxes by net sales Ratio analysis: using comparisons to gather information and see trends Basic earnings per
Return on equity measures the company's profitability by measuring how much profit a company generates comparing with the money shareholders have invested. Return on Equity = Net Income available to common stockholders common stockholder Equity ANON= HAS DEFICIT ULTA= 26% REVLON= HAS DEFICIT 4. Efficiency Ratios The efficiency ratio is used to measure how the company uses its assets and liabilities internally, these ratios to measure the performance in short term. • Accounts Receivable Turnover This ratio used to measure the firm's effectiveness in extending credit and in collecting debts. The receivables turnover ratio is an activity ratio measuring how successfully a In collecting its AR during the year, if the company has AR turnover 2 that means the AR turned over two times during the year.
It is referred to as the difference between a bank’s assets and liabilities. It represents the bank’s value to its investors and consequently the net worth of the bank. The aggregate money or resources that a bank operates on is referred to as the bank capital. Bank capital is a cushion that helps prevent bank failure. Bank Capital is classified into two tiers: Tier I: Book value of stock and retained
Among these tools is financial ratio analysis used for comparative purposes. Aside from it, the annual financial statements can be analyzed using horizontal analysis which highlights the trend of various figures from revenue to expenses and cash flow over the reporting periods. Vertical analysis emphasizes the relative size of each item as a composition of a set of numbers such as operating expenses as a proportion of total sales revenue. When dealing with financial forecasts and business plans, historical analysis is irrelevant. Rather a forward outlook would be more appropriate.
A company’s book value of equity, also referred to as accounting value of equity, is its common stock equity according to its financial statements, which is equal to its total assets less liabilities, preferred stock and other intangible assets. This is also the amount of assets a company would have left if it went out of business. On the other hand, the market value of a company refers to its perceived price in the market place. Whether or not book value is a precise assessment of a company’s value is determined by stock