The Impact of Financial Ratios on Stock Return before and during Covid-19: Empirical evidence from Colombo Stock Exchange

Abstract

Purpose: The purpose of this study was to examine the impact of financial ratios on stock return before and during Covid-19 in Sri Lankan context using data collected from the companies listed in Colombo Stock Exchange. Design/Methodology/Approach: The data was collected as two samples. 2016- 2019 was considered as before Covid-19 and 2020-2021 was considered as during Covid-19 for 60 companies listed under consumer durables and apparel, consumer services, and food and beverage and tobacco sectors in CSE. The study used four financial ratios as the independent variables; Return on asset, current ratio, debt to equity ratio, and price to earnings ratio and stock return as the dependent variable. The analysis was conducted using a multiple regression model via STATA software to understand the impact of financial ratios on stock return. Findings: The results indicated that the price-to-earnings ratio has a significant impact on the stock return before covid-19, and the remaining financial ratios; current ratio, and debt to equity had an insignificant impact on stock return. During Covid-19, all financial ratios had a statistically insignificant impact on stock return. Originality: It was revealed that their knowledge on financial matters based on experience has a significant impact on making sound financial decisions. The findings recommend the necessity for effective financial literacy programs focusing especially on financial knowledge to facilitate informed financial decisions of these vendors.