The Influence of Profitability Ratios and Company Size on Profitability and Investment Risk in the Capital Market

• Authors: Anna Rutkowska-Ziarko
• Languages of publication: EN

Abstracts

EN

A study was conducted of 15 food companies listed on the Warsaw Stock Exchange. The profitability of companies was measured by: return on assets (ROA), return on equity (ROE) and return on sales (ROS). Investment risk was measured by standard deviation and semi-deviation. The main objective of the study was to examine whether the average level and variability of selected indicators of profitability are reflected in the average level and the variability of returns on the capital market. An additional aim was to examine whether the size of the company affects the profitability and risk of investment in stocks as well as the average value and the volatility of profitability ratios. A positive correlation between the average value of the profitability ratios (ROA and ROS) and the average rates of return on the capital market was identified. Similarly, companies with higher volatility and semi-volatility of profitability ratios were simultaneously characterized by larger fluctuations in rates of return on the stock market. Studies have shown that the size of the company is negatively correlated with the risk of stock market investments and the volatility of profitability ratios.

Keywords

EN

profitability ratios; ROA; ROE; ROS; market value; risk; semi-variance; profitability of investment; risk free rate

• Publisher: Sciendo
• Journal: Folia Oeconomica Stetinensia
• Year: 2015
• Volume: 15
• Issue: 1
• Pages: 151-161

Dates

published

2015-06-01

received

2014-10-28

accepted

2015-06-30

online

2015-12-30

Contributors

author

Anna Rutkowska-Ziarko

• University of Warmia and Mazury in Olsztyn Faculty of Economics, Department of Quantitative Methods Michała Oczapowskiego 2, 10-719 Olsztyn, Poland

References

• Ahsan, M. (2013). Can ROE be used to predict portfolio performance? Journal of Academic Research in Economics, 5 (1): 5-20.
• Banz, R.W. (1981). The relationship between return and market value of common stocks. Journal of Financial Economics, 9: 3-18.[Crossref]
• Czapkiewicz, A. & Skalna, I. (2011). Użyteczność stosowania modelu Famy i Frencha w okresach hossy i bessy na rynku akcji GPW w Warszawie. Bank i Kredyt, 42 (3): 61-80.
• Gabrusiewicz, W. (2014). Analiza finansowa przedsiębiorstwa. Teoria i zastosowanie. Warszawa: PWE.
• Markowitz, H. (1959). Portfolio selection: efficient diversification of investments. New York. John Wiley and Sons.
• Jaba, E., Mironiuc, M., Roman, M., Robu, I. & Robu, M. (2013). The Statistical Assessment of an Emerging Capital Market Using the Panel Data Analysis of the Financial Information. Economic Computation and Economic Cybernetics Studies and Research, 47 (2): 21-36.
• Maskun, A. (2012). The effect of current ratio, return on equity, return on asset, earning per share to the price of stock of go-public food and beverages Company in Indonesian Stock Exchange. International Journal of Academic Research Part B, 4 (6): 134-138.
• Reinganum, M.R. (1981). Abnormal Returns in Small Firm Portfolio. Financial Analyst Journal, 37 (2): 52-56.[Crossref]
• Sekuła, P. (2013). Szacowanie Efektu Wielkości Spółki na GPW w Warszawie. Finanse, Rynki Finansowe, Ubezpieczenia, 60: 105-114.
• Sierpińska, M. & Jachna, T. (2004). Ocena przedsiębiorstw według standardów światowych. Warszawa: Wydawnictwo Naukowe PWN.
• Stancu, I. & Stancu, A. (2014). Revisiting multifactor models on the Bucharest Stock Exchange, Economic Computation & Economic Cybernetics Studies & Research, 48 (3): 309-324.
• Tarczyński, W. (2002). Fundamentalny portfel papierów wartościowych. Warszawa: PWE.
• Wawrzyniak, K. & Bartóg, B. (2013). Funkcja diagnostyczno-prognostyczna porządkowych modeli logitowych kwartalnej stopy zwrotu dla spółek sektora budownictwo. Zeszyty Naukowe Uniwersytetu Szczecińskiego nr 768, Finanse, Rynki Finansowe, Ubezpieczenia nr 63. Szczecin: Wydawnictwo Naukowe Uniwersytetu Szczecińskiego (pp. 491-506).
• Zelek, A. (2003). Zarządzanie Kryzysem w przedsiębiorstwie. Perspektywa Strategiczna. Instytut Organizacji i Zarządzania w Przemyśle „ORGMASZ” Warszawa: Instytut Organizacji i Zarządzania w Przemyśle „ORGMASZ”.

Identifiers

DOI

10.1515/foli-2015-0025