The Effect on Financial Ratios to Predict Company Profits and Stock Returns

اقتصاد پولی مالی

Article 6, Volume 18, Issue 1, January 2012   

Document Type: پژوهشی

DOI: 10.22067/pm.v18i1.27593

Authors

Mohammad Lagzian^* ; Javad Baghaei; Mohammad Hossein Homayoni Rad

Abstract

Optimized decision making in the market of stocks and bonds needs utilizing
suitable tools and skills in order to choose the best choices for investment. The most
important financial information of corporations is their financial reports that help
analyzing basics of stocks.
Current research by basing basic information of corporation’s financial reports, has
tried to examine traces of 10 instances of the most important financial ratios in the
prediction of oncoming efficiency and profit of 252 companies out of those
companies in the stock market of Tehran that their financial reports in a 6 year
period (2001-2006) have been available.
Research results show that profitability ratios and activity ratios can be proper
predictive of oncoming efficiency in the stock market of Tehran. Nonetheless there
is not a meaningful relationship between financial ratios and oncoming profits; that
this may be due to smoothing of profits in Iranian companies.

Keywords

fundamental indicator; oncoming efficiency and profit; Investment