INVESTMENT DECISION MAKING THROUGH RATIO ANALYSIS; A COMPARISON OF TEXTILE, SUGAR, CHEMICAL, CEMENT, ENERGY AND REFINERY INDUSTRY SECTORS
, I. Manarvi2
1Iqra University Islamabad (PAKISTAN)
2HITEC University Taxtila (PAKISTAN)
Major industrial sectors such as Textile, Sugar, Chemical, Cement, Energy and Refinery play a vital role in every economy. Foreign and local investors are always interested in selecting suitable portfolios for security and higher returns of their investments. However it may not be possible for a number of reasons. Consultants and stock brokers use their professional knowledge as well as experience to identify suitable areas of investment. It is still extremely difficult for them to assist their clients for better mix of portfolios especially in changing performance of these sectors in an economy. This research is focused on providing an approach for making such decisions based on evaluating and comparing financial ratios of specific industrial sectors with respect to each other. Data from published reports of these sectors was collected for a period of five years for all the sectors. Financial ratios such as current ratio, debt equity ratio, return on investment, return on equity, inventory turnover ratio, and net profit margin were calculated for all these sectors over the same period. Time series plots were made to evaluate the variations in these ratios of individual sectors with respect to each other. Each industry sector was also analyzed on the basis of all these ratios to find the effectiveness in prediction of results. The real time performance and comparison of these graphs showed that investment decision making could be much easier while following this approach. Similar approach could also be used within different companies with in the same sector to arrive at the best choice of a company.