SWOT analysis of Ryan Air and subsequent decisions to make business essay

SWOT analysis of Ryan Air and subsequent decisions to make business essay Business changes its style, shape and presentation. New technology, new methods, new strategy has made the difference. The entire way of business has change today. Now organizations can take decisions before they get entered into new market, they can be aware from the obvious dangers. Strategic management is very good subject to study in modern days business prospect. Through the assignment a lots of strategic matters came into knowledge, which was unknown before. Thanks to the institute and my lecturer to work with such an interesting subject. Introduction SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The internal and external situation analysis can produce a large amount of information, much of which may not be highly relevant. The SWOT analysis can serve as an interpretative filter to reduce the information to a manageable quantity of key issues. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. Strengths can serve as a foundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats.( Understanding Change, by Jane Edmonds, page no 22) The radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization. A number of checklists have been developed as ways of cataloguing the vast number of possible issues that might affect an industry. A PEST analysis is one of them that are merely a framework that categorizes environmental influences as political, economic, social and technological forces. Sometimes two additional factors, environmental and legal, will be added to make a PESTEL analysis, but these themes can easily be subsumed in the others. The analysis examines the impact of each of these factors and their interplay with each other on the business. The results can then be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans. (Industrial Marketing, by Krishna K. Havaldar, page no 45) (Havaldar, 2008, p45) http://www.welove2ski.com/images/news/ryanair_plane.jpg (Ryan Air logo, figure no-1) Primary collected datas of Ryan Air Ryan Air is an Irish airline with headquarter in Dublin and its biggest operational base at London Stansted Airport. It is Europes largest low cost carrier and one of the worlds largest and most successful airlines in terms of profits, number of flights and number of passengers flown. Today the carrier is the first airline in Europe per passengers traffic 66 million boasts more then 950 routes in 26 countries, 36 bases and it is recognised as one of the most punctual airline in Europe. (Strength: Growing number of passengers for Rayan Airways) http://www.ryanair.com/en/news/Ryan-s-july-traffic-grows-19-percent SWOT analysis of Ryan Air Strengths: Strong pan European brand (36 bases), Biggest and most profitable LCC Europe and Focused aggressive and innovative management system. Secondary and regional airports allow cost reduction and fast turnaround. Strong balance sheet and cash generation allow facing eventual problems, increase capability to attract finance, enhance capability to take risk and face new challenges and competitive price on aircrafts parches. Reduce barriers to its entry in new market, while contributing to increase barriers to new entrants. High seat occupancy rate and lowest seat mile in short haul flights. Uniform and modern fleet shaves on maintenance; training costs which is enhance safety and fuel efficiency. High rate on punctuality and low baggage lose rate give reliability to the organization. High rate of aircraft utilization allow the revenue to increase. Point to point flight as apposed to hub and spoke allows service cost reduction. Low labour non union cost, low cost due to flat and simple form of the organization. And major earning from innovative ancillary service. Weakness is seen as the organizations internal factor. Because organizations dont want to let the competitor know about their business weakness. The weakness of Ryan airs are bellow. Weakness: Exposed to regulation on airport deals and passengers compensation , the distance between secondary airports to the main location. Lacking of appropriate frequency in certain routes and brand is strictly linked to a low cost model and maintain the position could be challenging. Too much exposed to outsourcing. Market extremely sensitive to price elasticity, prone to bad press I that its top management is perceives as arrogant and provocative. Poor customer service is one of the big weaknesses of Ryan air. And high seat available could be a problem for when they flying to less popular destinations. Limited slots in main airport could be a big problem in the future. Constant innovation requirements to sustain the business model and low empathy for employees and high turnaround could increase the CO2 emission. Opportunity: European market still offers considerable for developing the business model, under way industry consolation offers opportunities for new routes and airport deals. EU enlargement allows expending in new markets; demand based on price should remain high independently of economic cycle. Bad condition of Italian air industry gives an opportunity for consolidation in Italian market. Threats: New entrants on the market and increased competition in the near future, some flag carriers have tried to reposition as low cost carriers. Some other tradition carriers have reduced fares which could undermine the market share. A serious accident could endanger trust on low cost industry. High speed trains and land transport, environmental taxes could be big threats for Ryan air. PESTEL analysis of Ryan Air PESTEL is the acronym for political, environmental, social, technological, legal and environmental, and all this tools devoted to carry out analysis considering the external influences to an organizations activity is of fundamental to properly develop a reliable strategy. Political: The political aspect of the tool considers the possible political influence on the strategy pursued by the organization. For Ryan air this aspect has represented a considerable advantage, in that the European Union is a completely stable political region and EU integration has allowed the carrier to expand its activity and route. Economical: The ageing population factor is likely to impact the travel industry in the next decade and to cause a shift in land transport, easier to access, to use and allowing movements from and to central city areas. Young generations like this carriers airline and because of its cheap ticket price it is become economically stronger. Social: Another uncanny social trend is represented by the tendency to the cocoon effect every time a terrorism act is carried out people follow events like these, prefer to avoid travelling then stay home. On the other hand it is very likely that the young generation are much more likely to use carriers fro their travel and are the more enjoying the benefits of a common European area where they can move from a capital to another in an average one hour to forty five minutes at very low price. Technological: As for the technological aspect the video conferencing system could deter business people to travel in many circumstances, but not leisure travellers. It must be said that technology been crucial for Ryan airs success and it is likely to be important in the future. Internet in particular has allowed the organization to avoid lots of cost. Environmental: The aircrafts new generation engine in terms of less emission and less fuel consumption will allow the organization to move on through its cost reduction strategy. Legal: The legal aspect has had and could still have negative effect on the carriers activity, the emission constrains set by European commission its actively on implementing and monitoring antitrust law and policies and the EU legislation on working time regulation and union recognition sooner or later will affects Ryan airs policies and this could seriously threaten its revenue result. http://solvay.ulb.ac.be/cours/alle/BuspPresRyanair04.pdf Porters Diamond and national advantage Increasingly, corporate strategies have to be seen in a global context. Even if an organization does not plan to import or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market. Information technology is reinforcing this trend. (Advanced in statistics, comminatory and related area, by Chandra Gulati, Yan-Xia and Jonh Rayen, page no 53) Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others are, in his book The Competitive Advantage of Nations. This model of determining factors of national advantage has become known as Porters Diamond. It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale. This home base provides basic factors, which support or hinder organizations from building advantages in global competition. Porter distinguishes four determinants and they are conditions Demand condition. (Michael Porters diamond model, figure no-3) Factor Conditions The situation in a country regarding production factors, like skilled labour, infrastructure, etc., which are relevant for competition in particular industries. These factors can be grouped into human resources like qualification level cost of labour, commitment etc, material resources or natural resources, vegetation, space acknowledge resources, capital resources, and infrastructure. They also include factors like quality of research on universities, deregulation of labour markets, or liquidity of national stock markets. These national factors often provide initial advantages, which are subsequently built upon. Each country has its own particular setoff factor conditions; hence, in each country will develop those industries for which the particular set of factor conditions is optimal. This explains the existence of so-called low-cost-countries (low costs of labour), agricultural countries large countries with fertile soil, or the start-up culture in the United States well developed venture capital market. Porter points out that these factors are not necessarily nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions. A good example is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in North America and Europe. Home Demand Conditions Describes the state of home demand for products and services produced in country. Home demand conditions influence the shaping of particular factor conditions. They have impact on the pace and direction of innovation and product development. According to Porter, home demand is determined by three major characteristics: their mixture (the mix of customers needs and wants), their scope and growth rate, and the mechanisms that transmit domestic preferences to foreign markets. Porter states that a country can achieve national advantages in an industry or market segment, if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors. Normally, home markets have a much higher influence on an organizations ability to recognize customers needs than foreign markets do. Related and Supporting Industries: The existence or non-existence of internationally competitive supplying industries and supporting industries. One internationally successful industry may lead to advantages in other related or supporting industries. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. Besides suppliers, related industries are of importance. These are industries that can use and coordinate particular activities in the value chain together, or that are concerned with complementary products like hardware and software. A typical example is the shoe and leather industry in Italy. Italy is not only successful with shoes and leather, but with related products and services such as leather working machinery, design, etc. Firm Strategy, Structure, and Rivalry: The conditions in a country that determine how companies are established, are organized and are managed, and that determine the characteristics of domestic competition here, cultural aspects play an important role. Indifferent nations, factors like management structures, working morale, or interactions between companies are shaped differently. This will provide advantages and disadvantages for particular industries. Typical corporate objectives in relation to patterns of commitment among workforce are of special importance. They are heavily influenced by structures of ownership and control. Family-business based industries theatre dominated by owner-managers will behave differently than publicly quoted companies. Porter argues that domestic rivalry and the search for competitive advantage within agnation can help provide organizations with bases for achieving such advantage on a more global scale. Porters Diamond has been used in various ways. O rganizations may use the model to identify the extent to which they can build on home based advantages to create competitive advantage in relation to others on a global front. On national level, governments can (and should) consider the policies that they should follow to establish national advantages, which enable industries in their country to develop a strong competitive position globally. According to Porter, governments can foster such advantages by ensuring high expectations of product performance, safety or environmental standards, or encouraging vertical co-operation between suppliers and buyers on a domestic. (Government globalization and international business, by John H. Dunning, page no 31) Purpose and attributes of SWOT Once Strengths, Weaknesses, Opportunities and Threats are listed, now the decision makers must go through the attributes in the listed categories. In each of the categories a more thorough analysis of each attribute listed must take place. The most important outcome from a SWOT Analysis is to determine if a goal or objective can be achieved. If it cant, it might want to repeat the process including new strengths and opportunities, digging deeper into analysis process. However, if looking at the SWOT Analysis, the decision makers feel that the goal or objective can be achieved, they can start by using the analysis to create a strategy to achieve the goal. One of the ways to get the most out of SWOT Analysis is to ask basic questions using SWOT. For instance, look at the strengths and figure out how organizations can maximize every steps of strength to achieve the goal. Continue on with external opportunities, figure out the best ways to take advantage of each opportunity and reduce the threats that can cause failure for the organization when trying to achieve organizational goal. (Dynamic SWOT analysis, by T. Richard Dealtry, page no 17) Environmental Change and the impact on the strategic dynamics The business environment of the firm consists of all the external influences that affect its decisions and performance. Given the vast number and range of external influences, how can managers hope to monitor, environmental conditions. The starting point is some kind of system or framework for organizing information. For example, environmental influences can be classified by source into political, economic, social, and technological factors PEST analysis or by proximity the micro-environment or task environment can be distinguished from the wider influences that form the macro-environment. Though systematic, continuous scanning of the whole range of external influences might seem desirable, such extensive environmental analysis is unlikely to be cost effective and creates information overload. (System Analysis and design level three, by D. Barnaed, page no 131) The prerequisite for effective environmental analysis is to distinguish the vital from the merely important. For the firm to make profit it must create value for customers. Hence, it must understand its customers. Second, in creating value, the firm acquires goods and services from suppliers. Hence, it must understand its suppliers and how to form business relationships with them. Third, the ability to generate profitability from value-creating activity depends on the intensity of competition among firms that vie for the same value-creating opportunities. Hence, the firm must understand competition. Thus, the core of the firms business environment is formed by its relationships with three sets of players: customers, suppliers, and competitors. This is its industry environment. This is not to say that macro-level factors such as general economic trends, changes in demographic structure, or social and political trends are unimportant to strategy analysis. These factors may be critical determinants of the threats and Opportunities Company will face in the future. (Understanding Organizational context, by Claire Capon, page no 15) Conclusion In different situation in business organizations need to take difficult decisions very prompt. But before taking the decision they need to confirm that they are taking the right decision in the right time, in right manner. It is important because the effect is diverted into the whole organization. Thats why they try to make the right decision through the help of various analyses. References Barnard. D (2008), System Analysis and design level three, 1st edn, Pearson publications ltd, Forest drive, Pinelands, Cape Town, South Africa. C. Claire (2004), Understanding Organizational Context inside and outside of the organizations, Ashford colour press ltd, Gosport, 90 Tottenham Court road, London, UK. D. Richard T (2002), Dynamic SWOT analysis, 2nd edn, DSA publications ltd, 43 Hunstanton avenue, Harbome, Birmingham, B17 8SX, United Kingdom. D. John (2004), Governments, globalization and international business, 2nd edn, Oxford University press, New York, United states of America. E. Jane (2005), Understanding Change, 4th edn, IMA publishing ltd, 200 Wheeler road, Burlington, Miami, USA. H. Krishna K (2008), Industrial Marketing, 8th edn, Tata McGraw-Hill publication ltd, 7 West patel nagar, New Delhi, India. R. John, G. Chandra and L.Yan (2006), Advances in statistics, combinatory and related area, 1st edn, Mainland printing press, 5Toh tuck link, Singapore.

Was William Wilberforce the Most Important Reason for the Abolition of the Slave Trade in 1807 and Slavery in 1823

William Wilberforce is the name that most people in Britain immediately associate with the fight against slavery. Although he favoured a more cautious and gradual eradication of slavery, he was a key representative of the anti-slave trade forces. Gracious, witty, and devoutly religious. Wilberforce has become a convenient national hero, with 20,000 people attending a ceremony to mark the 100th anniversary of his death. His house has been turned into a museum and his larger-than-life statue has a prominent place in Westminster Abbey. This demonstrates that he had a big influence on the people around him at the time. Wilberforce certainly deserves some credit for the banning of the British slave trade in 1807 and the act that emancipated Britain's slaves that was finally passed in 1833. His charm, personal kindness, reputation for integrity and deep conservatism on most issues gave him influence with his fellow MPs that few others in parliament had. But was the abolition of the slave trade and slavery primarily the work of this likeable, saintly man and his circle of similarly religious friends? Today, most historians see the long struggle to end the slave trade as much more complex and unruly than simply being the work of Wilberforce alone. Many people played an important part of the abolition of slavery the white middle class campaigners. Granville Sharp was a great campaigner against slavery. He took in a badly beaten slave and nursed him until he was fit and well but then his old master saw him and captured him wear he was to be shipped away to Jamaica as a slave. Granville Sharp took the slaves master to court and the judge the Lord Mayor of London said that he had not stolen anything so shouldn’t be made to go away. Sharp fought for many black people in court and saved many of them. Sharp didn’t manage to get slavery abolished but he started the campaign against slavery. His court cases raised a lot of awareness in the public eyes and this could have made some people see how bad slavery really was so they could start to campaign against slavery with Granville Sharp. It was not only the white middle class campaigners who tried to abolish slavery the working class campaigned. In 1788 many petitions were sent to parliament demanding that the slave trade should be stopped. The petitions were sent from working class people from all over Britain. In the year 1788 10,000 working class people signed a petition; in 1792 support doubled to 20,000 people (there are 75,000 people in Manchester. The working class people thought that slavery was wrong as it was a trade of human blood and that when Negroes were put in slavery it took away there dignity and pride, also they thought it was cruel to take them from there home (many slave campaigners rich or poor felt the same way). Big meetings were held wear slave campaigners could exchange ideas on how to get slavery abolished. In 1807 when the slave trade was finally abolished the petitions did not stop there aim was to make slavery illegal and also they wanted the existing slaves still in slavery to be freed. I think the working class people did not raise as much awareness in the public than the middle-class they concentrated mostly on Parliament and the MP’s. Black people also rebelled against the slave trade. They wanted to be treated like normal servants and to earn a wage for there work. Many black people refused to be slaves and ran away. When slave owners went to court to get them back the legal position of slavery in Britain wasn’t clear. People knew that slaves could be kept in the West Indies and other parts of the British Empire, but if a slave was brought back to Britain (there was no law to say slavery was illegal or legal). When slaves tried to claim there freedom the judges made different decisions every time. Granville Sharp held many of these cases on behalf of the slaves and soon most slaves were being set free. Owners soon knew it wasn’t worth the bother of trying to get there slaves against there slaves back. Plantation owners in the island of St Dominque did not like the idea of slaves having equal rights and liberty so they planned an alliance with Britain. The slaves knew this would mean the slave trade would continue. The conditions in the St Dominque were worse than in the West Indies, the death rate was very high from the treatment and there living conditions. So in 1791 the slaves rebelled murdering there white owners and setting fire to the sugar crop. British troops tried to take over but the slaves soon overturned the British as well. Slavery was abolished in 1804 and the island soon declared that it was an independent state with a new name of Haiti. In the West Indian plantation owners lived in dread of the ideas from the slaves in Haiti spreading to there slaves. People in Britain who did not ant slavery to be banned used this example of what would happen if slaves in Britain were given equal rights. The slave trade eventually became too uneconomical to continue, this is because when the slaves were travelling on boat, the conditions were too horrific. As a result more of the slaves died than actually made it to the other side. This one the major factors of why the slave trade ended. Willi am Wilberforce helped was a key campaigner for the abolition of the slave trade, but he is amongst many other campaigners. They all did the same thing, so I believe that he was important but many others deserve the same credit that he got.

Financial Ratios and Stock Return Predictability

The results indicate that DY and EY ratios has direct positive association with stock return where as B/M ratio has significant negative relationship with stock return. Therefore we can say that the above mentioned ratios are able to predict stock returns, furthermore it can be seen that as compare to dividend yield and earning yield the ratio of book to market has the highest predictive power. Moreover when we combine these financial ratios the predictability of stock returns will enhance. Keywords: Financial ratios, Stock return, Karachi Stock Exchange, Dividend Yield, Earning Yield. 1.Introduction Stock Market plays a very significant role in the economic growth of a country. According to A. Schrimpf (2010) there is significant economic aftermath of the existence of stock return predictability. S. Kheradyar et al, (2011), â€Å"The Analytics of Economic Time Series†, states that in stocks market share prices move randomly i. e. on certain day share prices are like to go dow n as they were like to up. Such random behavior worried some of the financial economists and followed by further research. Hence such random movement of share prices lead to a hypothesis called Random Walk Hypothesis.Random walk hypothesis suggest that it is difficult to predict share prices because stock prices evolved, now it will be showing upward trend but after some time such might be showing downward trend. Hence predicting 100% accuracy of stock return is almost impossible. In contrast to Random Walk Behavior is efficient market hypothesis. According to efficient market hypothesis share prices are fairly priced in the stock market or prices of stock demonstrates information in the market is widely and equally available to all and no one in the market can outperform or can beat the market.With the passage of time researchers tries to find out most accurate variables for predicting stock prices, some were tend towards financial and some were towards profitability ratios i. e. b ook to market ratio, price to earnings ratio, 1 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 10, 2012 www. iiste. org dividend yield, etc some were tend towards cash flow ratios like price to cash flow ratio, cash burn ratio, etc and some focused on macroeconomic variable like interest rate, law and order situation and inflation rate etc.In this research article we have investigated 3 above mentioned ratios to determine whether they predict stock returns. This research study has used the stock return and the above mentioned financial ratios association at two samples as the foundation for the formulation of Eight hypotheses. On the grounds of their appropriate regression models the eight hypotheses are divided into two sets. In this study we have used the two models of simple and multiple regressions to apply Predictive regression; it is an important tool for predicting stock returns. A set of panal data is used for the formulat ion of these two models.For tackling the problem of heteroskedasticity and non-normality distributed residuals, we applied generalized least squares method. 2. Literature Review Campbell and Shiller (1988) stated in their study that as dividend yield has the ability to confine expected return and expectation about growth in dividend yield so dividend yield is good predictor of stock return. Chan, L. Hamao, Y. Yakonishok, J. (1991), found that in Japanese market fundamental variables like dividend yield, price to earnings ratio, book to market ratio and firm’s size have significant impact on expected earning/returns of stocks.They notify that there is indirect relationship between earning yield and stocks returns in Japan. In comparison of the size of the firm and earning yield, B/M and dividend yield (cash flow yield) are significantly related with returns of stocks. They further added that an important variable both economically and statistically is book to market ratio and this need to be observe because either the afterward half of the sample is judged or for the first time test is applied the book to market ratio shows it continuation. Mukerji, S. Dhatt, M. Kim, Y. 1997), on Korean Stock market for a period of 1982-1992 establish a direct relationship between return of stocks and D/E, S/P and B/M, moreover an indirect relationship between size of firm and return of stocks. They demonstrated that P/E ratio is less trustworthy indicator than B/M and S/P. Beta is a week proxy for assessment of risk when compare with debt to equity ratio. B/M and S/P are responsible for the direct relationship between return of stocks and debt to equity. However a P/E and B/M ratio becomes the base for indirect relationship between return of stocks and size of the firm.Kothari and Shanken (1997) found for US market that dividend yield and book to market ratios have dependable proof for expected real return over a period 1926-1991, and there lies a track of time series v ariations. Pontiff and Schall (1998) stated that as for predicting power is concerned book to market ratio has some predictability power for predicting stock returns. Lewellen (2002) conducted his study in US he found that predictability power of dividend yield for predicting stock returns is more than P/E and B/M ratios.Ang, A. , and Bekaert, G. , (2006), in their studies tried to forecast interest rate and stock returns with the help of predictive power of dividend yield. They found for short term forecasting, dividend yield predictive power is more than the long term forecasting. But as for the expected growth of cash flow prediction is concerned than dividend yield is a good predictive variable. Akyol, A. (2006), â€Å"analyzed the effect of firm’s size, beta, and book-to-market value on the stock returns in Istanbul stock exchange.He used data from July 1993 to December 2005 for Istanbul Stock Exchange and used Fama and French (1992) methodology to construct portfolios represented accurately by size-beta and then size-book-to-market, he found that book to market and Beta of a firms have no effect on the stock return’s in Istanbul stock exchange. Size of the firm was the only variable which was negatively related to the stock returns in Istanbul stock exchange. He also found that book to market, size and beta is not related with January effects. Hjalmarsson, E. (2004), in his study tried to find out Global stock returns predictability.He took twenty thousand monthly observation form forty international stock markets. In which 24 were of developed economy and 16 were of developing economy. However his study showed that dividend yield and price to earnings ratio has little power of predictability and defends his conclusion by adding that international result is showing deviation from traditional view because the method use internationally may not count for determination of variables. 2. 1 Hypotheses H1: return of stock and DY has no associatio n in time (t) and (t-1) respectively in sample one.H2 return of stock and EY has no association in time (t) and (t-1) respectively in sample one. H3: return of stock and B/M has no association in time (t) and (t-1) respectively in sample one. H4: return of stock and DY has no association in time (t) and (t-1) respectively in sample two. H5: return of stock and EY has no association in time (t) and (t-1) respectively in sample two. H6: return of stock and B/M has no association in time (t) and (t-1) respectively in sample two. 2 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)Vol 3, No 10, 2012 ww. iiste. org H7: return of stock and DY, EY, B/M combination has no association in time (t) and (t-1) respectively in sample one. H8: return of stock and DY, EY, B/M combination has no association in time (t) and (t-1) respectively in sample two. 3. Research Methodology In order to check predictability power of earning yield, dividend yield and book t o market ratios for predicting stock returns the study has taken a sample of 100 firms for a period of 2005-2011. We have applied certain screening criteria’s for companies to be included in the sample.First, the firm must be listed on the KSE before Jan 1st 2005. 2nd, for more than twelve months a stock must not be deferred. 3rd, for the study period of seven years a company stock must not be delisted. 4th, data must be available for all sample firms and variables. Finally, for a period of more than twelve months the dividend yield of firms must not be zero. The study has divided the selected firms into two equal samples, which will reduce the effects of random sampling errors and for the predictive regression two samples produce different estimation.The study is based on secondary data, which is collected from, â€Å"State Bank of Pakistan†, company’s annual reports, business recorder and from â€Å"Karachi stock exchange†. Following S. Kheradyar et al, (2011) this study includes stock returns as dependent variable while dividend yield, earning yield and B/M ratios has been taken as independent variables. 4. Measurement of Variables 4. 1 Stock Return Following Lewellen (2001) and S. Kheradyar et al, (2011) we have used stock return as dependent variable.Stock return is measured by dividing capital gain along with dividend per share on market price per share. Following is the formula for stock returns. SRi = DPs + capital gain/market price 4. 2 Book to Market Ratio For finding value of company by comparison of market value of a share to its book value, study tends towards book to market ratio. For finding book value of a firm the study divide equity of a firm by its total number of outstanding shares. As for market price is concerned study tend towards the ongoing price of share in stock market.If a firm offer high return and having high book value than its market value, the firm is riskier and in future returns of stock will be lo wered than today. The following formula is used for calculating book to market value: B/M = Book Value per share Market value per share Lewellen (2001) states that as compare to P/E ratio B/M has higher predictive power for predicting stock return. But when study compare B/M ratio with dividend yield than dividend yield is good forecaster than B/M ratio. 4. 3 Dividend yield Following S.Kheradyar et al, (2011) second independent variable in this study is Dividend yield which is calculated as dividing dividend per share on market price per share. If market price is lower than dividend yield will be higher and give a riskier signal for investment. Contrast to higher dividend yield is low dividend yield; such happen when market price per share is higher than dividend yield and gives an optimistic view for investment.The following formula demonstrates how to calculate dividend yield: Dividend Yield (%) = (Dividend per Share / Market rate per share) x 100 4. Earning Yield The empirical li teratures lay foundations of the predictive power of earning yield on stock return, and find out the association between earning yield and stock return is considerable, because earning yield plays as a risk factor in relation with stock return. Moreover, the earning yield can demonstrate the efficiency of market that has an important role in emerging markets, thus this study uses earning yield as the empirical predictor of stock return. Following S. Kheradyar et al, (2011) we have measured earning yield as earning per share divided by price of share. 5.Regression Model In this research article we have investigated three financial ratios EY, DY and B/M to determine whether they predict stock returns. This research study has used the stock return and the above mentioned financial ratios association at 3 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 10, 2012 www. iiste. org two samples as the foundation for the formulation of Eight hypotheses. On the grounds of their appropriate regression models the eight hypotheses are divided into two sets.In this study we have used the two models of simple nd multiple regressions to apply Predictive regression; it is an important tool for predicting stock returns. A set of panal data is used for the formulation of these two models. For tackling the problem of heteroskedasticity and non-normality distributed residuals, we applied generalized least squares method. Following S. Kheradyar et al, (2011) we have used panal models to formulate predictive regressions. Hence we have used simple regression model to test the first 6 hypothesis which are formulated on the basis of association between each financial ratio and future stock returns.The simple regression model has the following form: SR it = ß0 + ßi Xi (t-1) + eit Where, SR it= in time period t, the return of ith stock, ß0= the estimated constant, ßi= ith stock predictable coefficient, Xi (t-1) = in period t-1 financial ratios of the ith stock, eit = error term. Similarly following S. Kheradyar et al, (2011) we have used multiple regression model to test the other two hypotheses H7 and H8, these two hypotheses are formulated on the basis of relationship between combined financial ratios and future stock returns.The model has the following form: SR it = ß0 + ßi1 DYi (t-1) + ßi2 EYi (t-1) + ßi3 B/Mi (t-1) + eit Where, SR it= in time period t, the return of ith stock, ß0= the estimated constant, ßi1= for DY the Ith stock predictable coefficient, ßi2= for EY the Ith stock predictable coefficient, ßi3= for B/M the Ith stock predictable coefficient, DYi (t-1) = is ith stock DY factor in period of time t-1, EYi (t-1) = EY factor of ith stock in period of time t-1, B/Mi (t-1) = B/M factor of ith stock in t-1 time period, eit = error terms. 6.Results and Discussion For the first 6 hypothesis the predictive regression results are summarized in Table 1. The coefficient of di vidend yield in Table 1 demonstrates a positive relationship of dividend yield in period (t-1) and stock returns in period (t) in both samples that is when dividend yield increases by one unit it will cause an increase of 0. 021 and 0. 010 units in stock returns of two samples respectively. As for the p-value of coefficient of Dividend yield is concerned it is 0. 016 in sample one which is less than 0. 5, so the relationship is statistically significant and the null hypothesis H1 is rejected, however in sample two the association is insignificant so hypothesis H4 cannot be rejected.The coefficient of earning yield in Table 1 demonstrates a positive relationship of earning yield in period (t-1) and stock returns at period (t) that is when earning yield increases by one unit it will cause an increase of 0. 013 and 0. 008 units in stock returns in the two samples respectively. As for the p-value of coefficient of earning yield is concerned it is 0. 19 and 0. 010 in the two samples resp ectively which is less than 0. 05, so the relationship is statistically significant, therefore we will reject hypothesis H2 and H5. The negative coefficient of Book to market value in table 1 notifies an inverse relationship of B/M and stock returns in both samples that is if B/M ratio increasing the stock return will be decreasing and vice versa. The p-value of coefficient of B/M value 0. 000 indicates that the relationship is statistically significant in both samples, so hypothesis H3 and H6 have been rejected.S. Kheradyar et al, (2011) found that DY has negative influence on stock return, and a positive association between EY and stock return. He also found a positive impact of B/M on stock return in (2) (1) 4 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 10, 2012 www. iiste. org sample 2 but a negative one in sample 1. It can also be noticed by looking at the adjusted R-square that B/M has the highest predictive power, and th is result is also supported by S. Kheradyar et al, (2011). Insert Table 1 Here) Now we will test to see whether stock return predictive power increases with the combination of EY, BM and DY. We will reject H7 and H8 because it can be seen in Table 2 that the predictive regressions are statistically significant. Thus we can say that stock return can be predicted by the combination of EY, BM and DY. Also we can say that as compare to the other two ratios, the variations of the ratio of book to market has greater impact on stock return, because in both samples it has the highest coefficient.Similarly by looking at the adjusted R-square we can say that in the two samples stock return predictive power increases when the combination of EY, BM and DY increases. (Insert Table 2 Here) 6. Conclusion Literature regarding predictability of stock returns has changed over the last 20 years. With evolution researchers and economists separated price to earnings ratio, dividend yield, inflation, and book to market ratio, beta, industry returns, interest rate, and size of firms from amongst other variables which were considered important for predicting return of stocks.Presently strong evidences are present regarding variables for predicting stock returns. Analysis showed that financial ratios have significant power of predictability for forecasting returns of stock and they predict future stock return of Pakistani market, and B/M has higher predictive power as compare to other ratios. Similarly the predictability of stock return is enhanced by the combination of financial ratios. References A. Schrimpf, (2010). International Stock Return Predictability under Model Uncertainty. Journal of International Money and Finance, 29: 1256-1282. S. Kheradyar, I. Ibrahim, and F.Mat Nor, (2011). Stock Return Predictability with Financial Ratios. International Journal of Trade, Economics and Fiance, 2(5): 391-396. J. Y. Campbell, and R. J. Shiller, (1988). Stock Prices, Earnings and Expecte d Dividends. Journal of Finance, 43(3): 661-676. Chan, L. Hamao, Y. Lakonishok, J. (1991). Fundamental and Stock Returns in Japan. The Journal of Finance, 17391764. Mukerji, S. Dhatt, M. Kim, Y. , (1997). A Fundamental Analysis of Korean Stock. Financial Analyst Journal, 53: 7580 Kothari, S. P. , Jay A. Shanken, (1997). Book-to-Market, Dividend Yield and Expected Market Returns: A TimeSeries Analysis.Journal of Financial Economics 44: 169-203. J. Pontiff, and L. Schall, (1998). Book-to-Market Ratios as Predictors of Market Returns. Journal of Financial Economics, 49: 141–160. Lewellen, J. , (2002). Predicting Returns with Financial Ratio. National Bureau of Economics Research, MIT working paper no. 4374-02 Ang, A. and Bekeart, G. , (2006). Stock Returns Predictability. The Review of Financial Study, 651-707. E. F. Fama and K. French, (1992). The Cross-Section of Expected Stock Returns. Journal of Finance, 47: 427-465 Lewellen, J. , (2001). Predicting Returns with Financial Ra tios. Journal of Financial Economic, 209-235.

Role Of General Practitioners And Primary Care Providers

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