The Effect of Financial Ratios, Firm Size and Operating Cash Flows on Earning Per Share: Evidence from Listed Plantation Companies of Colombo Stock Exchange (CSE) in Sri Lanka

Abstract

Financial information is useful to the users such as investors, management, bankers and creditors etc for understanding the financial position of the company. According to the empirical evidence, accounting information help investors in predicting firms‟ future financial performance, such as earnings and growth, and accounting information has impact on share price [1]. Thus, this research paper investigates the effect of financial information on earning per share of the listed plantation companies in Sri Lanka by using six categories of financial ratios such as Profitability, Liquidity, Leverage, Turnover, Firm Size and Cash Flow. The study uses six performance measures in terms of net profit margin (NPM), return on equity (ROE), current ratio (CR), debt to equity ratio (DER), total asset turn over ratio (TATR), log of total assets (LTA) and cash flow from operations into sales ratio (CFSR) as independent variables whereas earning per share (EPS) as dependent variable. The investigation is performed by using Pearson‟s Correlation and the Regression Analysis for a sample of nine (09) listed plantation companies and the data gathered in their annual financial statements published for their statutory requirements for the period from 2007 - 2011. The empirical results of the study indicate thatROE has the most significant impact on EPS. Further, ROE has significant positive correlation with EPS at a 0.01 (2 tailed) significant level. Therefore, the financial managers or accountants should make trustful decisions must to be taken on finance which are highly concentrating on the maximization of shareholders‟‟ wealth as well as the firm value.