Date of Award

1998

Document Type

Thesis

Degree Name

Master of Business Administration

Department

Business

First Advisor

Pam Williams DeLotell

Second Advisor

Jan R. Kniffen

Third Advisor

Laura DeRigne

Abstract

This thesis will focus on the study of financial ratio analysis and its correlation to stock prices .

Research has used various methods to determine the value of a stock . Examples of these stock valuation models include the Capital Asset Pricing Model (CAPM), the dividend discount model, and the free cash flows and the free cash flows to equity models.

The purpose of this study is to analyze the relationship between financial ratio analysis and stock prices and to explore the possibility that financial ratio analysis has a value in determining the price of a stock. Both financial data and general information from three different companies in four different industries are presented and analyzed. The industries include energy, consumer cyclical products , consumer non-cyclical products, and technology. Four companies from each of these industries are included . Under the category of energy, the three companies included were Chevron Corporation , Exxon Corporation and Texaco Incorporated . The four consumer cyclical products companies included Ford Motor Company, Wal- Mart Stores , Inc . and Nike , Incorporated . Under the category of consumer non-cyclical products, The Coca-Cola Company , McDonald's Corporation, and Pepsico, Incorporated were included . Finally, the technology industry companies studied included Compaq Computer Corporation, Intel Corporation and Microsoft Corporation.

Results of this study indicated that there is significant evidence to suggest t hat the hypotheses could not be supported and to conclude that, within the sample pool , financial ratio analysis has little relationship to stock prices .

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