The Relationship Between Earnings-to-Price, Current Ratio, Profit Margin and Return: An Empirical Analysis on Istanbul Stock Exchange

Abstract

This paper aims to investigate the relationship between current ratio, earnings to price, net profit margin and stock returns in İstanbul Stock Exchange over the period 2008-2016 by employing panel data analysis. Due to the existence of heteroskedasticity, cross sectional dependence and autocorrelation in the sample data, robust estimators are used to estimate two-way fixed effects model is estimated. Both Parks-Kmenta and Beck-Katz methods are conducted to check whether the results are consistent or not. According to Park-Kmenta estimation model, the results show that earnings to price and net profit margin are significant to explain stock returns in İstanbul Stock Exchange while current ratio is found insignificant. Moreover, the test based on Beck-Katz model produces the similar results. Earnings to price and net profit margin are strong determinants of stock returns in Istanbul Stock Exchange. Stocks with higher E/P ratios and profit margins generate higher returns for the next period.

Macroeconomic Factors, Energy Consumption and Firms Performance on Stock Return of Mining and Energy Sector: Evidence From Indonesia

“…But the results of the output test found no evidence of a relationship between the current ratio and stock return. The result of this study confirms previous studies by Öztürk and Karabulut (2018) and Stefano (2015) that stated the current ratio has no significant effect on stock return.…”

“…Companies with liquid shares get more concern from investors on IDX, Even more, IDX has specifically categorized the company's shares in the LQ 45 index. Different result found by Öztürk and Karabulut (2018) and Stefano (2015) that stated CR has no significant on stock return. Dita and Murtaqi (2014) found debt to equity ratio has a positive and significant effect on stock return.…”

Modeling Business Performance and Macroeconomic Factors to Explain Stock Market Returns in LQ45 Indonesia Stock Exchange (IDX)

“…According to Kasmir (2012) and Subramanyam & Wild (2010), financial ratios are the results of comparison of numbers in the company's financial statements to be analyzed in order to get an overview of the conditions and trends of the company. The results of the study of Martani et al (2009) andEstuari (2010) concluded that the Current Ratio did not significantly affect stock returns, this is similar to the results of the Öztürk & Karabulut (2018) study. Meanwhile, Erdogan et al (2015) concluded that Current Ratio has a significant effect on stock returns.…”

“…Meanwhile, Erdogan et al (2015) concluded that Current Ratio has a significant effect on stock returns. The results of Öztürk & Karabulut (2018), Estuari (2010) and Martani et al (2009) concluded that the Debt Equity Ratio had no significant effect on stock returns, while Erdogan et al (2015) concluded that these variables had a significant effect on stock returns. Martani et al (2009) study concluded that Total Asset Turnover had a significant effect on stock returns, which contradicts the results of research by Muhayatsyah (2012) and Asmi (2014) which stated that Total Asset Turnover did not significantly influence stock returns.…”

Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis

“…Earlier literature found that the inverse relationship between these dimensions was commonly observed by WCM and the gross benefit association (Karim et al, 2017;Samiloglu and Akgün, 2016;Chowdhury et al, 2018). Research findings show a negative and essential profitability effect of the debt-equity ratio (Chandra et al, 2016;Öztürk and Karabulut, 2018;Putri and Nasution, 2018). Companies' age and size influence the company's overall profitability (Goel and Sharma, 2015;Moussa, 2018).…”