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You read ‘Linking Financial Percentages and Stock Returns’ in category ‘Essay examples’

With respect to the managerial structure of CIRCUMSTANCE, a coherent organizational framework with a very clear division of authority , tasks was established, creating new divisions , departments such as Publications , Advertising, Research, Cctv surveillance , Market Control, and Information Technology. Additionally , in May 98, CASE fixed a contract with EFA Software program Ltd., to offer the new electronic trading, removing , negotiation system that will replace the existing one. The Board of Directors likewise set up a lot of committees with specific tasks.

At the older level, a worldwide advisory committee made up of internationally prominent economic analysts, investment brokers, financiers , investors has been developed to be able to ensure that CASE stays closely linked to the int’l arena. This group likewise provides ongoing feedback upon its plans. Both the CMA , the CASE monitor market activity to detect likely market manipulation or insider trading. Accordingly, they may postpone offers , bids pertaining to institutions suspected of selling price manipulation.

In the matter of an emergency, the situation and/or the CMA may possibly halt trading and/or place ceilings on floors trading prices (maximum 5% up or down), based on the closing rates of the preceding day. In the case of individuals, mutual funds , international funds, no fees are levied on returns, capital gain , curiosity on provides. Profits of Egyptian companies from investments investments will be subject to a capital profits tax. 2 . 3. 1 Recent developments On 21 July 2002, CASE started its fresh price ceiling system with regards to the most positively traded stocks.

According to the new practice, the five-percent roof on daily prices was removed for any set of chosen active stocks and shares (currently twelve). This set of stocks comprises 12 from the most positively traded shares on CASE. The chosen of this group of stocks was based on appointment some stated criteria decided by CIRCUMSTANCE (2002): ¢Stocks must be dematerialized. ¢Minimum trading days per company each year is 220. ¢Average number of transactions every stock has to be 20. ¢Minimum market capitalization per organization amounts to LE two hundred million. Lowest free drift amounts to fifteen percent from the total listed shares. ¢Minimum turnover percentage per business is 10 %. ¢The firm must make financial transactions for three progressive, gradual years. ¢Transactions conducted around the shares of the company should be executed by simply at least 20 broker firms. The newest practice will certainly stipulate the halt of trading on any of the 14 stocks for the period of half an hour, forty-five mins or till the end of the trading treatment, if the inventory prevailing weighted average price exceeds 10 percent, 15 percent or 20 percent respectively above opening cost.

When trading is halted, brokers should inform all their clients about the momentary suspension, its reasons, period and should take the necessary activities in order to match their customers requests. Broker agents are allowed to cancel, any of all their clients’ requests, when trading is stopped. 2 . 3. 2 Backdrop of Privatization Program The Ministry of Public Organization (MPE) is usually dedicated to obtain the long term goal of complete setup of Egypt’s overall privatization plan. 20 years ago Public Venture Law No . 203 was introduced as being a transitional evaluate. Dr . Khatab M. (Minister of General public Enterprise) (2002) has explained his

Ministry’s plans and objectives to facilitate privatization in Egypt and the methods that have been adopted in this regard. Also Dr . Mokhtar Khatab offers mentioned for the Government of Egypt (GOE) his attempts in undertaking an extensive privatization program where state-owned companies are transferred to the private sector through a number of methods McKinney (1996). ¢The transfer of ownership , control of state-owned enterprise to the private sector through a partial or a complete public reveal flotation about both the home-based or international stock exchanges. ¢Direct sale for a managing interest to domestic or perhaps foreign investors. Direct sale of a managing interest to employees. ¢The law also allows the sale or rent of business assets, infinite sale of government-owned shares, or perhaps liquidation. Principal objectives from the plan in order to generate larger productivity and faster (but sustainable) growth, and as a consequence an increase in earnings on property and fairness while at the same time bringing up internal effectiveness, improving capital structure and increasing capital expenditure. Because the early nineties a number of essential programs had been put into place to greatly liberalize commerce and trade, and to re-frame the country’s legal, regulatory, judicial, and tax structures.

An equally important focus of the plan may be the creation of new jobs that an expanding economy will provide for the workforce. Over the past five years, the GOE offers achieved very gratifying results in macroeconomic terms. This is due to the creation of plans to remove control barriers, the reform of trade and financial market segments, and the reform of the legal taxation and regulatory frameworks, Field (1995) 2 . a few. 3 Updates on the Circumstance of the Privatized Companies The Government of Egypt (GOE) offers designed a well balanced privatization plan, which includes the next share revenue strategies.

The Egyptian Ministry of General public Enterprise Sector (2001) revealed that: ¢Public Offerings on the Cairo and Alexandria Stock Exchange 37 companies possess so far recently been approved by the GOE to get privatization and get sold through Initial Community Offering (IPO) or second offerings. The sales of such companies netted 5. 6th billion pounds which signifies 36% of privatization profits to date. of sixteen companies have achieved partially privatization netting the government nearly 1 . 76 billion LE. ¢Sale to Anchor and Strategic Traders 3 firms have been privatized by this method, accounting intended for 6. 4 billion pounds LE in proceeds towards the government. Sales to point investors include amounted to 42% of the total privatization proceeds so far. ¢Employee Inventory Ownership Applications (ESOPs) The GOE has approved the allocation throughout the sale of 10 percent of the open public enterprises’ talk about offerings for the employees within the “Employee Stock Ownership Program”. In other situations, and in line with the particular conditions of each organization, the majority of stocks have been purcahased by its management and personnel.

To date, primarily medium-sized corporations in the public works sector have applied this plan. So far, 30 Employee Shareholder Association (ESA) sales transactions have taken place bringing in 870 million pounds LE. ¢Lease Management Agreements In this method, Companies had been offered intended for management by government for the private sector with an option to buy at a future time. This substitute is not too different to the anchor trader approach whenever the managing company physical exercises its choice to buy. Five contracts of the type are currently active. Section III PHARMACEUTICAL DRUG SECTOR SUMMARY

The government provides set a 40% limit (maximum that may be privatized), 10% of which can be reserved for Employee Shareholder Associations (ESA), within the privatization of any general public pharmaceutical firm. The limit relates to the government’s wish to maintain control of the industry for its significant part in society, The Egyptian Ministry of Public Business Sector (2001). The initial five companies that have been privatized: Alexandria, Cairo, Memphis, Arabic and Earth pharmaceuticals. These businesses have already been 40% privatized. The privatization program then widened to cover 10 companies towards the end of 06 2002.. one particular Pharmaceutical Sector Highlights Medicine policy and planning centre (2002) has published this statistics: 199920002001 Market Size (LE bn)4. 655. forty two No . of Products (thousand)3. 63. 84 Per capita spending (LE)72. 6677. 1882. 14 3. 2 Pharmaceutical Products Total exports made by Egypt to the complete world has a lot of products which are labeled to (Fuels Products, Natural cotton, Raw Materials, Partially finished commodities and done commodities). Central Bank of Egypt (2002) revealed that Pharmaceutical drug products are considered as part of completed commodities, they will represent 3% of completed commodities and 1 . % of the total export. Likewise, Pharmaceutical products play a significant role in Egypt’s importance. They represent 4% in the total importance and 21% of their category division (consumer goods). Determine (1) shows Pharmaceutical Foreign trade and Importance situation. Physique (1) Local production of drugs satisfies 92% of the industry demand, although the remainder can be balanced by simply imports. Kompass Egypt (2002-2003) classified the local market players as: 1) Public-sector corporations. 2) Private-sector companies. 3) Multinationals Figure (2) Take note: The term Non-public sector involves Multinationals and also other Private corporations.

The government offers set a comparatively low contract price on brought in drugs, which will averages around 5%. The primary reason for this relatively low responsibility is the california’s policy of making medicine open to the bulk of the population at the least expensive possible value. 3. 3 Pricing Policy Prior to the change program in 1991, the government’s major thought when setting prices to get drugs was going to make treatments affordable for the bulk of the citizenry regardless of a company’s cost structure. Primary on the interpersonal role of medicine, rather than the success of pharmaceutical companies, is the main reason behind this policy.

The Drug Coverage , Preparing Center (DPPC) is the main regulatory authority controlling the pharmaceutical industry. The center is in charge of drug registration and costs. The DPPC (2002) runs on the “Cost As well as Formula to price medications. The solution stipulates a price equivalent to the products cost plus a certain profit margin. The profit margin is usually 25% intended for nonessential goods, and 15% for vital products. It really is noteworthy that once a product has been costed, it is seldom eligible for re-pricing to be the cause of increasing costs.

The large drop inside the value with the Egyptian pound was shown in an raising raw materials costs burdening the Silk Pharmaceutical businesses, which import around 80 percent of their uncooked material requirements. In order to save the money margins from the aftermath in the devaluation, the Ministry of Health finally agreed to raise the prices of 5 products for each and every pharmaceutical organization starting February 2002. three or more. 4 GATT and TRIPS Egypt is known as a signatory towards the General Contract on Tariffs and Control (GATT) which will come into effect for the pharmaceutical sector in Egypt in 2005.

The agreement is likely to possess serious consequences for the pharmaceutical companies of developing countries which include Egypt. The agreement requires the dérogation of the two quantitative and qualitative limitations to entrance for pharmaceutic products, as a result eliminating any kind of governmental security of the market. Under GATT, Egyptian firms have to stick to the limitations imposed by patents and property legal rights for a amount of 20 years. Depending on the Egyptian commitment with all the agreement upon Trade-Related Areas of Intellectual House Rights (TRIPS), which is part of the GATT, President of Egypt published What the law states No . 2 for year (2002), asking for the Protection of any kind of invention whether industrial or perhaps intellectual. The agreement will result in the extension of your patent to 20 years and may grant safeguard to the merchandise and the creation process. Phase IV METHOD AND EMPERICAL MODELS four. 1 Info Set In the study, we select each of the pharmaceutical corporations quoted in the Egyptian stock exchange which contains 11 pharmaceutic companies symbolizing the pharmaceutic sector. We all covered the time from 1996 to 2001. Analyzing six continuous years of data, enhance and support results and provide our conclusion stability and reasonability.

Kompass Egypt Financial Year Publication and the Silk Capital Market Authority were the prime resources for the data set. Additionally , with regards to this research, we determine the results using each year prices of securities for many years starting from 1996 to 2001. 4. two Selection of Monetary Ratios (Independent variables) According to the literature, we all determine one of the most useful economic ratios that may be functional in security valuation by examining and evaluating several documents and text messaging were analyzed and as opposed.

The reasons behind the selection of these types of financial ratios: ¢Their expertise in assumptive explanation of fundamental associations and alerts experienced by the firms. [Foster 1986] ¢The importance of all their existence in published annual reports. [Gibson 1982] ¢Surveys proved that chief executive representatives and other senior executives happen to be concerning popular financial ratios for various kinds of making decisions. [Walsh 1984] The following table provides the most popular financial proportions that might have an effect on stock results.

For each economic ratio, you can expect the way of computation, the hypothesized positive or negative romance with inventory returns. Table (1) The most popular financial ratios and their prediction with share returns GroupFinancial ratiosVariablesEquationsPrediction of relationship ProfitabilityEarning per ShareEPSNet income / Number of stocks outstandingPositive Returning on EquityROENet income as well as owners’ equity Return about AssetsROANet salary / total assets Income MarginPMNet salary / total sales LiquidityCurrent RatioCTRCurrent possessions / Current liabilitiesNegative

Speedy RatioQR(Current possessions ” Inventory) / Current liabilities Functioning Cash flow RatioOCFCash flow from operations as well as Current liabilitiesPositive LeverageDebt to Equity RatioDERLong term debts / owners’ equityNegative CoverageInterest CoverageICEBIT as well as interest expensePositive EfficiencyAssets TurnoverATOSales revenue / Total assetsPositive Receivables TurnoverRTOSales / Bank account Receivables EBIT: Earnings prior to Interest and Taxes We refer to the explanantion of the financial ratios (independent variables) in the Appendix section.. 3 Buy-and-Hold Results (BHR) As much as the centered variable is involved, stock returns, there is no general opinion on the suitable methodology for calculating the long-run share returns (see among different, Barber and Lyon, 1997, Kothari and Warner, 97, Brav and Gompers, 97, and Herrefris?r, Lyon and Tsai, 1999). Researchers work with several techniques to calculate long term returns, particularly Buy-and-Hold comes back (BHRs) method. The first step in determining Buy-and Maintain return technique is to compute rate of return in stocks.

We consider which the appropriate rate of come back on a presented stock are the differences between the stock prices in time t in addition dividends over time t-1 plus the stock rates in time t-1, as follows: (1) Where is definitely the return pertaining to security We for period t, refers to the shutting price of security I at period t, and is also the price of protection I by time t-1, is the dividend received pertaining to period t-1 for the firm I As far as we consider time t being a year, charge of returning on stocks and shares ( ) that we determined from the previous equation is a Buy-and-Hold go back method for monetary year. (2) Where is usually Buy-and-Hold Go back for secureness i in period t. we consider it a year. four. 4 Regression Model To determine the relationship between your independent variables (financial ratios) and the dependent variable (stock return), all of us follow a related methodology to that particular of Belkaoui (1997) and estimate the following regression: (3) Where is a annual inventory return of firm I actually at period t, is definitely the earning per share pertaining to firm I actually at period t, may be the return in equity to get firm I actually at period t, may be the return about assets for firm My spouse and i at period t, is definitely the profit perimeter for company I at time to, is the current ratio intended for firm We at period t, is a quick rate for firm I by time big t, s the operating income for organization I for time big t, is the personal debt to collateral ratio for firm I at period t, is definitely the interest protection ratio to get firm We at period t, is definitely the asset proceeds for company I in time t, is the receivable turnover pertaining to firm I at period t. Considering that the return of the given inventory is based on a period extending by 9 several weeks prior to the financial year-end and 3 months following the fiscal year-end, corresponding around with the period between announcing the monetary statement, the starting month would be January for firms whose financial years end at Jun, the thirtieth and June for companies whose financial years end at 12 , the thirty first.

CHAPTER V RESEARCH CONCLUSIONS 5. you Results We present results of a regression model in which independent variables in the regression equation are chosen in two ways (both general and step smart regression). Multicollinearity tests the correlation between two or more with the independent variables (financial ratios) used in the regression equation. Multicollinearity is a problem as it increases the probability of rounding mistakes in the computation of the beta estimates and standard error, and also it may produces confusing and misleading (signs of beta parameters are different from individuals signs expected) results (Mendenhall, 1996).

Stand (2) shows that the existing injury in this Multicollinearity is especially evident for the correlation between Current Proportion and the Quick Ratio reaching 0. 80 and significant at 00% level. Current Ratio and Quick Percentage are two faces for the similar coin. They are categorized under liquidity percentages group, they may have the same justification about the end result and there is a little bit difference within their equations (In Quick Proportion, Inventory can be excluded through the Current Assets). So all of us eliminate Quick ratio through the independent factors (financial ratios) and maintain on Current Ratio since it is more popular. Stand (2)

Correlation Matrix to explain the interactions among the economical ratios because independent parameters VariablesQRATODERCTRICEPSOCFPMRTOROAROE QR1. 000 ATO-0. 4204*1. 1000 DER0. 03920. 3860*1. 500 CTR0. 9239*-03478*0. 08801. 500 IC0. 3752*-0. 3246**-0. 15040. 3610*1. 1000 EPS0. 1884-0. 2604**-0. 12480. 0724-0. 03061. 000 OCF0. 0641-0. 3243-0. 29300. 15720. 19970. 32021. 000 PM0. 1659-0. 4338*-0. 2835**0. 23450. 04750. 6245*0. 34311. 500 RTO-0. 2999**0. 1663-0. 0413-0. 0230-0. 0298-0. 19220. 6846*0. 16561. 500 ROA0. 0535-0. 1600-0. 4080*0. 16850. 17500. 6342*0. 6703*0. 6392*0. 3761*1. 000 ROE0. 1264-0. 1178-0. 01580. 21150. 10610. 11030. 8970. 2610**0. 18200. 3693*1. 000 2. Significant in the 1% level ** Significant at the five per cent level Desk (3) , (4) demonstrate multiple and step-wise regressions of the relationship between explanatory variables (financial ratios) and stock comes back utilizing buy-and-hold return (BHR) method. The partnership between share returns and common economic ratios is definitely estimated using the following formula: Where is the annual inventory return of firm i actually at period t. BHR is calculated as follows: Wherever is buy- and- carry return for security my spouse and i, in period T, To is the trading month quantity 12, and indicates the first celebration month of calculating the return. t the centered variable inside the regression formula. Table (3) Multiple Regressions of the Marriage between Economical Ratios and Stock Comes back Independent variables BetaT testSig. T 1- Current proportion (CTR)0. 7821993. 0940. 0055* 2- Interest coverage ratio (IC)0. 6895873. 0850. 0056* 3 Income margin rate (PM)0. 6434102. 5740. 0177** 4- Profits per reveal (EPS)0. 3790681. 1190. 2757 5- Functioning cash flow rate (OCF)0. 2002970. 5430. 5931 6- Resources turnover (ATO)0. 1150700. 4550. 6537 7- Return about Equity (ROE)0. 0966730. 5010. 6215 8- Debt to equity percentage (DER)0. 0622020. 3040. 7640 , Receivables turnover (RTO)-0. 165573-0. 4660. 6457 10- Return in Assets (ROA)-0. 121268-0. 3320. 7433 Multiple R = 0. 68529F = 6. 76472 R square sama dengan 0. 46962Significant F = 0. 0031 * Significant at the 1% level ** Significant in the 5% level The comes from table (3) show that the F check used to test out the overall power of the style indicates the model is usually significant with the 99% level. However , the R square is 46. 96% demonstrating that the ten independent variables together discussed approximately half of the variance in the yearly return of pharmaceutical drug sector as a dependent changing.

Also, Big t test individuals Betas (financial ratios) implies that the most energetic ratios in determining inventory returns are Current Rate (CTR), Interest Coverage Ratio (IC) and Profit Margin Ratio (PM) with a significant level of 00%, 99% and 95% respectively. To check on signs and symptoms of the beta coefficient, the dependent changing (stock return) was regressed on each from the independent variables (financial ratios) and the indications of the producing betas were checked against that of the original equation.

You will find three proportions which are Current Ratio, Receivable Turnover and Return upon Assets that had several signs from the original regression equation The positive coefficient approximated for Current Ratio with stock earnings is not expected since conservative guidelines that tend to keep current asset greater than current responsibility have manage risk and also have reduce expected go back than the intense policies. So we determine that realistic investors put more confidence in low risky stocks and look forward for stable stocks more than temporary lucrative stocks.

On the other hand, Receivable Turnover ratio and Return on Assets rate are totally insignificant as show in table (3), so there exists nothing important to explain their different signs through the original conjecture. Table (4) Step-wise Regression of the Relationship between Monetary Ratios and Stock Results Independent variables R? BetaT testSig. Capital t ChangeAccumulation 1- Current percentage 0. 194050. 194050. 7302745. 2990. 0000* 2- Curiosity coverage proportion 0. 121330. 315380. 7161115. 2420. 0000* 3 Revenue margin proportion 0. 072850. 388230. 4597934. 1170. 0001* Multiple 3rd there’s r = 0. 62308F= doze. 69213

3rd there’s r square sama dengan 0. 38823 * Significant at the 1% level ** Significant at the 5% level In the next stage, we utilize the step-wise regression to reach a final model that contains the significant informative variables and provide better justification for the partnership. Consistent with the basic regression models, the step-wise results confirm the above mentioned conclusions as Current Ratio (CRT) is the most significant variable with the 99% and explained regarding 19% of the variance in the yearly come back of pharmaceutical sector with R sq about 19%, while 3rd there’s r square intended for the version is about 39%.

Interest insurance coverage ratio in addition has explained regarding 12% of the variance in the yearly come back of pharmaceutical drug sector. Curiosity coverage rate is regarded as a measure of a company’s attractiveness to a lender, because it reveals how much cash flow there is to cover interest payments in outstanding personal debt. Profit perimeter ratio described about seven percent of the difference in the annually return of pharmaceutical sector with R square seven percent.

From results we deduce that rational investors and stockholders are searching for strength and stability initial then success when analyzing a pharmaceutical stock organization. Table (5) Stepwise Multiple regression research for the great predictors Organization R? BetaT testSig. Big t ChangeAccumulation 1- Memphis0. 466240. 466240. 73001412. 4530. 0000* 2- Cairo0. 213940. 680180. 6092937. 6880. 0000* 3- Alexandria0. 094360. 77454-0. 521862-4. 6470. 0001* Multiple L = 0. 88006F= 23. 73573 L square = 0. 77454 * Significant at the 1% level ** Significant in the 5% level

Stepwise multiple regression version yielded a reduced equation containing only 3 companies (independent variables) outlining about 77% of the variance in the every year return of pharmaceutical sector as a based mostly variable: the analysis produced three great predictors since demonstrated for table (5), the outcomes proved that Beta benefit of Memphis Pharmaceutical and Chemical Industrial sectors was zero. 73 and it is significant at 99% level. Additionally , Memphis Company only explained regarding 47% with the variance in the yearly return of the pharmaceutical sector.

The 2nd good predictor is Cairo Pharmaceutical and Chemical Sectors while its Beta value was 0. 60 and it is significant at 00% level. Cairo Company alone explained about 21% and together with Memphis Company discussed about 68% of the variance in the every year return of the pharmaceutical sector. The third and last predictor is Alexandria Pharmaceutical and Chemical Companies with a Beta value of -0. 52 and significant at 00% level. Alexandria Company discussed alone regarding 9% with the variance inside the yearly return. 5. a couple of Summary and Conclusion

The relationship between economical ratios and stock earnings has been a well-liked issue in the spot of accounting and fund for a long time, thus we discovered that it is a good issue to talk about on the Egyptian stock market. Below, an research is performed to show the worthiness relevance in the financial proportions and their usefulness in protection valuation in the Egyptian pharmaceutical drug sector. Inside our research, all of us use step-wise multiple regressions between monetary ratios and stock returns, also among pharmaceutical companies’ returns and pharmaceutical sector returns.

The results from applying step-wise and multi regression indicate that Current Percentage (CTR), Curiosity Coverage Ratio (IC) and Profit Perimeter Ratio (PM) respectively, would be the most relevant proportions in determining stock comes back. Additionally , Memphis Pharmaceutical and Chemical Companies is the most relevant company in explaining the variance in the pharmaceutical sector return overall. Finally, apparently Current Rate (CTR), Fascination Coverage Percentage (IC) and Profit Perimeter Ratio (PM) play a significant role in formulating expenditure decisions inside the Egyptian wall street game (specifically, Pharmaceutic sector).

Egyptian rational investors put more confidence in low high-risk stocks and appearance forward to get stable stocks and shares more than the temporary profitable stocks and shares. 5. several Further Analysis The study was conducted in Egyptian pharmaceutical sector and taken every pharmaceutical corporations (11 companies) that have been offered in Egypt stock exchange, covered the period from 1996 to 2001. Replicating the study upon other areas in Egypt such as (Agriculture, Food , Beverages, Development, Banks¦) by different occasions could be very helpful. The study could possibly be also replicated on the valuable Egyptian market indices such as (Case 40, IFCG, MSCI, EFG Hermes).

These studies could help in determining even more clearly the relationship between monetary ratios while independent factors and stock returns because dependent varying. CHAPTER VI REFRENCES Barber, B., Lyon, J., and Tsai, C., (1999), “Improved Methods for Assessments of Long-Run Abnormal Share Returns”, Record of Finance, 54 (1), 165-201. Baraber, B., and Lyon, L., (1997), “Detecting Long-Run Abnormal Stock Comes back: The Empirical Power and Specification of Test Statistics”, Journal of economic Economics, 43 (3), 41-72. Brav, A., and Gompers, P., (1997), “Myth or Reality?

The Long-Run Underperformance of Preliminary Public Offerings: Evidence coming from Venture Capital and non-Venture Capital-Backed Companies”, Journal of Fund, 52 (5). Capital Legislation 95/1992, “Intermediation Companies, (CMA. gov. eg), Available: http//www. cma. gov. eg /En-nf/index4. html, (Accessed: 2003, January 20). CASE, (2002), “What’s New, (Egyptse. com), Offered: http://www. egyptse. com, (Accessed: 2003, Feb . 7). Central Bank of Egypt (2002), “Proceeds of commodity Exports and Imports by level of processing, (CBE. org. eg), Available: http//www. cbe. org. g, (Accessed: 2003, March 9). Charles, P. J., (2002), “Investments Analysis and Management, 7th edition, John Wiley , Sons Inc., NY: Third Avenue. David, I., and Pitman, (2001) “Foundation intended for SME Advancement: Key Economical Ratios Obtainable: www. yahoo. com, (Financial Ratios). EgyptWatch, (2002), “Egypt Stock Market, (Egyptwatch. com), Available: http://www. egyptwatch. com/en/Finance/Indicators/stock. doc (Accessed: 2003, February 16). Eugene F. W., and Joel H. H., (1998), “Fundamentals of financial management, eightth model, The Dryden Press. Field, M. (1995), “The Slow Road to Privatization”, Euromoney, Middle East Markets Dietary supplement, November few. Foster, G. (1974). “Financial statements Evaluation: A New Approach, Englewood Coves, NJ: Prentice Hall. Gibson, C. L. (1982a), “How Industry Interprets Financial Ratios, Management Accounting. April, g. 13-19 Gibson, C. L. (1982b), “Financial Ratios in Annual Reports, The CPA (CERTIFIED PUBLIC ACCOUNTANT) Journal, September, p. 18-29 Holthausen, Ur. W., and Larcker, D. F., (1992), “The conjecture of stock return applying financial statement information,  Journal of Accounting and Economics, Vol. 15, g. 373-412. David M. R. and Jeanne Y. H. (1998), “The power of cash flow ratio, Diary of Accountancy, October, g. 53-55, 56-58, 60-61. Khatab, M., (2002), “Minister’s Message, Available: www. mpe-Egypt. gov. eg Kompass Egypt Financial Yearbook (2002 ” 2003), Pharmaceutical , Health Care, Printed by Fiani , Associates, Cairo, Egypt. Kothari, H., and Warner, J., (1997), “Measuring Long-Run Horizon Security Price Performance”, Journal of Financial Economics, 43 (3), 30-40. Lev, N., and Thiagarajan, S., (1993), “Fundamental Details Analysis,  Journal of Accounting Analysis. Autumn, p. 190-250. McKinney, B. M. (1996), “Recent Development in Egyptian Expense Policies and Programs, and Pending Change Legislation” Middle section East Exec Reports, 19 (7), 9-12. Mendenhall, T., and Sincich, T., (1996), “A Second Course in Statistics Regression Analysis, 6th edition, Prentice Hall. Mishkin, F. H. (2001), “The Economics pounds, banking, and financial markets, Sixth Model, Adison Wisely, Boston. MohieEldin, M. and Sourial, M. S., Institutional Aspects, Distributional Characteristics and Efficiency of Egyptian Securities Market, in Arab Share Markets: New Trends and satisfaction, edited simply by Riad Dahel, (Cairo: AUC Press, 2000), 1-44.

Et, J., Penman, S. 1989. “Financial declaration analysis as well as the prediction of stock comes back,  Log of Accounting and Economics, Vol. 11, p. 295-330. Peter S. R., (1999), “Commercial financial institution management, 4th edition, McGraw-Hill Companies, NEW YORK: Avenue with the Americas. Riahi-Belkaoui, A. (1997). “Value relevance of well-known financial percentages,  Developments in Quantitative Analysis of Finance and Accounting, Volume. 5, pp. 193-201. Ross, Westerfield, and Jaffe, (2002) “Corporate Finance, Sixth edition, McGraw-Hill Corporations, NY: Method of the Americas. The Capital Industry Authority, (2002), “CMA Public Information Center, (CMA. ov. eg), Available: http://www. cma. gov. eg/En-nf/index5. html code (Accessed: the year 2003, January 20). The Drug Policy and Planning Centre, (2002), Pharmaceutic Industry Statistics, (DPPC. gov. eg), (Accessed: 2003, February 10) The Egyptian Ministry of Open public Enterprise Sector, (2001), Privatization Program functionality from the start to February 2001, (Cairo: MPES), http://www. mpe-egypt. gov. eg/privatize. asp#methods. (Accessed: 2003, Feb . 16) What the law states No . 82 for season (2002), “Trade-Related Aspects of Mental Property Rights (TRIPS), Drug-store and Treatments, March 2003, Vol. twenty-four, p. 44-55 Timo S., Ilkka Sixth is v., Paavo Sumado a.

O. (1990), “On the Classification of Financial Ratios, released on the Word Wide Web as http://www. uwasa. fi/~ts/sera/sera. html Walsh, F. M. (1986), “The Relative Details Content of Accruals and Cash Runs: Combined Proof at the Income Announcement and Annual Report Release Date Journal of Accounting Analysis, p. 165-200 CHAPTER VII APPENDIX (A) Financial Ratios Financial ratios are very essential for new investors who would like to buy the firm and also for stockholders who are the investors from the firm mainly because financial percentages give them a number of indicators which they can assess the firm with. 1) Profitability Ratios The main goal of these ratios is always to help all of us to judge great the firm’s profit overall performance. Profitability percentages refer to the capacity of a organization to generate earnings in excess of bills. 1 . one particular Earnings per Share The portion of a company’s income allocated to every single outstanding talk about of a company’s common stock. Earnings per share is simply a fundamental measure of profitability that shows just how much profit was generated over a per-share-of-stock basis. EPS will not reveal a great deal.

Its true value is based on comparing EPS figures throughout several sectors, or years, to judge the growth of a business earnings over a per-share basis. David Irwin (2001) Consequently , studying refers to a positive romance between EPS and stock market return. To calculate EPS, start with net income (earnings) pertaining to the period in question, subtract the entire value of any preferred stock dividends and then split the producing figure by the number of stocks outstanding during that period. Or: Net income / Number of stocks outstanding 1 . 2 Return on Fairness

ROE is known as a fundamental indication of a company’s ability to boost its profits per share and thus the standard of its share, because it reveals how very well a company can be using its funds to generate added earnings. ROE allows shareholders to compare a provider’s use of all their equity to investments, and compare the performance of companies inside the same market. ROE could also help to examine trends in a business. Businesses that make high comes back on fairness are businesses that pay off their investors handsomely and create considerable assets for each and every dollar spent as mentioned by simply Peter T. 1999). To calculate ROE, divide the internet income displayed on the cash flow statement by simply shareholders’ fairness, which looks on the “balance sheet”: Net income / owners’ collateral 1 . a few Return in Assets A Company’s earnings expressed being a percentage of its total assets. Return on assets measures how effectively a company has used the entire assets in its disposal to generate earnings. Since the ROA solution reflects total revenue, total cost, and assets used, the rate itself demonstrates a management’s ability to earn cash during the course of specific period, usually a year.

Ross (2002) Naturally, the higher the return the better the profit performance. ROA is a easy way of comparing a industry’s performance with this of their competitors. ROA should have an optimistic relationship while using stock market returning. To calculate ROA, divide a industry’s net income by simply its total assets, after that multiply by 100 to show the number as a percentage: Net income / total assets 1 . four Profit Perimeter Profit Margin is a industry’s net profit or loss as a percentage of total sales for the given period, typically a year.

This ratio shows how efficiently supervision uses the sales earnings, thus showing its capacity to manage costs and cost to do business and run efficiently. It also indicates a firm’s capacity to withstand negative conditions such as falling rates, rising costs, or suffering sales. Ross (2002) The larger the figure, the better a company will be able to endure selling price wars and falling rates. Investors are likely to prefer a larger percentage of profit margins, which considered as an indication of the positive romantic relationship between income margin and stock market go back. The calculations is very standard: Net profit / total sales (2) Liquidity Percentages

These are percentages that gauge the liquidity with the firm. Organizations have to ensure that they have the liquidity instructed to meet all of their commitments. Towards the extent a good has enough cash flow, will probably be able to steer clear of defaulting about its bills and, therefore avoid suffering from financial relax. 2 . one particular Current Percentage Current proportion is the provider’s liquidity and its ability to satisfy its immediate debt responsibilities. By assessing a industry’s current assets with its current liabilities, the present ratio demonstrates its ability to pay their upcoming expenses in the improbable event of all creditors requiring payment simultaneously.

Current liabilities are debt that are thanks within twelve months from the time of the balance sheet as mentioned by Charles L. (2002). The standard source from where to shell out these debts is a current asset. Given that firms are searching for no dangers by raising current property, profitability will probably be getting shrunk. So that current ratio should have a negative romantic relationship with wall street game return. Working capital is also named net current assets or perhaps current capital, and is expressed as: Current assets as well as Current financial obligations 2 . a couple of Quick Percentage

How quickly a company’s possessions can be changed into cash, which explains why assessment of your company’s liquidity also is referred to as quick proportion, or simply the amount of acid ratio. Regardless of how this rate is branded, it is regarded as a highly reliable indicator of any company’s economical strength as well as its ability to satisfy its short-term obligations. Since inventory can sometimes be difficult to liquidate, the quick-test ratio deducts inventory by current assets before they can be compared with current liabilities-which is what distinguishes it from the current ratio.

Potential creditors like to use the quick-test ratio since it reveals what sort of company could fare if it had to pay off its expenses under the most severe possible circumstances. Indeed, the assumption at the rear of the quick-test ratio is that creditors are howling at the door requiring immediate payment, and that a great enterprise does not have time to sell off its inventory, or any of it is stock. This ratio must have also unfavorable relationship such as the current proportion with currency markets return. The quick-test can be computed simply by subtracting stocks from current assets and dividing the by current liabilities: (Current assets , Inventory) as well as Current liabilities. 3 Working Cash Flow Rate Traditional working capital ratios suggest how much cash the business had on a single day in the past. Income ratio, alternatively, tests what kind of money was produced over a period of as well as compare that to near-term obligations since published by simply John 3rd there’s r. and Jeanne H. (1998). This rate should improve the investors’ confidence toward the firm, therefore it ought to be positively related with stock market come back. The numerator of the OCF ratio contains net cash provided by working activities.

This is the net physique provided by the amount flow affirmation after considering adjustments intended for noncash products and changes in working capital. The denominator is current liabilities, taken from the balance sheet: Earnings from procedures / Current liabilities (3) Leverage Percentages 3. you Debt-to-Equity Proportion How much money a company owes compared to how much money it has invested in it by main owners and shareholders. The debt-to-equity percentage reveals the proportion of debt and equity a business using to fund its business. It also procedures a company’s borrowing capability.

The higher the ratio, the higher the proportion of debts but also the greater the chance. Mishkin (2001) describes the debt-to-equity rate as “a great financial test of long-term corporate health, since debt determines a dedication to repay cash throughout a time frame, even though there is not any assurance that sufficient funds will be made to meet that commitment. Credit card companies and loan providers, understandably, count heavily for the ratio to judge borrowers. As long as this proportion is considered to be low, investors’ confidence will be elevated which adversely related with the stock efficiency.

The debt-to-equity ratio is calculated simply by dividing debt by owners’ equity, exactly where equity is usually, typically, the figure stated for the preceding calendar or monetary year. Financial debt, however , could be defined possibly as long-term debt only, or while total liabilities, which includes the two long- and short-term debts. The most common formulation for the ratio can be: Long term liabilities / owners’ equity (4) Coverage Percentages 4. one particular Interest Coverage The amount of income available to generate interest payments in the end operating and nonoperating cash flow and expenses”except interest and income taxes”have been made up.

Interest coverage is regarded as a measure of a company’s creditworthiness because it reveals how much profits there is to protect interest payments upon outstanding debts. Banks and financial experts also rely on this rate as a rule of thumb to gauge the basic strength of the business since argued Eugene F. , Joel L. (1998). Shareholders also count on this proportion to examine the strength of a business’s financial statement while this kind of ratio should have a positive romantic relationship with currency markets return.

Interest coverage is definitely expressed being a ratio, and reflects a company’s capability to pay the eye obligations on its personal debt. It examines the funds available to spend interest”earnings before interest and taxes, or perhaps EBIT”with the interest expense. The standard formula is definitely: EBIT / interest expense (5) Productivity Ratios Proportions of proceeds are created to measure how successfully the business assets are being been able. 5. you Asset Proceeds The amount of revenue generated for every pound’s really worth of assets over a offered period. Advantage turnover measures how well a company is definitely leveraging their assets to create revenue.

A well-managed producer, for example , will make its herb and gear work hard to get the business simply by minimizing nonproductive time for machines. The higher the amount the better-within reason. Generally speaking of thumb, companies with low profit margins tend to have substantial asset proceeds, those with excessive profit margins have low asset turnover. This kind of ratio also can show just how capital intense a business can be. Some businesses-software developers, to get example-can make tremendous sales per money of property because estate assets are modest.

At the opposite end of the scale, heavy market manufacturers desire a huge asset base to build sales while refered by Eugene Farreneheit. , Joel H. (1998). As long as the rose and products work hard and sales will be increasing that might be an indication of a good sign. Consequently, this kind of ratio could be a positively related to stock market come back. Asset turnover’s basic solution is simply revenue divided by simply assets: Sales revenue / Total assets 5. 2 Accounts Receivable Turnover This kind of ratio explains the number of times in every accounting period, typically a year that a firm converts credit rating sales in cash.

A top turnover number is attractive, because it implies that a organization collects income effectively, and this its customers pay bills quickly. A high physique also shows that a firm’s credit and collection policies are audio. In addition , the measurement is a reasonably good signal of cash circulation, and of overall operating efficiency as consequently by Mishkin (2001). This kind of ratio really should have a positive romance with share return. The formula to get accounts receivable turnover is straightforward. Simply separate the average amount of receivables into gross annual credit product sales: Sales as well as Account Receivables (B) Record Results