Abstract:
The financial performance as an indicator of the success of the firm can be used as a benchmark for making investment decisions. The studies on financial performance in determining share prices has been developed throughout the time period and various studies have been presented contradictory findings, most of which were undretaken out side the Sri lankan context. Manufacturing companies which are listed in Colombo Stock Exchange (CSE) represent significant portion, when considering the market capitalization of the stock market. Therefore it is useful to identify how the share prices fluctuate over the period of time. But, no sufficient empirical studies have been undertaken in the area under investigation particularly in the Sri Lankan context. Even the available studies do not represent the manufacturing sector and selected sample sizes are not at acceptable level. The objective of this study was to identify the impact of financial performance on share price of listed manufacturing companies in CSE. In this study, twenty manufacturing companies were selected from a population of 42 manufacturing companies to collect data using annual reports for the period from 2013 to 2016. Financial performance was measured by Return On Assets (ROA) and Earning Per Share (EPS). Average Share Price (ASP) was calculated by using the average share price throughout the year. Firm size was used to avoid extraneous effects. Regression analysis has been utilized to find out the impact of firm performance on share price. According to the results of the study there is an impact on share price by ROA and EPS. Furthermore r2 values reveal that firm performance is the determining factor of the share price and firm size didn’t prove to be an important explonatory variable of share price.It is suggested for future studies to expand the study into other industry in CSE.
