Determinants of P/E Ratio: A Study on

Listed Engineering and Pharmaceutical &

Chemical Companies in DSE
 PROJECT REPORT
ON
“Determinants of P/E Ratio: A Study on Listed Engineering and
Pharmaceutical & Chemical Companies in DSE”

Supervised By:
M. Sadiqul islam
Professor
Department of Finance
University of Dhaka

Prepared By:
MD. Amimul Islam
ID: 38054
Department of Finance
University of Dhaka

Date of submission: 20 March, 2021

 LETTER OF TRANSMITTAL
20 March, 2021

M. Sadiqul islam

Professor

Department of Finance

University of Dhaka

Subject: Submission of Project Report on “Determinants of P/E Ratio: A Study on Listed Engineering
and Pharmaceutical & Chemical Companies in DSE”.

Dear Sir,

I tried my level best to provide proper and relevant information for the preparation in this project
report. Furthermore, I heartily welcome any clarification and suggestion about any view and conception
promulgated in the report. At the beginning of this project I found things very difficult but, by following
your advice and your assistance over the time I finally completed it. I learned how to work and
incorporate in the project. I appreciate your patience and support. I have gathered data from various
online, written and secondary sources. I sincerely expect that you would be kind to accept my report for
evaluation and oblige thereby.

I am further declaring that, I did not submit this report anywhere for awarding any degree or certificate.

Thank you for giving me this opportunity for preparing this project.

Sincerely yours,

……………………………………………………. …..…………………………….

Md. Amimul Islam Date

ID: 38054
Department of Finance

i
 CERTIFICATE OF SUPERVISOR
I hereby declare that the report entitled “Determinants of P/E Ratio: A Study on Listed
Engineering and Pharmaceutical & Chemical Companies in DSE “is an original work by Md.
Amimul Islam, ID: 38054, Department of Finance, University of Dhaka. He has completed the
project under my supervision and submitted the report for partial fulfillment of the
requirement of the degree of Master of Business Administration (MBA) at University of Dhaka.

I wish him all the best for his effort and he is perm itted to submit this thesis report.

……………………….................................. …………………………………

M. Sadiqul islam

Professor

Department of Finance

University of Dhaka

ii
 DECLARATION OF THE STUDENT
I am MD. Amimul Islam, ID: 38054, a student of Department of Finance, University of Dhaka do hereby
declare that the project report on “Determinants of P/E Ratio: A Study on Listed Engineering and
Pharmaceutical & Chemical Companies in DSE “has done by me under the guidance of M. Sadiqul islam,
Professor, Department of Finance, University of Dhaka and the report has not been submitted before by
me and any others one for any degree, diploma, title or recognition.

………………………………………………… ……………………………..

iii
 ACKNOWLEDGEMENT
All praises to the Almighty, who has bestowed his kindness and mercy on me by giving me the
opportunity, courage, strength and patience to complete the report.

This project report would not have been possible without the guidance and the help of several
individuals who contributed and extended their valuable assistance to prepare and complete of
this report.

At first I am going to express my gratitude to my honorable instructor M. Sadiqul islam,

Professor, Department of Finance, University of Dhaka who has guided me from the very
beginning for my project report. Again thanks to him for helping me and also providing his
precious time as well as attention for evaluating accounting information on stock.

I also thank to some senior students for their assistance in many stages of completing this task
and my friends for their ingenious advices and supports.

I also feel proud to express my pleasure from the core of my heart to Department of Business
Administration for granting me the permission to do the thesis on the topics. I also thank to the
parties who helped me direct or indirectly for the well completion of the thesis paper.

ABSTRACT
iv
Price-to-Earnings ratio, one of the most widely used tools for stock selection, a relative
valuation technique which always remained as a center concern of investors and market
analysts. Variations of P/E ratio have significant impact on investor’s perception and several
factors are responsible for the variations of P/E ratio. This paper is an attempt to identify the
major determinants for P/E ratio of manufacturing companies listed in Dhaka stock exchange.
Descriptive statistics, correlation matrix and regression analysis are used to accomplish the
objectives of this paper. Results reveal that Free float share is significant determinants of P/E
ratio where equity multiplier have negative relationship with P/E ratio but not influential. But
leverage and Operating Cash flow have positive influence on P/E ratio but it is not significant.
This paper is an evidence for fundamental analysts or decision makers to evaluate determinants
that explain variations in Price-to-Earnings ratio of manufacturing firms of Bangladesh.

For the purpose of estimating the effects of independent variables on the PE ratio, two
estimation models were used such as the random effects, and the fixed effects. We accept fixed
effect model as our appropriate model for estimation.

The study is about to investigate the determinants of PE ratio of listed Engineering and
Pharmaceutical & Chemical Companies in DSE over the period 2015-2020.

v
 TABLE OF CONTENTS
Title page
Letter of transmittal ………………………………………………….……………………………… i
Certificate of supervisor…………………………………………………….……………………….ii
Declaration of the student…………………………………………………….……………………iii
Acknowledgement……………………………………………………………………………………..iv
Abstract ………………………………………………………………….…………………………………v
Contents …………………………………………………………………………..……………………….vi-vii
List of tables………………………………………………………………………………………………..viii
List of graphs………………………………………………………………………………………………ix

CHAPTER ONE: INTRODUCTION

1.1 Origin of the study ………………………………………………………………………………..1
1.2 Objectives of the study……………………………………………………………………….…1-2
1.3 Motivation for the study…………………………………………………………………….….2

CHAPTER TWO: LITERETURE REVIEW

2.1 Findings from previous studies…………………………………………………………..….3-4

CHAPTER THREE: METHODOLOGY

3.1 Sampling and data collection………………………………………………………………….5
3.2 Variable description………………………………………………………………………….……5
3.3 Dependent Variable……………………………………………………………………………….6
3.4 Independent variables……………………………………………………………………………6
3.4.1 Equity Multiplier………………………………………………………………………………….6
3.4.2 Free float shares……………………………………………………………………….…………6
3.4.3 Operating cash flow………………………………………………………………………….…6
3.4.4 Earning per share……………………………………………………………………………..6

vi
3.5 Empirical Model…………………………………………………………………………………..6-7
3.6 Generation of Hypothesis…………………………………………………………………………..…..7

CHAPTER 4: PREVIEW OF STOCK MARKET DURING COVID

4.1 Why the market performed well…………………………………………………..……..8

CHAPTER 5: ANALYSIS AND FINDINGS

5.1 Descriptive statistics……………………………………………………………………….……9
5.2 Regression analysis……………………………………………………………………………...10
5.3 Hausman Test………………………………………………………………………………..….…11
5.4 Regression Results…………………………………......………………………………..…..…11

CHAPTER 6: GRAPHS AND TABLES OF KEY VARIABLES

6.1 Tables and Graphs……………………………………………………………………...………..12-21

CHAPTER 7: CONCLUSION
7.1 Conclusion and Policy Implications…………………………………………………………22

CHAPTER 8: REFERENCES………………………………………………………….23

LIST OF TABLES

vii
Table-01: Descriptive Statistics…………………………………………………………………………….9

Table-02: Model Summary…………………………………………………………………………………..10

Tables-03: Hausman Test……………………………………………………………………………………..11

Table-04: Market Price Mean……………………………………………………………………………....12

Table-05: EPS Mean……………………………………………………………………………………………..13

Table-06: PE Ratio Mean………………………………………………………………………………….…..14

Table-07: Total Asset Mean………………………………………………………………………….....…..15

Table-08: Total Equity Mean…………………………………………………………………………….…..16

Table-09: Net Income Mean……………………………………………………………………….………..17

Table-10: Turnover Mean……………………………………………………………………….…………...18

Table-11: Operating Cash Flow Mean…………………………………………………………………..19

Table-11: ROA Mean……………………………………………………………………………………….…..20

Table-13: ROE Mean………………………………………………………………………….……...21

LIST OF GRAPHS
Graph-01: Market Price Mean…………………………………………………………………………….…..12

viii
Graph-02: EPS Mean…………………………………………………………………………………….13
Graph-03: PE Ratio Mean……………………………………………………………………………..14
Graph-04: Total Asset Mean…………………………………………………………………………………….15

Graph-05: Total Equity Mean…………………………………………………………………………………..16

Graph-06: Net Income Mean……………………………………………………………………………………17

Graph-07: Turnover Mean……………………………………………………………………………………….18

Graph-08: Operating Cash Flow Mean………………………………………………………………..…...19

Graph-09: ROA Mean…………………………………………………………………………….……..20

Graph-10: ROE Mean…………………………………………………………………………………….21

ix
 CHAPTER 1

INTRODUCTION

Organization’s long run survival or potentiality largely depends on its competitive advantages.
Possibility of creating these competitive advantages largely depends on its competitiveness in
stock market. Publicly listed companies always try to capture relative attractiveness in the stock
market and wealth maximization goal always direct the firm to do so. But from the opposite
side the investors try to judge the absolute position and the relative attractiveness of the firm.
In this context the researchers, market analysts, fund managers and investors rely on various
valuation techniques. However most of them rely on Price-to-Earnings ratio for valuing and
evaluating individual stocks whereas P/E ratio is a useful metric for evaluating the relative
attractiveness of a company's stock price compared to the current earnings of a firm. P/E ratio,
measured as dividing stock price by earnings per share, alternatively known as “Price Earnings
Multiples”. Considerable research has focused on Price-to-Earnings (P/E) ratio in analyzing the
stock market performance through time series analysis. Sometimes these comparisons of P/E
ratio may be misleading due to lack of relevancy of this ratio in firm performance unless
changes in the underlying fundamental determinants of P/E are taken into account. Previously
researchers tried to identify the determinants of P/E ratio that can influence investor’s
confidence towards firms for making investment decisions. Existing literature has studied the
determinants of Price-to-Earnings (P/E) ratio by using various proxies of growth, dividend
payout, risk and discount rate generally in developed countries. However, some studies have
analyzed the factors influencing price earnings ratio in developing countries additionally to firm-
specific factors, fewer studies have examined sector, size and year effects. The result was mixed
and not conclusive in nature. Here this paper is also an attempt to identify some conclusive
remark about the major determinants of P/E ratio.

1.1 Origin of the study:

When considering about the determinant of the price earnings multiple of listed companies, it
has some impacts on the performance. Therefore the price earnings multiple of the companies

1
has the influence on the performance of listed companies. Further, in many countries, many
investors or public don’t have the perfect knowledge and understandings when dealing with
the investment activities. Therefore, it should be made clear understanding about the
determinant of the price earnings multiple of listed companies. On this basic the research
problem of this study, is which determinant has the higher influence on price earning multiple
of the Listed Companies in DSE

1.2 Objective of study:

The research objective answer the question, what will be the result of this research, or what
can be learned from this research? The desired result or objectives of this study are

 To empirically examine determinants of the price earning multiple of the listed

companies in DSE.
 To identify the relationship between free float shares and Price earning multiple
 To identify the relationship between the leverage and Price earning multiple.
 To find the determinant which have a higher influence on Price earning multiple

1.3 Motivation for study:

This study aims to identify the determinant of the price earning multiple. The results of this
study are deemed to benefit the following primary users. External investors and shareholders
who will be able to know the main variables that affect the price earning and to observe firm’s
performance before making the decisions of whether or not to buy or sell the stock.
Professional managers who can consider these determinants of price earning to establish the
optimal financing vehicle that helps achieve the companies’ and firm’s objectives. Lenders who
may find the results in evaluating the firm’s performance before giving loans with particular
emphasis on the level of risk involved. Finally, academicians who may have an insight into the
management thinking and their perception of the capital structure and its major determinants.
Moreover, the findings of this research lead potential researchers’ further investigation.

2
 CHAPTER 2

LITERETURE REVIEW

Price-to-earnings ratio has gained enormous concern for evaluating individual stocks among the
investors and other related parties. Numerous studies have been performed regarding the P/E
ratio. Empirical results from these studies are mixed and sometimes controversial. This study is
an attempt to reveal the determinants of P/E ratio, which was performed previously by
different researcher but quite in different context.

2.1 Findings from previous studies:

(Dr. T. Afza and Ms. S. Tahir, 2012) found in their study that earnings growth has significant
positive effect on price earnings ratio. K. C. Parker (2005) found there to be a positive
relationship between the payout ratio and earnings growth across the United States, Canada.
Dr. T. Afza and Ms. S. Tahir (2012) found that leverage is negatively correlated with price
earnings ratio. The estimated results a negative effect of leverage on P/E ratio, supporting of H.
Ramcharran (2002), C. P. Jones (2000), and W. Beaver and D. Morse (1978). H. Arslan, Y. Iltas
and T. kayhan (2017) argued that P/E decreases as the leverage of company increases. The
uptrend in leverage bodes the bankruptcy risk of the firms. This has a negative effect on market
multiples. The increase in the working capital need is also a sign of risk levels of the companies
and it decreases PE ratios, all other factors are fixed, in the average. In other words, even if the
company has a strong net profit, it may lose its net profit due to investment in working capital
and cannot generate cash in the bottom line. Investors seem to take this into account working
capital effect in the target PE formation. M. Taliento (2013) and H. Wenjing (2017) in their
study they used return on equity (ROE) to correlate price earnings ratio. H.Wenjing (2017)
illustrates that (ROE) is the direct determinant of P/E ratios conclude that ROE is negatively
related with P/E ratio. S. H. Penman (1996) gave a detailed discussion about the theoretical
essence of P/E ratio and return on equity (ROE). The study concludes that P/E ratio is a united
decision of current and future ROE; it has negative relation between current ROE. J. Ohlson and
Z. Gao (2006) theoretically predict a U-shaped relation between the forward P/E ratio and
return of equity (ROE). They propose that firms with very high or very low ROE have higher

3
forward P/E ratio than other firms. Dr. Talat Afza and Ms. Samya Tahir(2012), Yuga Raj
Bhattarai (2014), Gurdip Baksi and Amy Chan (2000), Keith Anderson and Chris Brooks (2006),
Anthony Flint, Andrew Tan and Gary Tian (2010), Dr. Mohammad Abdelkarim Almumani
(2014) used firm’s size as their independent variable to correlate with price earnings ratio. Dr.
Talat Afza and Ms. Samya Tahir (2012) found a negative relationship of size with P/E ratio for
the first three years of study i.e. 2005, 2006 and 2007, whereas sign turned to positive for the
next two years i.e. 2008 and 2009. This implies that during the stock market growth, investors
value more the shares of small firms as they have growth opportunities but as the stock market
start declining investors pull out their investments from small firms and prefer to invest in the
shares of large and stable firms. In Yuga Raj Bhattarai (2014), it was found that size is
significantly positively related with price earnings ratio which means that these variable move
together with share prices. Anthony Flint, Andrew Tan and Gary Tian (2010) found in his
research paper that the size variable indicates that larger firms have slower earnings growth
than smaller firms. T. Afza and S. Tahir (2012) found that dividend payout ratio is the most
important determinants of price earnings ratio. Y. R. Bhattarai (2014) and Dr. M. Azam (2010)
found that dividend payout ratio has the significant positive association with P/E ratio but M.
Taliento (2013) identify that dividend payout ratio has insignificant relationship with price
earnings ratio. In the study of Dr. M. A. Almumani (2014), it is found that dividend payout ratio
is negatively correlated with price earnings ratio. In the study of H. Wenjing (2017), it is found
that dividend payout ratio does not effect on the price earnings ratio. B. Jitmaneeroj (2017)
concludes that the relationship between dividend payout ratio and price earnings ratio is
insignificant.

CHAPTER 3
4
 METHODOLOGY

In capital market P/E ratio is one of the most dominant factors. Furthermore, many studies
have conducted to make a concluding remark about the determinants of P/ E ratio. But in real
world, this issue is a complex term because the uniqueness of each market and each industry
can alter noticeably the ultimate conclusion. Till now, it’s an unresolved issue and this is highly
true for the country like Bangladesh where the capital market is not enough matured in terms
of quality and time. So this article is an attempt to identify the validity of some most common
factors as the determinants of P/E ratio.

In this context, the research question of this article is as follow:

Whether the earnings growth, total asset, total equity Share number, return on asset, return on
equity, size, operating cash flow have any relationship with P/E ratio?

Whether the relationships of earnings growth, total asset, total equity Share number, return on
asset, return on equity, size, operating cash flow with P/E ratio are positive or negative and in
what extent?

3.1 Sampling and data collection:

This article is an outcome of all the listed Engineering and Pharmaceutical & Chemical
Companies in Dhaka Stock Exchange (DSE). The sample of the study consists of 53 companies.
The period for this study is selected from 2015 to 2016. All the data are secondary in nature and
are collected from the financial statement of the selected companies. There have been 318
observations.

3.2 Variable description:

This article is an attempt to identify the determinant of P/E ratio. So price/earnings ratio is the
dependent variable for this study. In this respect, a large number of factors are available as
independent variables. We have selected 3 factors as dependent variable i.e. leverage free float
shares and ocf_eps.

3.3 Dependent Variable:

5
Price-earnings ratio (P/E ratio): The price-earnings ratio (P/E ratio) measures its current share
price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the
price multiple or the earnings multiple.

Price-earnings ratio (P/E ratio) = Market Value per Share / Earnings per Share

3.4 Independent variables:

3.4.1 Equity Multiplier: The equity multiplier is a risk indicator that measures the portion of a
company’s assets that is financed by stockholder's equity rather than by debt. It is calculated by
dividing a company's total asset value by its total shareholders' equity. Generally, a high equity
multiplier indicates that a company is using a high amount of debt to finance assets. A low
equity multiplier means that the company has less reliance on debt.

3.4.2 Free float shares: Free float, also known as public float, refers to the shares of a company
that can be publicly traded and are not restricted by insiders. In other words, the term is used
to describe the number of shares that is available to the public for trading in the secondary
market.

3.4.3 Operating cash flow: Operating cash flow (OCF) is a measure of the amount of cash
generated by a company's normal business operations. Operating cash flow indicates whether a
company can generate sufficient positive cash flow to maintain and grow its operations,
otherwise, it may require external financing for capital expansion.

3.4.4 Earnings per share (EPS): EPS is calculated as a company's profit divided by the
outstanding shares of its common stock. The resulting number serves as an indicator of a
company's profitability. It is common for a company to report EPS that is adjusted for
extraordinary items and potential share dilution. The higher a company's EPS, the more
profitable it is considered to be.

3.5 Empirical Model:

Panel data is the combinations of cross-sectional and times series data. This study tests the
influence of changes in combination of different variables of the P/E ratio of the listed

6
companies of Dhaka stock exchange. This study employs the panel data analysis that allows the
unobservable heterogeneity for each observation contained in the sample to be removed and
multicollinearity among independent variables to be alleviated. The data for this analysis used
the cross sectional and time series data (strongly balanced panel data) for 53 companies during
the period from 2015 to 2020.

For the purpose of estimating the effects of independent variables on the share price, three
estimation models were used such as pooled ordinary least squares (OLS), the random effects,
and the fixed effects. This study employs Ordinary Least Squares (OLS) that may produce
inconsistency of heteroscedasticity and multicollinearity problems. The main difference
between random effects and fixed effects is that fixed effects permits for correlation between
unobserved effects and the explanatory variables while random effects needs to be
uncorrelated. In addition, this study applied the Durbin-Wu-Housman specification test to find
out which model, either fixed or random effects, best describes our estimation.

In order to estimate the determinants of P/E ratio of listed commercial banks in Bangladesh,
the study conducted a liner regression analysis using the following regression model. The model
used to determine the association between the dependent and independent variables.

P/E ratio= α0 + α1 (free_float_shares) + α2 (equity_multiplier) + α3 (ocf_eps) + C

3.6 Generation of Hypothesis:

According to the objectives, and taking into account the previous research, the research
hypotheses that this study investigates are:

H0: There is no significant relationship between free float share and P/E ratio.

H01: There is no significant relationship between equity multiplier and P/E ratio.

H02: There is no significant relationship between operating cash flow and P/E ratio.

CHAPTER 4

7
 A BRIEF PREVIEW OF STOCK MARKET IN BANGLADESH
DURING COVID-19

Stock investors are having a very disappointing year in 2019 and the market was largely down
by lack of confidence, liquidity crisis and regulatory challenges. But By the mid of the first day in
2020, during July-September period of 2020, DSE has been Asia's best-performing capital
market. In terms of gains in the key index, Bangladesh’s stock market performance was also the
highest. According to research by Asia Frontier Capital, DSEX, the benchmark index of the
Dhaka Stock Exchange (DSE), posted a double digit growth by 24.4% in Q3 (July-September), of
2020, the highest gain in key index among the world’s top performing stock exchanges. Very
attractive valuations, lower interest rates, smothered economic reopening after the shutdown
to stop the spread of the coronavirus, better remittance inflow and recovery in export earnings
have largely contributed to this rally, the report findings show. Bangladesh’s exports earnings in
July rose $3.91 billion, from $2.71 billion in June, while remittance inflows continued to rise and
reached $2.60 billion in July.

4.1 Why the market performed well:

Stock market stakeholders welcomed the performance and investors’ improved confidence to a
boost by the restructuring of the stock market's regulatory body. Stock investors were getting
their confidence back due to some punitive and reformative action taken by the BSEC. The new
commission has been trying to make the market investor-friendly. Declining interest rate has
encouraged investors to pour funds into the stock market instead of depositing them with the
banks. Over the first six months of the year, the DSE key index declined by 483.65 points,
shedding Tk 28,080.9 crore from market capitalization as it remained closed from March 26 to
May 28 due to the lockdown to stop the spread of coronavirus. On March 19, the BSEC
launched a new circuit breaker to keep the stock market stable and to halt the free fall, which
yielded a positive outcome for the indexes. PE ratio in 2019 was lowest. In 2020 it is 121 times.

CHAPTER 5

8
 ANALYSIS AND FINDINGS

5.1 Descriptive statistics:

Table-01: Descriptive Statistics

Mean Std. Dev Minimum Maximum

Price 164.5015 286.7702 3.6 2138.8
Eps 5.372255 11.33714 -9.88 84.01
PE 73.776 300.6043 -777.5 4206.667
Total Asset 9710000000 15000000000 31000000 96900000000
Equity 5200000000 9110000000 -1210000000 67900000000
Operating Profit 593000000 1520000000 -798000000 13000000000
sales 6260000000 12100000000 -92500000 83100000000
Operating CF 746000000 3050000000 -8020000000 23800000000
ROA 0.053831 0.0835538 -0.6467424 0.5283551
ROE 0.1168045 0.1874665 -0.2927326 1.906779
Paidup_cap 1070000000 1220000000 3417750 7890000000
nshares 107000000 122000000 341775 789000000
Inst_shares 23200000 25800000 11040 95100000
Pubic_shares 35500000 46200000 76660.13 289000000
Spon_shares 40900000 51600000 0 273000000
Foreign_shares 5181904 21400000 0 132000000
Gov_shares 781594.8 3231861 0 17800000
nshar_free_float 63900000 80600000 143408.8 516000000
eq_multiplier 2.256348 1.63434 -2.391778 11.5162
ocf_per_share -9.347327 297.3818 -5272.318 149.1368
ocf_eps -4.541293 111.1842 -1967.283 75.24268

Table 1 depicts the descriptive statistics of the sample which includes the minimum value,
maximum value, mean value and standard deviation. Price earnings ratio shows a mean value
of 73.776 and standard deviation of 300. Though the minimum value of P/E ratio is -777.5 but
the mean value is satisfactory for the investors. Leverage has the lowest standard deviation
among all the variables. This indicates that during the study period, the listed manufacturing
firms of DSE have same proportion of debt in respect of the total asset.

5.2 Regression analysis:

9
 Table-02: Model Summary

In this model, Firm which has relatively more free float shares has low PE ratio. IT is signification
variable. There also negative impact between equity multiplier and PE ratio but it is not
significant. Business firm who has more operation cash flow than eps has positive relationship
with PE ratio but it is not significant variable.

5.3 Hausman Test:

10
Tables-03: Hausman Test

Hasumen test indicates which method gives better result. It the probability is less than 0.05,
fixed effect is selected. The probability is 0.9862 hence random effect regression was
conducted.

5.4: Regression Results:

There is one significant variable found which free float shares is and there is negative impact
with PE ratio. Firms which have higher free float shares have lower PE ratio. Rest two variables,
equity multiplier, and ocf_eps is insignificant variable. We may assume that large corporation
has lower PE ratio.

11
 CHAPTER 6

GRAPHS AND TABLES OF KEY VARIABLES

6.1 Tables and Graphs:

Table- Market Price

04: Mean
Market
Price
Mean
XYear
2015 162.5979
2016 142.9491
2017 162.3283
2018 189.517
2019 152.8226
2020 176.794

Graph-01: Market Price Mean

Market Price Mean

200 189.52
176.79
180 162.6 162.33
152.82
160 142.95
140
120
Price

100
80
60
40
20
0
2014 2015 2016 2017 2018 2019 2020 2021
Year

12
 Table-05: EPS Mean

Year EPS
Mean
2015 5.440566
2016 5.76
2017 5.156981
2018 5.710566
2019 5.237925
2020 4.927491

Graph-02: EPS Mean

EPS Mean
6
5.76 5.71
5.8
5.6 5.44
5.4 5.24
5.16
5.2
EPS

5 4.93

4.8
4.6
4.4
2014 2015 2016 2017 2018 2019 2020 2021
Year

13
 Table-06: PE Ratio Mean

Year P/E Ratio

Mean
2015 49.82293
2016 125.746
2017 61.30876
2018 66.38893
2019 17.90727
2020 121.4821

Graph-03: PE Ratio Mean

P/E Ratio Mean

140 125.75 121.48
120

100
P/E Ratio

80 66.39
61.31
60 49.82

40
17.91
20

0
2014 2015 2016 2017 2018 2019 2020 2021
Year

14
 Table-07: Total Asset Mean

Year Total Asset

Mean
2015 6760000000
2016 7970000000
2017 9030000000
2018 10400000000
2019 11700000000
2020 12400000000

Graph-04: Total Asset Mean

Total Asset Mean

14000000000
12400000000
11700000000
12000000000
10400000000
10000000000 9030000000
7970000000
Total Asset

8000000000 6760000000
6000000000

4000000000

2000000000

0
2014 2015 2016 2017 2018 2019 2020 2021
Year

15
 Table-08: Total Equity Mean

Year Total Equity

Mean
2015 3670000000
2016 4180000000
2017 4840000000
2018 5450000000
2019 6400000000
2020 6650000000

Graph-05: Total Equity Mean

Total Equity Mean

7000000000 6650000000
6400000000
6000000000 5450000000
4840000000
5000000000
4180000000
4000000000 3670000000
Equity

3000000000

2000000000

1000000000

0
2014 2015 2016 2017 2018 2019 2020 2021
Year

16
 Table-09: Net Income Mean

Year Net Income Mean

2015 445000000
2016 542000000
2017 551000000
2018 662000000
2019 662000000
2020 699000000

Graph-06: Net Income Mean

Net Income Mean

800000000
699000000
700000000 662000000662000000

600000000 542000000551000000
500000000 445000000
Net Income

400000000
300000000
200000000
100000000
0
2014 2015 2016 2017 2018 2019 2020 2021
Year

17
 Table-10: Turnover Mean

Year Turnover Mean

2015 4310000000
2016 5260000000
2017 6140000000
2018 6880000000
2019 7700000000
2020 7290000000

Graph-07: Turnover Mean

Turnover Mean
9000000000
7700000000
8000000000 7290000000
6880000000
7000000000 6140000000
6000000000 5260000000
Turnover

5000000000 4310000000
4000000000
3000000000
2000000000
1000000000
0
2014 2015 2016 2017 2018 2019 2020 2021
Year

18
 Table-11: Operating Cash Flow Mean

Year Operating Cash Flow

Mean
2015 648000000
2016 520000000
2017 543000000
2018 340000000
2019 1310000000
2020 1120000000

Graph-08: Operating Cash Flow Mean

Operating Cash Flow Mean

1400000000 1310000000

1200000000 1120000000

1000000000

800000000 648000000
OCF

600000000 520000000543000000

400000000 340000000

200000000

0
2014 2015 2016 2017 2018 2019 2020 2021
Year

19
 Table-12: ROA Mean

Year ROA
Mean
2015 0.0570942
2016 0.0597301
2017 0.0569227
2018 0.0609144
2019 0.0540858
2020 0.0342388

Graph-09: ROA Mean

ROA Mean
0.07
0.06 0.06
0.06 0.06 0.06
0.05
0.05

0.04 0.03
ROA

0.03

0.02

0.01

0
2014 2015 2016 2017 2018 2019 2020 2021
Year

20
 Table-13: ROE Mean

Year ROE Mean

2015 0.1169674
2016 0.1222275
2017 0.1125961
2018 0.1214022
2019 0.1066104
2020 0.121023

Graph-10: ROE Mean

ROE Mean
0.13 0.12 0.12 0.12
0.12 0.12

0.12 0.11
ROE

0.11
0.11
0.11

0.1

0.1
2014 2015 2016 2017 2018 2019 2020 2021
Year

CHAPTER 7

21
 CONCLUSION
7.1 Conclusions and policy implications:
Share valuation is a prerequisite for the investors in making investment decisions. From
investor’s perspective, they try to measure the actual value of stock so that they don’t lose their
invested funds. But from company’s perspective, it tries to make positive perception about its
stock among the investors. P/E ratio is a medium for both parties to communicate with each
other. P/E ratio simply indicates the share price against earing. Generally, higher P/E ratio
indicates better position of a firm and vice versa. Main objective of the study was to scrutinize
the determinants of PE ratio of listed Engineering and Pharmaceutical & Chemical Companies in
DSE. From the Hausman test we find that P value is higher than 0.05. Consequently, we accept
random effect model as our appropriate model for estimation. From the random effects model
we find that free float share, in confidence level of five percent has negative relationship with
PE ratio. Companies with free float share has lower PE ratio. Small companies has higher PE
ratio. Firms using more debt capital has lower PE ratio but not statistically significant. Firms
having more operating cash flow than eps has positive relationship with PE$ ratio but not
statistically significant. The recent Mean PE ratio for 2020 is 121 times, much higher than 2019
which reflects investors are expecting higher return. But in in 2016 PE ratio was 125 times and
nest year 2017 PE ratio was 60. IN 2021 PE ratio can fall to in the range of 60-70 if expectations
are not met.

CHAPTER 8

22
 References
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[Accessed 25 Aug. 2017].
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 Jones, C. P. (2000). Investments: Analysis and Management. 7th ed. John Wiley & Sons
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performs-best-in-world-in-q3

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