Stock Return Case Study

As we know stock holder consider the stock return as remarkable factor in the investment decisions of projects. So the focus of the present study is on the stock return predictability using financial ratios.

Behavior analysis of stock return attain more stockholder attention in the market research than any other factor. Among many other factors which are associated with stock return capital gain and dividend yield can be at higher significance level because it is often said that the survival of short term investment is due the capital gain factor and the long term investment is done for the sake of dividend yield.

In order to conduct the efficient study I invested the previous work done by researcher on the impact of financial ratio and stock

Now a day’s stock return predictability has been widely accepted theory. Most of the financial analysis techniques uses the financial ratio to predict stock return in which they use real data extracted from financial statements. These techniques are appropriate source to facilitate the stockholder decision making.

Theoretical framework of study

The financial statements consists of balance sheet, profit and loss statements, accumulated profit and loss, cash flow statement and notes to the financial statements. Analysis of these statements raises the awareness among all stakeholders of the company and allow them to make decision about it.

In 1980’s number of financial ratios were calculated and used, among all current ratio is considered more important and have lasting effect.

According to the forest (1986) the financial ratios have been used due to the following reasons;

• To compare the different companies over the specific time period

• To provide information to test selected hypothesis more efficiently

• To explain whether a ratio is useful and applicable variable or

In his research he ranked firm industrially and geographically. Wall gernalized the idea of using several ratio rather than one and focused on the use of empirically determined ratio criteria as he used seven ratios on a sample of 981 companies over unspecified time period which caused departure of customary use of single ratio with the absolute criteria.

E.l dupont de Nemours and co (1919) started work on the managerial ratios and developed the ratio triangle system in which they placed ROI at the top of the triangle and profit margin and capital gain is on two adjacent sides of the triangle respectively. Dupont Company established this model to assess development and the growth of their company and compare it with other companies in the industries. This logic of study ROI is commonly used at the present time.

In the period of 1920’s the interest factor in the ratio increased magnificently so many articles were published on the topic of financial