THE IMPACT OF FINANCIAL RATIOS ON STOCK MARKET RETURNS

ABSTRACT

This study examines the extent of impact of a broad range of finance based ratios on stock market returns of some selected brewery firms quoted on the floor of the Nigerian bourse (stock exchange). The finance based ratios utilised include earnings per share ratio (EPS), Price earnings ratio (PE), Market to Book value ratio (MBV); while Book value ratio was utilised as a control variable. using daily stock market returns data for a time frame that ranges from financial year ended 2000 to 2013, the study applied the multiple regression methodology, which enables easy analysis of the impact of a set of independent variables (regressors) on a selected dependent variable (regressand) with particular emphasis on the Nigerian stock market. The result showed that earnings per share (EPS) ratio had a significant impact on
market returns performance of the sampled brewery firms. The study further revealed
that there exist a significant relationship between Price to Earnings (p/E) ratio and
Stock Returns of Nigerian publicly quoted brewery firms. The study further revealed
that the effects of Market Value to Book Value (MBV1 ratio on Stock Returns of the selected publicly quoted brewery firms are largely significant.
Overall, the empirical findings generally support the view that market based financial
ratios do have some rather weak impact in the stock market return of a frontier market such as that of Nigeria. The study recommends that Nigeria should strive to develop and implement detailed capital market master plans ond country specific financial market reforms. In particular, such reforms should be guided by the adoption of international best practices, and standards covering issues such as banking system regulation and supercision, data dissemination in the financial market, corporate governance and transparency in monetary policies.