Print Email Download Reference This Send to Kindle Reddit This
submit to reddit

The correlation matrix

Share Price and Cash Flow from Operation shows the relationship which is moderate and positive correlated and Pearson correlation is 0.364 and significant with 0.000 which is less than 0.01%.

Similarly Share Price & Sales shows that relationship which is moderate and positive correlated and Pearson correlation is 0.406 and significant with the level of 0.000 which is less than 0.01%. one of previous study findings showed that Sales exhibits the strongest correlation with share price of all the predictor variables and weak relationship exist between Share Price & Cash Flow (Jordan, Waldron & Clark 2007).

Share Price and profit after Tax shows the relationship which is highly correlated and Pearson Correlation of 0.690 and significant 0.000 which is less than the level of 0.01.

Cheng & Hollie (1996) examined persistence of Cash Flow components into future cash flows and found that Cash related to Sales, cost of goods sold, operating expenses and interest persists a great deal into future cash flows; cash related to other has lower persistence and the Correlation Coefficient between C_Sales and C_COGS is particularly high (-0.939 and -0.907). The correlation coefficient between EARN and CFO is 0.704 and 0.541, a correlation typical for these two variables that does not generally cause problems when they are in the same model.

Goodness of fit (i.e. R Square) provides an indication of the variation in the dependent variable that is being explained by the independent variable(s) in a regression model (e.g. Greenburg et al. 1986; Murdoch and Krause, 1989; McBeth, 1993).

Lorek and Willinger (1996), Cheung and Krishnan (1997), and Neter and Wasserman (1974) note, however, that models with higher R Squares may not necessarily be the best predictors, but in Model 3 F Value improves by 83.024 while R Square Decreases From 50.7% to 48.0%.

There is no Correlation between the Share Price, Cash Flow from Operation Sales & Earning because Significant value is less than 0.05 and our result is Significant.

In model 3 the F value improves by 83.024 and the level of significance 0.000 which is less than 0.05 that means and on the other side Co-efficient of determination decreases by 48.0 due to improvement in F value from 30.122 to 83.024.

Assumed at 10% level of significance so in coefficient table significance value is less than 10% which is .067 that means of cash flow is significant and the relationship exist between Cash flow and Share Price. in one of the Study the predictiv abilities of Cash flow was significantly related to share Prcie, the alpha level (0.3986) for t-statistic revealed that CFO was significantly related to share price (Jordan, Waldron & Clark 2007).

While in second the level of significance assumed at 10%, the Sales result is greater than the assumed level of significance that is .108 so Sales results is insignificance and relationship does not exist between Sales & Share Price. The result is also cinsistenet with the (olsen and dietrich 1985) that slaes is signifiantly related to stuck return and coefficient for Earn and Sales were positively signed Where as using traditional measures of significance, the t-statistics for EARN and SALES indicate that these variables are significantly related to share value as they produce alpha levels of .0672 and .0441.

While in third the level of Significance assumed at 1% , the significance value of profit after tax is .000 that is less than assumed level of significance it means it is significant and the relationship exist between Profit After Tax & Share Price. (Pun wing yan 2005) results were consistent that earening and Current flow were positive and significant in predicting future Cash Flow.

Model 3:

Share Price= 23.018+3.26(Profit after Tax)

Profit After Tax is assumed at 1% level of Significance, the significance value of Profit after Tax is 0.000 that is less than the assumed level of significance which means it is significant and the relationship exist between profit After Tax & Share Price.

Similarly (Finger 1994) also found earnings as a significant predictor of future earnings, in sample, for 88% of the firms.

Cheng & Hollie (1996) examined persistence of Cash Flow components into future cash flows and studied test the significance of the Coefficients and aggregate Cash flows were significantly positive in the prediction equation. CFO explained 28.69% of the variation in next period cash flows and found that the coefficient for CFO had an average of .529 with a t-statistic of 27.34 and the finding suggested that more than 50% of the current year's cash flows will persist into next year's cash flows.

Doing your resits? We can help!