Fundamental ratios and stock market performance: evidence from Turkey

Abstract

The fundamental analysis strives to determine the approximate future market value of a firm and an important step in a fundamental analysis is the computation of basic ratios which provide an indication of firms' financial performance in several key areas. The purpose of this study is to investigate the financial performance of Turkish manufacturing companies and the impact of this performance on common stock returns for the three years from 2009 to 2012. The sample consisted of 20 chemical-sector firms quoted to the Borsa Istanbul. For each company seven key financial ratios measuring profitability, liquidity, efficiency and leverage were calculated separately for three years in the analysis. Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) method is applied to rank the firms in the sample according to seven criteria, which are financial ratios. Based upon the rankings two portfolios are constructed: the first is comprised of 10 best performers and the second is comprised of 10 worst performers. The t-test which was conducted on the stock market returns of both portfolios revealed that there was no significant difference between the yearly returns of the two portfolios for any of the three years of this analysis.