| Summary: | This is an empirical based study with the main purpose of examining the existence of any structural
relationship between 9 selected financial ratios (independent variables) and the return on share investment
(dependent variable), by means of a regression model.
3 categories of analysis were identified, namely, Combined, Sector and Year-by-Year. In the
Combined analysis, a total of 551 data points were used in the regression. In the Sector analysis, the 551
data points were sub-classified into the Industrial & Commercial, Property, Finance and Hotel sector. In the
Year-by-Year analysis, the 551 data points were sub-classified into yearly data from 1975 to 1990.
Two regression tests were performed for each of the categories of analysis. They are the t-test and the
F-test. The t-test serves to detect a relationship between a specific financial ratio and the share return whereas
the F-test serves to detect a relationship between financial ratios taken together and the share return.
The results of the tests indicate that there is an absence of a strong relationship between financial
ratios and share return. Some possible explanations for this observation are limitations of Ratio Analysis,
Historical Nature of Financial Information and Importance of Non-Financial Information.
A minor questionnaire survey was also done but the result was inconclusive due to the lack of
response.
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