Impact of fundamental factors on stock price: a case based approach on pharmaceutical companies listed with dhaka stock exchange

Abstract

This paper aims at identifying the influence of various fundamental factors in determining the market price of shares in Dhaka Stock Exchange (DSE). For this study 14 listed pharmaceutical companies have been considered which comprises of 70% (14 companies out of 20) of the total listed companies under pharmaceuticals and chemical industry (PCI) in Dhaka Stock Exchange (DSE). Time frame of the research is seven years slot (2005 to 2011). The analysis is done in two stages. The first segment of the paper attempts to find out the co-relation between market price of the stocks and companies’ performance, which includes earning per share (EPS), dividend per share (DPS), return on equity (ROE), return on assets (ROA), and the ratio of fixed asset to total asset (FA/TA). In the second segment, the market price of stocks under sample has been compared to fundamental or intrinsic price. This paper considers Net Asset Value (NAV) as ideal value of stock. The study depicts that the market price is very insensitive toward fundamentals of companies and current market price is highly overvalued compared to the ideal value of stocks, which reinforces that fact that the impact of unauthorized information has a greater influence in determining the price of stocks in pharmaceuticals and chemical industry in DSE.