Monthly prices have been used to compare MCB Bank and HBL. The prices from October to 2007 to December 2008 are used for this analysis because the HBL was listed in the Karachi Stock Exchange in late September 2007. This does not hamper the analysis because ratios are also used to predict future performance as they are to measure past and current performance. As a rule, to maintain uniformity, the prices used are of the 15th of every month, i.e. January 15, February 15 and so on. It is understood that if the impact of ratio analysis is high on investors’ decision, then stock price should be moving accordingly in the same direction or vice versa.
The price trend graph above clearly shows that prices move in a similar pattern for both MCB and HBL. This is in line with the ratio analysis for positive price movements in the year 2007 however in the year 2008 the stock prices are declining which is also supported with the declining ratios for both banks. However, the change in the ratio analysis is not sufficiently supporting the dip in stock prices in the second half of 2008. This is based more on the political instability in the country and the overall sentiments in the capital markets because of the slowdown in the global economy. The ratio analysis conducted in the current research clearly shows that MCB has positive and superior ratios than HBL and stock prices are reflecting that difference as well. Keeping in view the hypothesis of the current research the prices should reflect results from ratio analysis however it does not seem to be the case and it is therefore concluded that ratio analysis is only a part of the analysis and further investigation into other issues pertaining to the entire market or industry should be incorporated in the analysis to base financial decisions.
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