Does the sales-to-price ratio possess more explanatory power in determining percentage share returns for JSE data compared to previously assessed variables?

Russell, Palmira Farinha (2004-12)

Thesis (MBA)--Stellenbosch University, 2004.

Thesis

ENGLISH ABSTRACT: A number of financial variables have received extensive attention from those analysts determined to obtain that significant set of variables that improve their forecasts of expected returns. Barbee. Mukherji and Raines (1996: 56-60) suggested that the focus shift to the sales-to-price (S/P) ratio. Their findings indicated that the S/P ratio exhibited greater explanatory power in assessing share returns on Standard and Poars (S&P) American data compared to those variables already in the spot light. This study focuses on a seventeen-year period extending from 1985 to 2002, and includes a sample of industrial sector JSE-listed companies. The set of variables assessed are referred to as the "explanatory variables" and include the following: • Debt-to-equity (D/E) ratio, • Book-to-market value (B/M) ratio, • Market value of equity (MVE) variable; and • Sales-to-price (S/P) ratio. Correlation tests and regression analyses on permutations of these explanatory variables against percentage share return data revealed the MVE variable to possess the dominant relationship with percentage share returns. All models were shown (through inference) to exhibit some validity, with the exception of that model which excluded the MVE variable as an independent variable. The coefficient of the B/M ratio becomes significant when combined with the MVE variable in a regression analysis, accounting for most of the explanatory power of the model. Results from this study were compared with those in Barbee, et al., (1996), Fricker (1996) and Mouton (1998). The comparison revealed that Barbee, et al., (1996) is the only study (of the authors considered) with sufficient evidence to infer significance in the S/P ratio as a more powerful explanatory variable for determining share returns. This study has therefore shown no support for the S/P ratio as an explanatory power in determining percentage share returns, based on JSE data. The MVE variable was instead shown to have the greatest explanatory power, specifically when combined with the BlM ratio.

AFRIKAANSE OPSOMMING: 'n Aantal finansiele veranderlikes het aansienlike aandag van die analiste gekry ten einde 'n betekenisvolle stel van veranderlikes daar te stel wat help om hul vooruitskattings van opbrengste te verbeter. Barbee, Mukherji and Raines (1996: 56-60) het voorgestel dat die fokus verskuif na die verkope tot prys (S/P) verhouding. Hul het bevind dat die S/P verhouding groter verduidelikingsvermoe het by die beoordeling van aandeel opbrengste op Standard en Poors (S&P) se Amerikaanse data as daardie veranderlikes wat reeds onder die soeklig was. Die studie fokus op 'n sewentienjaar-periode van 1985 tot 2002, en dek 'n monster van genoteerde industriele aandele op die Johannesburg se Effektebeurs. Hierdie stel veranderlikes word na verwys as die "verduidelikende veranderlikes" en sluit in: • Skuld tot aandeelhouersfondse (D/E) verhoudings, • Boek tot markwaarde (B/M) verhouding, • Markwaarde van aandeelhouersbelang (MVE) veranderlike, en • Verkope tot prys (S/P) verhouding. Korrelasietoetse en regressie-analises op permutasies van hierdie verduidelikende veranderlikes teenoor persentasie aandeel opbrengste het aangetoon dat die MVE die dominante veranderlike met die persentasie aandeel opbrengste getoon het. Alle modelle (deur gevolgtrekking) het 'n mate van betekenisvolheid openbaar, behalwe die model wat die MVE veranderlike as onafhanklike veranderlike uitgesluit het. Die koeffisient van die B/M verhouding het betekenisvol geword toe dit met die MVE-veranderlike in 'n regressie-analise gekombineer is, en wat dan die grootste gedeelte van die verduidelikingswaarde van die model verklaar. Die resultate van die studie is vergelyk met die van Barbee, et aI., (1996), Fricker (1996) en Mouton (1998). Die vergelyking het aangedui dat Barbee, et al., (1996) die enigste studie is (van die skrywers ondersoek) wat genoegsame getuienis verkry het om die belangrikheid van die S/P verhouding as 'n sterk veranderlike vir die aandeel opbrengste te verklaar. Hierdie studie kon dus geen ondersteuning vind dat die S/P verhouding as 'n verduidelikende veranderlike by die vasstelling van persentasie-opbrengste op die JSE data gebruik kan word nie. Daarenteen het die MVE-veranderlike die grootste voorspellingswaarde gehad, veral as dit gekombineer is met die B/M verhouding.

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