PROFITABILITY RATIOS AND STOCK RETURNS OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Financial statement contains the financial information about the operations of firms over a period, as well as the value of assets, liabilities and equity. The major objective of this study was to ascertain the relationship between profitability ratios and stock returns of deposit money banks in Nigeria for the period 2011-2022. The study used earnings before interest and tax, net profit margin, return on asset and return on equity as independent variables. While, stock returns of deposit money banks was used as the dependent variable. The study used secondary data obtained from the financial statement of sampled banks and the records of Nigeria Exchange Limited (NGX) for analysis. The orthogonal deviations option of Generalized Method of Moments (GMM) technique was employed for analysis of data. Findings from the analysis showed that, earnings before interest and tax has positive but no significant relationship, while there is negative and no significant relationship between net profit margin, return on asset and return on equity and stock returns of listed deposit money banks in Nigeria. This may be because, investors in Nigeria do not see retained earnings as part of their earnings. Therefore, the study recommended that; undistributed profit should be channeled into profitable investment opportunities that can boost investors’ confidence. While, investors should be guaranteed a level of distributable profit annually and additional when there is surplus.