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

Nurah Musa Allozi and Ghassan S. Obeidat
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Nurah Musa Allozi: University of Jordan, Jordan

Journal of Social Sciences (COES&RJ-JSS), 2016, vol. 5, issue 3, 408-424

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 10-year period (2001-2011). 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.

Keywords: Stock Return; Profitability; Leverage; Amman Stock Exchange; Jordan (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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