THE DETERMINANTS OF STOCK PRICE BEHAVIOUR IN

NEPALESE MARKET
(With Reference to Sunrise Bank, Prime Commercial Bank, NMB Bank
and Machhapuchhre Bank)

A THESIS

Submitted By:

Tara Devi Dangel

Kabhre Multiple Campus
T.U. Regd. No.: 7-2-615-105-2012
Symbol No. 2440084
Roll No: 08

Submitted To:

Head of Research Department

Kabhre Multiple Campus
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements for the Degree of

Master of Business Studies (M.B.S.)

Kavre, Nepal
April, 2022
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INTRODUCTION

1.1Background of the Study

Nepal is an underdeveloped country and its economy is based mainly on agriculture.
Due to political instability, unplanned growth of population and geographical
situation of the country, the economic growth is very slow. Nepalese economy is
considered very poor management. There are only a handful of industries. Among
these, very few are in profitable conditions and most of them are closed down.
However, after the development of suitable financial policies and adoption of
economic liberalization, financial institutions have grown rapidly in several urban
areas of the country (Ministry of Finance; Economic Survey: July 2006).

Industrial and commercial sector plays vital role for development of the nation. This
is still in primary stage in Nepal. The industrial development process started from
1937 with the establishment of Biratnagar Jute Mill and Nepal Bank Limited.
Company act was firstly introduced in 1964 and government issued bond in the same
year. Most of the institutions have been established as private limited company and
government owned organization especially after the restoration of democracy,
industrial development took place. However, that couldn't sustain, some of the
industries have been shut down.

In the absence of developed securities market in Nepal, the government was the sole
issuing authority of development bond’s and national saving certificates. Therefore,
the securities generally floated in the market were mainly the government securities.
Nepal Rastra Bank as the central bank is responsible to mobilize resources, on behalf
of the government. To finance the development activities and manage public debt
under the public debt act, Nepal Rastra Bank has been managing the issue of short-
Term treasury bills to time accordingly. Ninety-one-day Treasury bills of Rs.7 million
were issued for first time during June /July 1962. Nepal Rastra Bank arranges for the
issue, register, purchase and sale, transfer of ownership and redemption of
government bond and debentures. Therefore, the government securities are fully
traded under the management and supervision of Nepal Rastra Bank.

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Nepalese stock market is very small as compared to other neighbour countries.Capital
plays a vital role in the economic development of a country. Being acapital deficient
country, Nepal has to make every attempt to mobilize available capital effectively.
Securities are financial assets. Securities market share mechanism created to facilitate
the exchange of financial assets. Therefore, the market exists in order to bring
together the buyers and sellers of securities. Capital market is the mechanism
designed to facilitate the exchange of financial assets by bringing orders from buyers
and sellers of securities together. The stock market has been global phenomenon in
the present world regardless of the size of any particular region.

Securities market is place where buying and selling of securities take place in an
organized way. The parties involved in securities market are investors, intermediaries
and specialists. Security market provides mobility of the scattered savings. Retail
investors with limited capital fund could also participate in the industrial development
process of the country through their investment in the securities. Investors who are
willing to buy or sell securities quickly may be searching good offers or accepting
poor offers with higher risk and higher return. Securities market is the major
constituents of capital market. Although some analysts view securities market in
developing countries as gambling casinos that have little positive impact on economic
growth, recent evidence suggests that securities markets give a big boost to economic
development. Securities market is the pivot on which the economic development
oscillates; it does mean that securities market is the foundation stone of any economic
development. Securities market in developed countries has become an integral part of
economy and its role in developing countries is increasing day-by day. In securities
market, the securities of listed companies are traded through organized brokerage. It
is, thus, a mechanism for bringing together buyers and sellers of financial assets in
order to facilitate trading.

During the two one and half decade the financial sector in Nepal has grown
significantly. It is said that despite a history of almost half a century of developmental
efforts under different national plans, conscientious efforts to develop financial sector
started quite late in Nepal. The history of capital market started since the period of
Rana Prime Minister Juddha Shamsher. He set up a holding company namely
Biratnagar Jute Mills under joint financing agreement with an Indian Jute processing
industry in 1936(1933 B.S) as the first modern industry in the country. After that

3
various mills of rice, cotton, sugar and other were established to mobilize economy’s
capital for the industrial development. In 1937(1994 B.S), Nepal Bank Limited as
commercial Bank was established. In the same year, the first individual act was
promulgated which was a favorable step to promote capital market in Nepal. But Rana
family did not like the participation of public in the ownership structure of industries
and all the shares of company were gone to Rana families, the expansion of capital
market to the desired level has been estimated. In 1950(2007B.S) democracy was
established, the interim government were much busy in devising measures to
recognize the sick industries and gave little attention to initiate the development of
stock market. The process of stock market development in the country actually started
in 1976 when the government established Securities Exchange Centre to provide and
develop market for securities. However, visible impact on the development of
financial sector was observed only when the government changed its restrictive policy
and opened up hitherto closed financial sector to private sector and foreign
participation in the establishment of banks. With the adoption of privatization and
economic liberalization policy the process gets further impetus and the financial
institution in Nepal grew at a faster pace especially in quantitative terms. Securities
exchange center was established with the objective of facilitating and promoting the
growth of capital markets. Before its conversion into Nepal stock exchange, it was
only capital market institution undertaking the job of brokering, underwriting,
managing public issues, market making for government bonds and other financial
services. It was converted in NEPSE i.e. Nepal Stock Exchange in 1993.The basic
objective of NEPSE is to impart free marketability and liquidity to the government
and corporate securities by facilitating transactions in its trading floor through
members’ markets intermediaries.

Nepalese capital market was given proper structure in June 1993 with the
establishment of SEBON as the market regulator. Since its establishment, SEBON has
been concentrating its efforts on improving the legal and statutory frameworks which
are the bases for the healthy development of capital market. SEBON is the supreme
body to regulate the Nepalese securities market. As a part of its continuous efforts to
build a sound system, the securities Exchange Act, 1983 was amended for the second
time on Jan 30, 1997. This amendment paved the way for establishing SEBON as an
apex regulatory body as it widened the horizon of SEBON by bringing market

4
intermediaries directly under its jurisdiction and also made it mandatory for the
corporate bodies to report annually as well as semiannually regarding their
performance. The main objective of SEBON is to promote and protect the interest of
investors by regulating the securities market, to monitor and control the entire capital
market, sale and distribution of securities and purchase, sale or exchange of securities.
SEBON was established with the objective to render contribution to the development
of capital markets by making securities transactions fair, healthy, efficient and
responsible. Whereas, its main functions are to provide licenses to stock exchange and
securities business person and to monitor the activities carried by NEPSE to know if
they are in accordance with the laws or not. Despite this, Nepalese stock market is
still underdeveloped and there is lot of shortcomings in Nepalese stock market.
Hence, the present study is conducted on Nepalese stock market in order to find. The
determinants of stock price fluctuation in Nepalese stock market.

1.2 Statement of the Problem

The development of capital market in general and stock market in particular is a must
for a sound industrial development of the country. Capital market institutions help to
mobilize the founds from the surplus unit into the deficit units for productive
investments. As it mobilizes the scattered resources and channels them in productive
sector, it is an effective instrument of expanding productive capacities of the country.
Due to the lack of information and poor knowledge, investors are manipulated or
exploited by the financial institutions or other market intermediaries such as extent
that are investing in common stock are intolerably hazardous. Investor’s attitude and
perception plays a vital role in rational decision which is influenced by the knowledge
and access to the data required for the analysis. Most of Nepalese investors invest
their fund in single securities because of less knowledge about risk-return behaviours
of the securities(Shrestha et al.,2016).

The development of stock market in Nepal is both challenging and difficult. The
problems like lack of professionalism in brokers, independent buyers and sellers, well
trained manpower; management delay of shares, rational investor exist from Nepalese
stock market. Because of embryonic nature, Nepalese stock market is not effective
enough to evaluate the price of stock. There are no private open investment
companies (mutual fund) operating at present time. Therefore, the government needs

5
to create incentives for capital mobilization remove impediments to private sector
development and provide basic legal regulatory reforms (Shrestha et al., 2016).
The companies use different rules and regulation in stock market development. There
is no consistency between Acts and Niyamabali. They are not matching each other.
The special institute incorporated under a special Charter governs accountancy
profession. These institutes regularise the profession and also issues accounting
standards and guidelines. All the members are required to follow it mandatorily which
discharge their duties. These practices help to maintain a reasonable standardize
performance by professional accountants(Dahal, 2015).

You must include some literature regarding the determinants of stock price from
different stock market including NEPSE. Nepalese capital market is very small in
comparison with other developed stock markets. There are a few numbers of brokers,
limited number of listed companies, very few transactions and most importantly,
investors are unknown about the pros and cons of the stock market. The market is
almost totally captured by individual investors who buy very little number of shares
and therefore they do not bother analysing the data and information before buying and
selling stock. The variety of securities available in the market allows each investor to
select asset that suits his risk, preferences and beliefs. However, there is lack of
different types of securities in the stock market. This present study is carried out to
answer the following research questions:
a. What is the effect of earnings per share to stock price in NEPSE?
b. What is the effect of cash dividend to stock price in NEPSE?
c. What is the trend of EPS, DPS, BVPS and MVPS of stock traded on secondary
market?
d. What is the price earnings ratio of selected banks and its impact on stock price?

1.3 Objectives of the Study

The main aim of the study is to identify the determinants of stock price fluctuation in
NEPSE and their relationship with stock price. More specific objectives to the study
are as follows:

a. To measure the effect of earnings per share to stock price in NEPSE.

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 b. To determine the effect of cash dividend to stock price in NEPSE.
c. To identify the trend of EPS, DPS, BVPS and MVPS of stock traded on
secondary market.
d. To analyze the price earnings ratio of selected banks and its impact on stock
price.

1.4Focus of the Study

Establishment of industries and different project has vital role for economic
development of the nation. Financially, it is difficult for an average Nepalese to
launch a project. By raising the scattered funds from a large numbers of investors, by
issuing of share and debenture, such projects can be launched, as there are large,
numbers of middle classes families. The small investors can invest by purchasing
share of such company from primary market during the initial public offering period
or from secondary market. But, the general public and investors do not have adequate
knowledge about the capital market and pricing techniques. Simply the price of share
is determined by the interaction of buyers and sellers in NEPSE(Neupane, 2008).

Investment in share of different companies is highly risky being an ownership capital.

It has interest rate risk, purchasing power risk, bull-bear risk, and management risk,
default risk, liquidity risk, task risk, political risk, industrial risk etc. but most of the
investments are risky. Different factors are responsible to set the share price. Among
them some are quantitative and some are qualitative effect of qualitative, can't be
quantified (Neupane, 2008).

This study is focused on the sensitivity of stock price in NEPSE towards various
factors. Which factors have positive and which has negative effect to determine the
stock price. In other words, this study tends to determine the factor affecting the stock
price. This study is also focused on the capital market development in Nepal and the
investment opportunities for small investors to reduce the foreign dependency on
development process (Dahal, 2015).

1.5Significance of the Study

Stock is a leading indication the situation of economy. When stock market is booming
the economy is good and when stock market is declining the economy is bad. Stock
markets have direct relation with the economic growth. Economic growths come with

7
more earning capacity, opportunities to save and also the opportunity to invest. It
must be noted that economic growth is, to a great extent, dependent on the
industrialization in a country (Doodha, 1962).

It represents the study to find out the problem, prospects and growth in the near
future. What policies can be formulated, what regulatory acts are needed and
necessity of amendments regarding the rules and regulation to develop it and make
the market perfect functioning. The standard is one of the elements to stock market
development. Financial statement should maintain accordingly which fulfil the
requirement of the related parties needed information (Neupane, 2008).

This study will be useful to the university students who are curious to know about the
current status of Nepalese stock market, its growth, issues and challenges for the
development of stock market. Similarly, the recommendations that this study intends
to propose based on its findings are expected to be useful for the policy makers
associated with the development of capital markets. This study is also useful to the
government of our country who can take the decisions accordingly regarding the stock
prices.

1.6Limitations of The Study

None of the study can go beyond the boundary of some limitations. The scope of the
study has been limited in terms of period of study as well as sources and nature of the
data. The following are some of the limitations of the study:

 The study is based on secondary data only and is focused on the annual report
given by the bank where the information was given in reduced form.
 Only financial and statistical tools have been used for analyzing the stock market.
 Out of 27 Class A commercial banks, the study has concerned with the selected
banks.
 The period coverage by the study extends the period of five years only.
 Although there are various aspects of financial management, this research study is
mainly concerned with the stock price behavior in market of the selected banks.

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1.7 Organization of the Study

The study has been organized into the following five chapter:

Chapter I: Introduction
This chapter deals with the background of the study, a review on selected bank, focus
of the study, statement of the problem, objectives of the study, significance of the
study, limitation of the study and organization of the study.

Chapter II: Review of Literature

This chapter is divided into two sections: the first part of the chapter focuses on the
conceptual framework of the study and the second part of the chapter focuses on the
review of literature regarding the review of journals, articles, review of previous
thesis and research gap.

Chapter III: Research Methodology

This chapter deals with the research methodology. In this chapter, the research has
been dealt with the research design, population and sample, sources of data, data
processing and analysis and tools and technique of analysis.

Chapter IV: Presentation and Analysis of Data

This chapter deals with the presentation and analysis of data. It gives a clear picture
of how the collected data has been presented on the study and how it has been
analyzed. More over this chapter focuses on the major findings of the data analysis.

Chapter V: Summary, Conclusion and Recommendations

This chapter deals with elaboration of summary of the study, conclusion made from
the analysis of data and recommendation made on the bases of the major findings and
conclusion made.

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 1. REVIEW OF LITERATURE
This chapter highlights the review of literature regarding the stock market in Nepalese
commercial banks. The chapter is divided into three parts. The first part of the chapter
deals with the conceptual framework regarding stock markets. The second part of the
chapter deals with relating of some available literature including review of journals,
articles and thesis. The third part of this chapter highlights the research gap which has
been found out.

2.1Concept of Common Stock

The common stock represents equity or an ownership position in a corporation. It is a

residual claim in the sense that creditors and preferred stockholders must be paid as
scheduled before common stockholders can receive any payments. In bankruptcy,
common stockholders are in principle entitled to any value remaining after all other
claimants have been satisfied. However, in practice courts sometimes violate this
principle (Gupta, 1991).

The great advantage of the corporate firm of organization is the limited liability of its
owners. Common stocks are generally fully paid and non-assessable, meaning that
common stock holders may lose their initial investment but not more. That is, if the
corporation fails to meet its obligations, the stockholders cannot be forced to give the
corporation the funds that are needed to pay off the obligations (Doodha, 1962).

However, as result of such a failure, it is possible that the value of corporations’ share
will be negligible. This outcome will result in the stockholders having lost an amount
equal to the price paid to buy the shares. Common stock or finance equity share is the
ownership of a company that gives the owner the right to participate in electing the
board of directors and voting on other matter brought before the stockholders in
proportion to the number of shares held (Francis, 1997).

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 1.2Review of Previous Thesis
Paudel (2006) conducted a reheard work on entitled Stock Price Behavior of
Commercial Banks in NEPSE with the objective to examine monthly closing price of
6 listed commercial banks during the period of three consecutive years from 2002 to
2004. The researcher used correlation coefficient, Trend analysis, and run test and
auto correlation. He found in his study that
 Successive price changes were correlated with previous price series. He also
found that most of the stocks did not follow random walk hypothesis. The present
stock prices were dependent to the historical prices.
 The EPS was the most affecting factor for the price change of the stock. Most of
the investors wanted to invest in the shares of commercial banks because the
fluctuation in NEPSE index was due to the transaction of commercial bank shares.
 There were serious limitations in the study. Data used in this study, monthly
closing price of stocks not enough to predict the behavior of share prices.

Neupane (2008) conducted a study on Determinants of Stock Price in Nepal Stock

Exchange taking 11 sample organizations using various financial and statistical tools
like standard deviation, correlation, Trend analysis, t-test, Z-test. He concluded that
 In NEPSE, DPS, BPS and EPS individually do not have consistent relationship
with the market price of share among the listed companies. The pricing behavior
varies from one company to another. But EPS, BPS and DPS jointly have
significant effect in market price shares. So, there may be other major factors
affecting the share price significantly.
 NEPSE is in its primary stage, adopting open outcry system for stock trading and
stockbrokers lack professionalism to create investing opportunities in NEPSE.
Commercial banking sector has dominated the overall performance of NEPSE.
 Manufacturing and processing, trading and hotel sector have weak performance.
So financial intermediaries are strong but their ultimate investment is suffering.
Upadhaya (2015) has conducted a study on “Impact of Stock Price Behavior Entitled
in Nepal Stock Exchange. In her studies the major objective was as following:
 To evaluate the qualitative as well as quantitative factors affecting the stock price
in NEPSE with focus to commercial banks.
 To determine the effect of earning and book value on the stock price.

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 To examine the effect of dividend on the stock price.
 To analyze the market trends of MPS with financial indicators.
 To examine the randomness of share price behavior.

Because of the different nature of the data, the major findings of the study are
presented separately for the secondary data analysis and primary data analysis.
 The study shows that the CV of MPS in BOKL is high among the selected banks.
There is high risk associated in market price of share for the investors and
shareholders of this bank. The CV of MPS in SCBNL is low which indicates that
there is low risk involved in market price of share.
 The CV of EPS in SBL is the highest, which mean that SBL’s common stock, are
riskier as compared to other banks. The CV of SCBNL is lower comparing with
others and it is less risky among all.
 The CV of DPS in EBL is the highest and SCBNL has the lowest. The BOKL and
SBL have also the high coefficient of variation. Thus, it can be concluded that
EBL has higher fluctuation in DPS among all selected banks. The CV of BOKL
and SBL indicates that these banks common stocks are riskier as compared to
other sample banks. The least CV of SCBNL indicates that SCBNL has the
highest consistency in paying dividend.
 The EBL has the highest and SCBNL has the lowest CV of BVPS respectively.
The CV of EBL shows that there is fluctuation in BVPS and CV of SCBNL shows
lower fluctuation among the sampled banks.
 The correlation analysis shows there is high degree of positive relationship of
MPS with EPS among all other different variables and is significant at 0.01 level
of significance (2-tailed).
 The simple Trend analysis of MPS on EPS shows that the MPS of SBL is highly
affected by EPS than the other banks and MPS of SCBNL has not affected by
EPS.
 The simple Trend analysis of MPS on DPS shows that MPS of Nabil and EBL are
highly affected by DPS and MPS.
 The simple Trend analysis of MPS on BVPS shows that MPS of EBL is highly
affected by BVPS than other banks and MPS of SCBNL is lightly affected by
BVPS.

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 The coefficient of multiple determination shows MPS of BOKL and SBL is highly
(totally) influenced by the joint effect of EPS, DPS and BVPS and there is a lesser
amount of variation in MPS of SCBNL.

The findings from the survey are as follows:

 The primary analysis shows that financial reports of companies listed on stock
exchange helps in identifying over or undervalued securities. To change the share
price of a company, publication of financial report has greater value. The majority
of the respondents support the statement that public /listed companies are not
serious towards shareholder’s interests. Minority of the respondents support that
NEPSE and Securities Board are able to protect investor’s interest effectively.
 On the specific opinion about the factors affecting the share price in commercial
banks in Nepal, EPS was the most agreed observation. It means that share price is
strongly affected by EPS.
 The responses shows cash dividend, interest rate, political instability, risk of the
company, information, rumors and whims, NRB rules and regulation affect the
share price.
 Similarly, on influencing factor analysis, forty percent of the respondent believe
fifty to seventy-five volatility in stock price is due to political instability. Sixty
percent of the respondent said that government policy are responsible for present
unwanted change in stock price, fifty percent of respondent express international
environment affect the Nepalese Stock market, only twenty-four percent
respondent express that they purchase share on their own analysis.

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 2. RESEARCH METHODOLOGY
Research methodology means the analysis of specific topic by using proper method.
The research methodology tries to make a clear view of the method and process
adopted in the entire aspect of the study. It is also considered as the path from which
researcher can systematically solve the research problem. This chapter aims to present
a basic framework of the research work, in an efforts have been made to present and
explain the specific research design to attain the research objective.

This chapter describes the methods and process applied in the entire subject of the
study. The study covers the quantities methodology using both financial and statistical
tools and the study is based on secondary data only. Thus, this chapter contains on
research design, population, and sample, sources of data, data processing and analysis
and tools and techniques of analysis.

3.1Research Design
Selection of appropriate research design is necessary to meet the study objectives of
any research. “Research design is plan for collecting and analyzing evidence that will
make it possible for the investigator to answer whatever question he or she has posed
the design of an investigator touches almost all aspect of the research forms the
minute details of data collection to the selection of the techniques of data analysis
(Ragin, 1994).
The study aims to represent the determinants of stock price fluctuations in Nepalese
market by studying the overall financial position of the selected banks. It is based on
recent 5 years’ data from F/Y 2069/70 to 2073/74. The study has been conducted to
assess the current situation of the share prices in the market of the commercial banks
and describe the situation and event occurring at the present context. In this study
descriptive and analytical survey is done. The justification for the choice of these
methods can be various types. The descriptive method is preferred because it includes
reliable data and information covering a long time and avoids several complex
variables operating into formulation and adoption of credit and investment policies
(Shrestha, 2016).

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3.2Population and Sample
In the present context there are 27 A class commercial banks operating in Nepal.
Among them, some of the selected banks have been taken as a sample for the study on
the basis of judgmental sampling method. These sample banks are the pioneer
leading banks in the context of deposits collection and loan payment. The financial
statements of the 5 fiscal years from F/Y 2072/73 to 2076/77 have been taken as
sample data for evaluating determinants of stock price fluctuation in Nepalese market.

3.3Nature and Sources of Data

This study is conducted based on secondary data relating to determinants of stock price
fluctuation in Nepalese market. The secondary data have been extracted from the
annual report of the selected banks. Beside these, the annual report of NEPSE has been
equally reviewed. Further, the directives issued by the NRB also have been taken as the
sources of secondary data. Similarly, various data and information have been collected
from periodicals, managerial and economics magazine, journals etc.

3.4Data Processing Procedure and Analysis

The data collected from various sources were in the raw form. The method of analysis
was classified and tabulated as per the nature of study and in accordance of the data.
Different financial and statistical tools for data analysis were used. The obtained data
analysis has been presented in various tables, charts and diagram with the help of
supporting interpretation.

3.5Tools and Techniques of Analysis

Under this study, financial as well as statistical tools have been used to analyez data
and information, which were collected.

Tools and Techniques of Analysis

Financial Tools Statistical Tools

3.6.1 Financial Tools

In this research study various financial tools have been used for analyzing the data.
The study focuses on NEPSE Index and the market ratios as Earnings per share

15
(EPS), Dividend per Share (DPS), Market Value per share (MVPS) and Book Value
per share (BVPS).

i. Nepal Stock Exchange INDEX (NEPSE INDEX)

NEPSE represents the short form of Nepal Stock Exchange and NEPSE index
indicates the increase or decrease of total market capitalization of companies’
transactions that are listed in Nepal Stock Exchange. This indicates the increase or
decrease of overall market; therefore, it has significant importance to investors. The
investors who cannot analyse the share market, they make decision of purchasing or
selling of shares with the help of this index. It is expressed as
n

∑ Pic × Qic
NEPSE Index= i=1
n
×100
∑ Pio × Qio
i=1

Where, Pic = Current price of i th asset

Pio = Original or base price of i th asset

Qic = Current quantity of i th asset

Qio = Original or base quantity of i th asset

ii. Earnings Per Share

Earnings per share, also called net income per share, is a market prospect ratio that
measures the amount of net income earned per share of stock outstanding. In other
words, this is the amount of money each share of stock would receive if all of the
profits were distributed to the outstanding shares at the end of the year. Earnings per
share are the same as any profitability or market prospect ratio. Higher earnings per
share are always better than a lower ratio because this means the company is more
profitable and the company has more profits to distribute to its shareholders. Although
many investors don't pay much attention to the EPS, higher earnings per share ratio
often make the stock price of a company rise. Since, so many things can manipulate
this ratio; investors tend to look at it but do not let it influence their decisions
significantly. It is expressed as:

16
EPS=Total Earningsavailable ¿ the shareholder ¿
Total Number of Shares Outstanding

ii Dividend per Share

Dividends per share show the percentage of the profit earned by a company that is to
be given to the shareholders. This amount is important to both the shareholders and
investors. Shareholders care about this figure because dividends are one way they can
gain a financial return after buying shares in a company. Investors use this ratio as one
method of analysing the financial capabilities of a company. Dividends per share only
accounts for dividends that are to be distributed regularly, rather than one-time
payments to shareholders. It is expressed as:

DPS=Total Dividend paid ¿ the shareholders ¿

Total Number of Shares Outstanding

iii. Market Price per Share

The market value per share or fair market value of a stock is the price that a stock can
be readily bought or sold in the current market place. In other words, the market value
per share is the going price of a share of stock. The stock market and economy
changes every day and with it comes fluctuations in company stock prices. A stock's
market value is largely influenced by not only the economy as a whole but also
investors' predictions and expectations. It is expressed as

Total Market Capitalization

MVPS=
Total Number of Shares Outstanding

iv. Book Value per Share

Book value per share (BVPS) is a ratio used to compare a firm's common
shareholder's equity to the number of shares outstanding. In the case that the firm
dissolves, it is the amount the shareholders will receive. In other words, Book value
per share compares the amount of stockholders' equity to the number of shares
outstanding. If the market value per share is lower than the book value per share, then
the stock price may be undervalued. Thus, this measure is a possible indicator of the
value of a company's stock; it may be factored into a general investigation of what the
market price of a share should be, though other factors concerning cash flows, product

17
sales, and so forth should also be considered. The measurement is rarely used
internally; instead, it is used by investors who are evaluating the price of a company's
stock.

It is expressed as:
Book Net Worth Value
BVPS=
Total Number of Shares Outstanding

3.6.2 Statistical Tools

Statistical tools are the measures or the instruments to analyze the collected data from
different sources. In statistics, there are numerous statistical tools to analyze various
natures. In this study, the researcher has used the following statistical tools to analyze
the data.

i. Arithmetic Mean or Average ( x )

An average is a single value that represents a group of values. It depicts the
characteristic of the whole group. It is a representative of the entire mass of
homogeneous data, its value lies somewhere in between the two extremes, i.e. the
largest and the smallest items. It is obtained by dividing the sum of the quantities by
the number of items. Therefore, it is calculated as

x=
∑X
N

Where,
x= A rithmetic Mean∨Average
∑X = Sum of the sizes of the items
N= Number of items

ii. Standard Deviation (S.D.)

It is the most usual measure of dispersion and it represents the square root of the
variance of a group of numbers, i.e., the square root of the sum of the squared
differences between a group of numbers and their arithmetic mean. Generally, it is
denoted by σ (read as sigma). Therefore, it is calculated as:

σ=
√ ∑( x−x) ²
N −1

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Where,
σ =Standard Deviation
N = Number of items in the series.
X = Average∨Arit h metic Mean
X = Variable

The standard deviation measures the absolute dispersion or variability of a

distribution; the greater the amount of dispersion or variability the greater the
standard derivation, for the greater will be the magnitude of the deviations of the
values from their mean.

iii. Coefficient of Variation

Karl Pearson developed this measurement to measure the relative dispersion. It is
used in such problems where we want to compare the variability of two or more
series. The CV is the relative measure of dispersion, comparable across
distribution. It is denoted by dividing the arithmetic mean to standard deviation.

σ
C . V .= x 100 %
X

Where,
CV =Coefficient of Variation
σ =Standard Deviation
X =Average ∨Arit h metic Mean

iv. Coefficient of Correlation

The correlation analysis refers to the techniques used in measuring the closeness of
the relationship between the variables. It helps us in determining the degree of
relationship between two or more variables. It doesn't tell us anything about cause and
effect relationship. It describes not only the magnitude of correlation but also its
direction. The coefficient of correlation is a number, which indicates to what extent
two variables are related to what extent variations in one go with the variations in the
other. The value of coefficient of correlation always lie between +1 and -1 indicating -
1 as perfect negative relationship,+1 as perfect positive relationship, and of 0 as no
relationship between the variables. It is defined by Karl Pearson as:

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 N ∑ XY −∑ X ∑Y
r=
√ N ∑ X −( ∑ X ) x √ N ∑Y ²−(∑Y )²
2 2

v. Probable Error
The probable error denoted by P.E. is used to measure the reliability and test of
significance of correlation coefficient. Significance of relationship has been tested by
using the probable error (P.E.) and the following model denotes it:

2
1−r
P . E .=0.6745 x
√N

or

P . E .=0.6745 x S . E .

Where,

2
1−r
S . E .=
√N
S.E. = Standard error of correlation coefficient
r = correlation coefficient
N = number of pairs of observations
If r is less than PE (i.e. r < PE) the value of ‘r’ is not significant no matter how high
the value of r is.
If r is greater than 6 PE (i.e. r > 6PE) the value of ‘r’ is significant
If r is equal to PE (i.e. r = PE) the value of ‘r’ is no correlated

vi. Regression Analysis and Trend Analysis:

Regression is a statistical tool, which is used to determine the statistical relationship
between two variables and to make the estimation or prediction of one variable based
on another variable. Therefore, Trend helps to estimate the value of one variable from
the given value of another. This analysis also helps to describe the average
mathematical relationship between two variables known as simple linear Trend
analysis. It’s “Simple” because there is only one independent variable and “Linear”
because the relationship between the independent and dependent variables is assumed
linear.

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Trend analysis is one the most important methods, which enables to find out the
actual position of business cycle over a period of years. The study of the data over a
long period enables us to have a general idea about the pattern of the behavior of the
trend under consideration this help in business forecasting and planning future
operation. The trend analysis also enables us to compare two or more time series over
different periods and draw important conclusion about them. In this study, the
researcher has use least square method for analyzing trend analysis. It is computed as
follows:
Y = a + bX
Following two equations can be developed putting the above values in normal
equation

∑Y = Na + b∑X

∑XY= a∑X+ b∑X2

Where,

∑ Y −b ∑ X
a=
N

N ∑ XY −∑ X ∑Y
b=
N ∑ X ²−(∑ X ) ²

Where,

Y = Value of dependent variable

a = Intercept of trend line
b = Slope of trend line
X = Value of the independent variable
N = Number of variables

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Fischer, D.E.E. & Jordan, (2000). Security analysis and portfolio management.
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