Firm Performance Indicators as a Fundamental Analysis of Stocks and a Determinant of a Firm’s Operation

Abstract

Purpose: The aim is to analyze which financial instruments effectively determine firm performance as key indicators of business success and the fundamental analysis of stocks. Design/methodology/approach: The study analyzed firm performance using financial statements for 100 listed Thailand companies via 513 observations during the period 2016-2020, including the economic COVID-19 crisis. The methodology was divided into two stages, at identifying the relevant dimensions of financial tools and firm size on firm performance using the ordinary least square regression logarithm. During the second stage, quantile regression was used to evaluate financial instruments as a determinant of firm performance using a set of regression functions to non-normal errors and outliers. Findings: The ordinary least square results indicated that both the price earnings ratio and book-to-market ratio are significantly negative determinants of firm performance. The interest coverage ratio was a positive determinant of earnings per share. Meanwhile, the price earnings ratio, book-to-market ratio, and interest coverage ratio were also main determinants of firm performance in both earnings per share and return on equity in all quantiles of the firm. Practical implications: The finding not only identifies firm performance indicators to propel an organization's capability, but also motivates that managers should make to evaluate operating results to effectively deal with a company's high performance. These indicators truly provide insight into the operation of the business by reflecting on the operation to maintain professional boundaries to earn profit that benefits both investors' decision and shareholders.Originality/value: The novelty of this paper lies on the differently distinguished performance companies in Thailand. These investigations enrich the perception of firm performance indicators that motivate whether a company fully manages its operation to generate profit. The price earnings ratio, book-to-market ratio, interest coverage ratio, and firm size have been assessed to be outstanding indicators to contribute effective strategy of firm performance. Most investors consider fundamental value as an indicator of a firm's performance in order to investing decisions in the stock market.

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“…It measures stocks' market price relative to their per-share earnings, indicating whether a stock is overvalued or undervalued in the market. A low P/E ratio means a company is probably undervalued or the company is performing well in relation to its past outstanding performance, which is attractive to investors [9]. Moreover, it is shown that P/E is significantly negative indicators of firm performance by using the ordinary least square regression logarithm.…”

“…Moreover, it is shown that P/E is significantly negative indicators of firm performance by using the ordinary least square regression logarithm. Besides, there is a strong negative impact of P/E ratio on EPS and ROE, which means stock with lower P/E has higher EPS and ROE, the sign of worth-investing companies [9]. The formula of P/E is:…”

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“…Salah satu rasio utama dalam menentukan profitabilitas bank adalah rasio return on equity (ROE) (Mishra & Pradhan, 2019). Rasio ROE juga digunakan sebagai pengukur kinerja dari perusahaan (Malina et al, 2020;Naknok, 2022) dengan menunjukan seberapa efisien sebuah perusahaan dalam utilisasi modal yang dimiliki perusahaan (Pointer & Khoi, 2019). Non-performing Loans (NPL) menjadi salah satu determinan untuk menentukan tingkat kredit bermasalah pada perusahaan perbankan (Nugroho et al, 2021) dan menjadi salah satu faktor yang mempengaruhi profitabilitas perbankan dengan hubungan yang negatif (Trofimov et al, 2018).…”