Financial Ratio Analysis and Investment Decision Makings in Listed Companies in Rwanda; A Case Study of Listed Companies
DOI:
https://doi.org/10.53819/81018102t5297Abstract
The general objective of this study was to assess the financial ratios analysis and the investment decision making in listed companies in Rwanda. The specific objectives of this study were to evaluate the effect of Liquidity Ratio Analysis (current ratio and quick ratio), profitability ratio analysis (ROA and ROE), and efficiency ratio analysis (asset turnover ratio and earnings ratio) on investment decision-making in listed companies in Rwanda. Descriptive research design was used within this study, and the study population comprised 473 licensed brokers working in RSE. Using purposive sampling technique, a sample size of 155 respondents was established, and 139 responses were received. A closed end questionnaire was utilized. Correlation analysis was utilized to assess the data and results generalized for the entire population, while multiple regression analyses was used to test hypotheses. To compute and analyze the data in this study, the SPSS version 27 was used. Correlation between financial ratio analysis in the Rwanda Stock Exchange (RSE) shows that Liquidity ratio analysis has a strong positive correlation (0.724 with P-value = 0.00). Profitability ratio analysis has a very high positive correlation (0.872 with P-value = 0.00) with investment decision-making in RSE, and Efficiency ratio analysis has a moderate positive correlation (0.668 with P-value = 0.00) with investment decision-making in RSE. Regression Model 1 revealed that the two variables of Liquidity ratio analysis contribute to 78.9% of investment decision-making in RSE. The calculated F statistic of 6.351 and the calculated P-value of 0.030 is less than the critical P-value of 0.05, making the entire model significant. Regression Model 2 revealed that the variables in Profitability ratio analysis (measured by ROA and ROE) contribute to 88.2% of investment decision-making in RSE. Findings in ANOVA analysis indicate that the overall model was significant, with a computed F statistic of 11.727 and a calculated P-value of 0.034, which is lower than the key P-value of 0.05. Model 3 revealed that the variables in Efficiency ratio analysis contribute to 72.8% of investment decision-making. Findings in ANOVA indicate that the overall model was significant, as the calculated F statistic of 4.831 and the P-value of 0.012 is less than the critical P-value of 0.05. The study recommends that RSE may improve its efficiency ratio analysis as it was proved that it was not utilized more within the investment decision making. The study recommends a comprehensive approach to enhance investment decision-making in the Rwanda Stock Exchange (RSE), focusing on liquidity, profitability, and efficiency ratio analyses. Furthermore, the study recommends for regular training programs to deepen investors' and financial managers' understanding of these financial metrics.
Keywords: Financial Ratio, Investment Decision Makings, Listed Companies, Rwanda.
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