Topic > Influence of Return on Assets ROA Ratio - 1302

Stocks are one of the greatest tools ever invented to create wealth. But parallel to the possibility of earning, there is a great possibility of losing. The only thing that can protect us from loss is knowledge of stock price movements. Unfortunately, there is no clear equation that can tell us exactly how the stock price will behave, but we can try to find some factors that cause stock prices to rise or fall. If we take a look at stock prices, we can see that for large and famous companies stock prices are very high, for small companies they are much lower. This means that one of the factors that determine stock prices is the financial position of the company. We assume that analyzing data from the company's annual report can help us better understand the connection between the company's financial position and the change in its stock price. In this article we will compare the change in Return on Assets (ROA) ratio and stock prices. Problem Formulation In the analysis part of the project we will try to answer the following two questions: What is the connection between ROA and stock prices? How can changing ROA affect stock prices? Concepts and definitions Shares represent a right (dividends) to a part of the company's profits. Stock price is the price of a single share of a company. They change every day due to market forces. By this we mean that stock prices change due to supply and demand. If more people want to buy a stock than sell it, the price will rise. Conversely, if more people wanted to sell a stock than buy it, the price would fall. Financial statements are formal records of a company's financial activities. These statements provide an overview of a company's financial condition in both the short and long term. “The objective of financial statements is to provide information about the financial strength, performance, and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.” Financial ratios are ratios of selected values in a company's balance sheet. They are useful for comparing and investing in relationships between different financial information. The use of ratios eliminates the problem of dimensions because the dimensions are actually divided financial leverage, turnover ratios, profitability ratios and market value ratios..