Financial Variables Having Significant Impact on Market Price of Shares

Abstract

The purpose of investment by investors in the capital market is to seek profit either in the form of dividend or capital gain and increase wealth. Therefore, before making an investment, it is imperative to the investors to familiarize with the company's fundamental status and performance variables that guide their maximum economic welfare. But on which variable(s) the investors should rely on? Taking this matter into account, the study attempts to identify the variables that have significant influence on shares price in the capital market, to guide investors in selecting the right option to invest, by taking Reneta Pharmaceuticals Limited (RPL), Bangladesh as a case, for the periods 2004 to 2011. Using correlation coefficient, coefficient of determination and testing the formulated hypotheses through student’s ‘t’ test, the study reveals that cash flow per share, price-earnings ratio and return on assets have significant impact on price of shares and are the best metrics to explain price movements in capital market and suggest investors to use these in predicting future changes and taking investment decision thereafter.

Keywords: share price, return on assets, price-earnings ratio, cash flow per share, capital market.