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

Authors

  • Nurah Musa Al-Lozi, Dr. Department of Accounting, School of Business, University of Jordan, Jordan http://orcid.org/0000-0003-1991-4040
  • Ghassan S. Obeidat, Dr. Department of Accounting, Faculty of Management and Finance, University of Jordan, Jordan

DOI:

https://doi.org/10.25255/jss.2016.5.3.408.424

Keywords:

Stock Return, Profitability, Leverage, Amman Stock Exchange, Jordan

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.

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Author Biography

Nurah Musa Al-Lozi, Dr., Department of Accounting, School of Business, University of Jordan, Jordan

Department of Accounting, School of Business, University of Jordan, Jordan

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Published

2016-07-01

How to Cite

Al-Lozi, N. M., & Obeidat, G. S. (2016). The Relationship between the Stock Return and Financial Indicators (Profitability, Leverage): An Empirical Study on Manufacturing Companies Listed in Amman Stock Exchange. Journal of Social Sciences (COES&Amp;RJ-JSS), 5(3), 408–424. https://doi.org/10.25255/jss.2016.5.3.408.424

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