Major Impact of Key Investment Ratios on Beta of Automobile Sector Stocks in India

Abstract

Investors use financial ratios as a measure of unsystematic risk while assessing the performance of an individual company.  Financial ratios will help to make sense of overwhelming amount of facts that can be analyzed using a company’s financial statements.  In today’s era a smart investor must know to pick small bits of information, combine it to interpret the resulting number in a useful manner which is an art.  There are some key financial ratios that the investors will look into while investing in a company’s stock.  Those key financial ratios are Price, Profitability, Liquidity, Debt and Efficiency ratios respectively.  On the other hand investors use beta to measure the volatility of the individual stock.   This paper aims to analyze the impact of these key financial performance ratios which are used to quantify the unsystematic risk on beta.  And also the study tries to find out key investment ratio which has the highest impact on beta of the stock.

Keywords: Beta, Debt ratios, Efficiency ratios, Liquidity ratios, Price ratios, Profitability ratios, Systematic risk, Unsystematic risk.