Testing whether the price-earnings ratio is an indicator of investment performance of ordinary shares on the Nairobi stoke exchange.

Abstract

Investors constantly evaluate performance of different firms and their aim is to determine which firms are doing better so that they can invest their funds in them and which ones are deteriorating in performance so that they can withdraw their investment from them. One of the basic techniques used by investors and the financial analysts is the P/E ratio. This study sought to determine whether the P/E ratios of companies quoted on the Nairobi stock e, change have any relationship with some three basic investment performance indicators namely the earnings growth, dividend payout and earnings growth variations. Using a sample of 30 firms out of the total 55 firms listed at the Nairobi stock exchange over the 1993 to 1998 period the researcher examined the relationship between a company's pie ratio and the indicator mentioned above.