Predictive Power of Net Profit on Share Returns

International Journal of scientific research and management (IJSRM) Volume 3, Issue 3, Pages 2226-2231, 2015

7 Pages Posted: 11 Apr 2015

See all articles by Vincent Tawiah

Vincent Tawiah

Griffith University; University of Mysore - Department of Commerce; University of Cape Coast; Dublin City University Business School

Muhaheranwa Benjamin

Maharishi Markendeshwar Group of Institution - Maharishi Markandeshwar University (MMU)

Date Written: Febuary 1, 2015

Abstract

The major indicator that attracts a person to invest in a company is the performance of the firm. Various measures such as ROA, ROE, and Tobin’s Q have been tagged on performance. But the traditional and objective measure is the net profit of the company. Using purposive sampling of 25 companies from NIFTY, this paper has attempt to find out the relationship, cause and effect between companies net profit and stock return an investor obtains within an accounting year. To achieve this, both univarate and bivariate analysis were run on a balanced panel data from 2009-2013 accounting years of the sample companies. The results reveal that companies had experienced an increasing profit over the period but the biggest portion is retained since a change in net profit results to less than proportionate change in dividend per share. Sock returns fluctuates much without a fixed pattern. Capital gain accounts for 95% of the total stock returns which also fluctuates over the time. Although net profit has positive impact on stock returns, it is not significant relationship. Because capital gains which is the biggest part of stock returns is not significantly influence by annual net profit. Hence, it is concluded that reported annual net profit does not have predictive power on total stock returns.

Keywords: net profit, stock returns, capital gain, dividend

Suggested Citation

Tawiah, Vincent and Benjamin, Muhaheranwa, Predictive Power of Net Profit on Share Returns (Febuary 1, 2015). International Journal of scientific research and management (IJSRM) Volume 3, Issue 3, Pages 2226-2231, 2015, Available at SSRN: https://ssrn.com/abstract=2592937 or http://dx.doi.org/10.2139/ssrn.2592937

Vincent Tawiah (Contact Author)

Griffith University ( email )

PMB 50
Gold Coast Queensland 9726
Australia

University of Mysore - Department of Commerce ( email )

Mysore
India

University of Cape Coast ( email )

PMB, UCC, GHANA
Department of English
Cape Coast, Central Region
Ghana

HOME PAGE: http://ucc.edu.gh

Dublin City University Business School ( email )

Dublin 9
Ireland

Muhaheranwa Benjamin

Maharishi Markendeshwar Group of Institution - Maharishi Markandeshwar University (MMU)

Mullana
Ambala, Haryana 136119
India

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