Abstract
The accounting ratios and published financial information serve as a critical tool for investors, creditors, and other stakeholders to ascertain companies' profitability, control, and financial status, which may significantly impact the Stock returns and performance on exchanges. This paper aims to examine whether crucial accounting information affects the price of paint companies in India. In this paper, nine-years (2012-2020) accounting ratios such as returns on asset, equity, and cash cycles for the five listed paint companies in India as explanatory (independent) variables to estimate stock returns. Secondary data is collected chronologically and at a regular yearly frequency. Variables data are derived from the company’s financial statements, Stock Exchange and related website. The study aims to assess and elaborate these accounting ratios effectiveness to substantiate the stock returns of these listed companies. The study uses three-panel data models, the pooled OLS, fixed and random effects, to assess stock returns for the cross-sectional data of these five paint companies. This research indicates that accounting information is significant and positively affects the price of Paint company stock returns on the stock exchange. Both Fixed and Random effect model found to fit the data, significance level of 0.05 (Fixed (FE) at F= 6.3625, p<0.000 and R2 of 0.5462, i.e., fixed effect elaborates for about 55% of the return variance. Random effect at F=10.8647 and p<0.000 and R2 of 0.4429, i.e., elaborates for about 44% of stock return variance. Based on the Hausman data test alternative hypothesis is found to be consistent and therefore Random Effect (RE) model is being used to conclude the findings. The paper's fundamental limitation includes use of limited regressors, companies, and time period. A further qualitative analysis together with other accounting performance indicators as regressors may be included in future studies. These ratios include interest coverage, debt ratios, effective tax rates, asset turnover ratios, dividend distribution ratios, sustainable growth, and top line revenue growth.
Highlights
The domestic Indian paint industry consisting of both decorative and industrial paint categories is estimated at ₹50K Crores
This paper aims to assess the capability of Return on Assets (ROA), Return on Equity (ROE), and Cash Conversion cycle-related information to explain the stock returns and aids the process of equity valuation only and no part of the study should be construed as investment advice or investment recommendation
A 1 unit increase in ROA results in decrease in stock return of 0.0130, indicating further analysis is required by including other independet variables
Summary
The domestic Indian paint industry consisting of both decorative (examples include interior wall, wood finish, premiers, and putti) and industrial paint (examples include automotive, marine, and packaging floor) categories is estimated at ₹50K Crores. Accounting measures often provide and utilized for predictive purposes, either indirectly or It is evident from the research reviewed and practical illustration of industry reports that they are believed to be strong measures of the company's financial and market results and characteristics and that they can be used to estimate potential performance and features [7]–[9]. Nine-years (20122020) accounting ratios such as returns on asset, equity, and cash cycles for the five listed paint companies in India as explanatory (independent) variables to estimate stock returns. CC takes into consideration three elements, i.e., outstanding payable, sales exceptional, and inventory i.e., outstanding inventory day, plus, outstanding sales day, minus, payable day outstanding This ratio indicates the company’s efficiency in managing its working capital on a business as usual basis. The shorter the cycle, the company is more efficient at selling stocks and realizing receivables
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