Articlehybrid2016

The Relationship between the Stock Return and Financial Indicators (Profitability, Leverage): An Empirical Study on Manufacturing Companies Listed in Amman Stock Exchange

65 citations0/0 files storedJournal of Social Sciences (COES&RJ-JSS)

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Financial Analysis and Corporate Governance Financial Markets and Investment Strategies Corporate Finance and Governance

Abstract

This study examines the relationship between several financial indicators (profitability& leverage measures) and stock return, to assist the management in the Jordanian manufacturing companies in decision making.The study sample consists of 65 manufacturing companies that have been listed in Amman Stock Exchange over the 10year period (2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011).Five financial ratios are used to examine the relationship between profitability measures (Net Profit margin (NPM), Gross Profit Margin (GPM), Return on Assets (ROA), Return on Equity (ROE), Earnings per Share (EPS)) and stock returns.Three financial ratios are used to examine the relationship between leverage measures (Debt Ratio (DR), Debt to Equity Ratio (DER), Interest Coverage Ratio (CR)) and stock returns.Statistical analysis undertaken to examine the relationship between stock return and the financial indicators (Profitability and Leverage measures) are: correlation analysis, multiple regression and descriptive statistics.Data are obtained from the published annual reports and the monthly statistical bulletins issued by (ASE) over the study period.The results show that (GPM), (ROA), (ROE), and (EPS) have a significant relationship with stock return.And the others (NPM) and leverage measures ((DR), (DER), and (CR)) don't have a significant relationship with stock return.This study recommends managers of manufacturing companies to focus more on financial ratios that have significant relationship with stock return for more profits and less debts, future research is also recommended to examine this relation in other sectors and to use other financial ratios.

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References

1993Research methods for business: A skill building approach 1958The Cost of Capital, Corporation Finance and the Theory of Investment 2008The cost of capital, corporation finance and the theory of investment 2013Research Methods for Business: A Skill-Building Approach 1988Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence 1972THE EFFECT OF THE FIRM'S CAPITAL STRUCTURE ON THE SYSTEMATIC RISK OF COMMON STOCKS 2003Industry Concentration and Average Stock Returns 1967Firm Size and Profitability

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