Stock Philippine Stock Essay

Chapter 1

INTRODUCTION

Rationale of the Study

Stocks are defined as shares of ownership in a corporation (www.colfinancial.com). It entitles the person as a part owner or a shareholder once he buys or invests in the stock market. It is considered as one of the greatest tools invented for building and providing wealth for people but with the presence of risks. Therefore, people should be knowledgeable and understand where they put their money to protect themselves in the stock market.

In the global context, there is a trade association called World Federation of Exchanges (WFE) which is held responsible in the financial world for operating the key components with 65 members of stock exchanges located in about every country in the world.

Stock

Thus, there is a need for such investors to be able to make successful investment through some companies listed on the Philippine Stock Exchange Composite Index (PSEi) by analyzing risk and return tools.

Elton, Gruber, Brown and Goetzmann (2003) regarded the relationship of risk and return as the backbone in portfolio management. Markowitz (1952) also adopted that the investment decision is made on the restrictions of risk and return. As what he quoted, “The proper choice among efficient portfolios depends on the ability and willingness of the investor to assume risk. If a greater degree of uncertainty can be bear with, a greater level of return can be obtained.” So taking on higher risk on the investment demands a higher

PSEi – Philippine Stock Exchange Composite Index is affixed basket of thirty (30) common stocks of listed companies; it is thoroughly selected to represent the general movement of the stock market. It is used as a benchmark in measuring the performances of the companies in the Philippine stock market.

Liquidity – is used as a measure of the company’s ability to satisfy its short-term obligation as they come due.

Profitability –used as a measure to evaluate a firm’s profits with respect to a given level of sales, a certain level of assets, r the owners’ investment.

Solvency- is used as a measure of the company’s ability to meet its debt and other obligation. This will indicate whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities.

Activity- is used as a measure the speed with which various accounts are converted into sales or cash- inflows or outflows.

Standard Deviation –. a statistical measure of the dispersion of returns around the expected value where a larger standard deviation indicates greater dispersion.

Average Return – the series of return generated over the period of five