Relationship between Firm’s Financial Performance and Stock Returns: Evidence from Oil and Gas Sector Pakistan

Abstract

This work analyzes the extent to which determinants like net profit margin, return on assets and return on equity influence stock returns with reference to Oil and Gas sector of Pakistan. Five years’ secondary panel data from 10 companies has been used from 2010 to 2014. Unit root test, correlation analysis and OLS have been used to estimate the model under study. The findings revealed the data for all variables to be stationary. Also the variables are found to be strongly correlated. However, the variables net profit margin and return on assets have low yet negative influence on stock returns whereas return on equity has small but positive influence over it. The limitations include time constraints as well as difficulty to find data. The benefit of this work is that the data is recent which makes the results also recent and generally applicable. This will help future theorists and will pave way for more works in this field of study.

Keywords: Financial performance indicators, of stock returns, net profit margin, return on assets, return on equity