Financial ratios and stock market prices Of quoted deposit money banks in Nigeria

ABSTRACT

This study examined the influence of financial ratios on stock market prices of banks in Nigeria; specifically, the study aims at (i) determining the extent to which Return on Assets affects stock prices of quoted deposit money banks in Nigeria (ii) examining the predictive power of Cash Deposit Ratio on stock prices of quoted deposit money banks in Nigeria (iii) investigate if Debts to Total Assets Ratio influences the stock prices of quoted deposit money banks in Nigeria (iv) find out the effect of Net Asset Per Share on stock prices of quoted deposit money banks in Nigeria (v) evaluate the relationship between Earnings per Share and stock prices of quoted deposit money banks in Nigeria. The study adopted the ex-post-facto research design and data covering 7-year period 2009-2015 were collated from annual reports of banks and the Nigeria Stock Exchange daily official list. Panel multiple regression was used to estimate the relationship between these financial ratios and stock prices. Stock prices were adopted as the dependent variable, while the independent variables included Return on Asset (ROA), Cash Deposit Ratio (CDR), Debts to Total Asset Ratio (DTAR), Net Assets Per Share (NAPS) and Earnings Per Share (EPS). The result emanating from this study revealed the following: (i) returns on assets had about 47% correlation with stock price, suggesting a positive but statistically insignificant association with stock prices of selected banks in Nigeria (ii) cash deposit ratio showed a negative and significant association with stock price with a beta coefficient of -0.8531 (iii) debt to assets ratio showed a negative effect on stock prices and this association fails to be statistically significant at 5%. The beta coefficient was -0.7294 (iv) The relationship between net asset per share with stock prices negative coefficient of -0.0137. The result was not statistically significant at 5% level of significance (v) Earnings per share (EPS) was found to have a significant and positive association with stock prices of money deposit banks and the statistical significance is within the acceptable bound of 5%. The beta coefficient of EPS was 0.1170. The study therefore recommends among others that financial analysts and prospective investors should rely on earnings per share and cash deposit ratios in predicting the behavior of stock prices in Nigerian banks, and that government, policy makers, accounting standards setters and the monitoring authorities should require listed firms to disclose accurate, relevant and sufficient information in their financial statements, as these information affect stock price movements, and are guides to financial analysts and prospective investors in making rational investment decisions.