The Effect of Financial Ratios on the Stock Price Development

Abstract

This study examines the effect of the main microeconomic factors on the stock prices of select energy industry companies listed and traded on the Prague Stock Exchange and Warsaw Stock Exchange. The microeconomic factors are based on the financial situation in companies. The financial ratios (debt/equity ratio, liquidity ratio, financial leverage ratio, return on equity ratio and return on investment ratio) are gained from the financial statements. The existence of relationship between stock prices and financial ratios is tested with the Generalized Method of Moments. During the period 2006 - 2015 we revealed a positive impact of financial leverage ratio on stock prices in both countries and a negative effect of liquidity ratio on stock prices in both countries.

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