A Study on Speculations of Equity Share Price for Long-Term Investments Considering the Effect of Balance Sheet through the Application of Multiple Regressions

Abstract

The financial position of a firm as disclosed by the balance sheet refers to its resources and obligations, and the interest of its owners in the business and share capital refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value. Equity capital represents investments that financial market participants make in a company. The initial offering of stocks and bonds to investors is offered in the primary market and subsequent trading is done in the secondary market. The investors in the stock market speculate the share prices both in the short- and long-term which are assumption of risk in anticipation of gain but recognising a higher than average possibility of loss. There are so many factors both conventional and unconventional which affect the stock market. This study tries to give a direction to the speculation, implying that a business or investment risk can be analysed and measured. A multiple-correlation-regression model was tried to be developed for predicting share prices for long-run investment and to understand the share-price fluctuation behaviour in a stock exchange. This research tried to establish a relationship and significant importance among the balance sheet components with the share prices of a limited company in the entertainment industry, which can be extended to any sector. This study also tried to understand and estimate the impact (if any) of balance sheet components on the share prices of the company. Financial data (nine components) from the balance sheet and the share prices for the last five financial years were taken of the top five performing companies on the basis of total assets who are enlisted in the Bombay Stock Exchange under the entertainment sector. A quantitative research was executed fully on secondary data, and statistical tools like correlation and regression were implemented through SPSS 19 to project a share price point where the investors can sell off their stocks in the next financial year, or the investors can anticipate their return in the next financial year. The share price point is projected for the next financial year. The study can benefit both individual and corporate investors who practices buy-and-hold strategy for their investment portfolio. It also found out that the balance sheet components can explain a considerable percentage of reasons behind the variations of the share prices in stock exchanges.