gyutai kim, suhee jung department of industrial engineering, chosun university, gwangju, korea

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The Characteristics of the Stocks by the Industries

Gyutai Kim, Suhee JungDepartment of Industrial Engineering, Chosun University, Gwangju, Korea


Table of contents

Introduction1

The Selection of the Base factors and Data Collection

2

The Characteristics of the industries using financial ratios3

The concluding remarks4


Introduction

The company must announce publicly the financial statements every one year.

And the investors evaluate the value of the company from the financial statements to determine the investment alternative.

So we examine the feature for each industry through three categories; the stability analysis, the profitability analysis and the market value analysis.

To investigate about feature of each industry, we select two ratios which represent each category.


The Selection of the Base Factors and Data Collection

Base factors

Data collection ◦ The financial statements of each company in eight years (from 2001 to

2008)

Stability analysis Profitability analysis Market value analysis

- Current ratio - Debt ratio

- Return on Total Asset - Return on Equity

- Price/Earnings Ratio - Price on Book-Value ratio


1. Construction industry

◦ The current ratios are mostly “1.59” which are lower to the total average, we conclude the stability of short-term debt is rather low.

◦ In case of profitability, the average of companies in this industry is lower than total average, even some companies achieve minus rate of return.

◦ Also, the profitability index of companies are low but the PER is high. ◦ It implies that the stock price will be decrease, so if we select the primary

nonferrous metal manufacturing industry for the investment alternative, it seems to be inadequate.

The Characteristics of the industries


2. Agriculture, forestry and fishery industry

◦ The debt ratios are a relatively, but in the case of the stability of the short-term debt, the current ratios are less than total average, consequently, the ability to repay the short-term debt of company is shortage in this industry.

◦ In case of profitability, the companies achieve low rate of return except for the DONGWON INDUSTRIES company.

◦ Also, the PER is generally high level. It implies that the stock price is highly ranked in the stock market.

◦ In other words, the companies are highly overrated in spite of their low returns.

◦ Thus, if we select the fish catching industry for the investment alternative, it seems to be inadequate.

A Comparisons of the Financial Result and TOPSIS Result

3. Art, sport and related leisure service industry

◦ The companies have good current financial condition in that they have high current ratios.

◦ Furthermore, the companies have high part of the owners’ fund as they have debt ratios less than 35%.

◦ If we select the investment alternative between two companies, we choose the Kangwon Land where stability and profitability are good.


4. Wholesale and retail trade industry

◦The current ratios are mostly 1.0 ~ 2.0, these are lower than a total average, also the companies are not safe about a short-term debt. ◦The debt ratios are relatively the low, so we can say these companies has good financial structure.◦The profitability ratios are lower than total average, what was worse, some companies accomplish minus rates. ◦The PER figures are lower than the total average, but the stocks trade more higher than the net income in the stock market and the PBR figures are low, there is a low probability that the stock price will be increased.◦ So, if we select the Wholesale and retail trade industry for the investment alternative, it seems to be inadequate.



5. Real estate business and leasing service industry

◦ The current ratios are “0.0” ~ “1.5”, in general, if the current ratio exceeds the “2.0”, we can say the company is able to repay the short-term debt.

◦ Hence, the companies in the transportation equipment leasing service industry are a little bad about the stability of the short-term debt.

◦ But, the debt assets take possession very small proportion.

◦ In case of profitability, the companies achieve around 5%.

◦ There are very various PER in the transportation equipment leasing service industry.

◦ In case of the PBR, that is the low level.

A Comparisons of the Financial Result and TOPSIS Result

6. Business facility management and business support service industry

◦ The current ratios are 1.34, these are under average for overall industry, and so the companies are not safe about a short-term debt.

◦ The average of the debt ratio is 206.30%, so the companies has poor financial do structures.

◦ Also, examining the profitability ratios, returns are better than total average.

◦ By contrast, the market value ratios are highly valued.


7. Transportation industry

◦ The current ratios are less than 2.0, in general, if the current ratio exceeds the “2.0”, we can say the company is able to repay the short-term debt, hence the companies in the transportation industry are no good in case of the stability of the short-term debt.

◦ In case of profitability, the companies achieve low rate of returns rather than total average.

◦ On the contrary to this, the PER is high, it seems that the stock trade the higher price that their real value.

◦ And in case of the PBR, that is the low level, it means that the company does not have a potential ability of the comprehensive management. In conclusion, if we select the transportation industry for the investment alternative, it seems to be inadequate.



8. Electricity, gas, steam and air conditioning supply industry

◦ The current ratios are mostly 0.8 ~ 1.2, these are under average for overall industry, so the companies are not safe about a short-term debt.

◦ The average of the debt ratio is 53.30%, the equity ratios are high relatively in this industry.

◦ Also, examining the profitability ratios, returns are better than total average except some companies.



9. Furniture manufacturing industry

◦ The average of the current ratio is “2.07”, it is similar to the total average.

◦ The profitability ratios of companies are low but the PER is high.

◦ It implies that the stock price will be decrease, so if we select the furniture manufacturing industry for the investment alternative, it seems to be inadequate.


10. Specialized, scientific and technical service industry

◦ The current ratios are less than “2.0” except for some companies, so the stability about the short-term debt of the company is in a bad condition.

◦ In case of profitability, the companies achieve bad rate of return (ROTA) using the total assets, but they accomplish good returns using the equity assets (ROE).

◦ In case of the PER, there are so many different, the PBRs are low.



11. Primary metal manufacturing industry

◦ The current ratios are mostly “1.0” ~ “2.0” which are similar to the total average, but we conclude the stability of short-term debt is rather low.

◦ The debt ratios are less than 50 percentage, these mean the equity ratios are high relatively.

◦ Except for some companies, the profitability ratios are lower than total average, even some companies achieve minus rate of return.

◦ The market value ratios are highly valued, It implies that the stock price will be decrease, so if we select the primary metal manufacturing industry for the investment alternative, it seems to be inadequate.



12. Leather, bag and similar product manufacturing industry

◦ The average of the current ratio is similar to the total average However except for the SAMYANG TONGSANG, others are less than 2.0, therefore this industry is safe about a short-term debt.

◦ In case of profitability, the companies achieve very low rate of return.

◦ Also, the profitability index of companies are low but the PER is high.

◦ In case of the PBR figures are almost less than 1.0. It means that the company does not have a potential ability of the comprehensive management.

◦ In conclusion, the leather, bag and similar product manufacturing industry is not good investment alternative in stock market.


13. Transportation equipment manufacturing industry

◦ The current ratios are mostly 0.75 ~ 1.3, these are under average for overall industry, so the companies are not safe about a short-term debt.


◦ Also, examining the profitability ratios, returns are better than total average except some companies.


◦ Also, the PER is generally high level, it implies that the stock price is highly ranked in the stock market.


◦ Thus, if we select the ship and boat constructing industry for the investment alternative, it seems to be inadequate.


14. Rubber product and plastic product manufacturing industry

◦ The current ratios are about “2.06”, the stability of short-term debt is comparatively guaranteed.

◦ The average of the debt ratio is 34.52 percentage, the debt assets make up a very small portion of total assets.

◦ The profitability indexes are the higher than total average as a whole. ◦ The PER figures are lower than the total average and the PBR figures are low, there

is a high probability that the stock price will be increased. ◦ So, if we select the rubber product and plastic product manufacturing industry for

the investment alternative, it seems to be adequate.



15. Metal processing product manufacturing industry

◦ Generally, if the current ratio is over “2.0”, we can say the stability of the short-

term debt is ideal, the current ratios are over the “2.0”, so we can describe the

ability to repay the short-term debt of company is relatively enough in this industry.◦ By the profitability ratios, the industry average is lower than total average, but it is

caused by the one company(Yoo Sung Technique & Stragetegy Investment) which

accomplishes minus rate of return, so this industry has comparatively good

profitability.



16. Machine and equipment manufacturing industry

◦ The debt ratios are a relatively low, and the current ratios are almost “2.0”, so the

stability about the short-term debt of the company is in a good condition. ◦ Looking into the profitability indexes, the returns do not exceed total average. ◦ In case of the PER, we can not find a common character about companies in the

normal machinery manufacturing industry. ◦ The PBR figures are low, it means that the company does not have potentially an

ability of the comprehensive management.



17. Wood product manufacturing industry

◦ The companies included in the wood product manufacturing, the current ratios are low, so the ability to repay the short-term debt is shortage.

◦ In addition, the companies achieve low rate of returns.

◦ In other words, the companies have low profitability and, at the same time, have bad condition about the stability.

◦ Thus, if we select the wood product manufacturing industry for the investment alternative, it seems to be inadequate.


18. Coke, briquette and refined petroleum product manufacturing industry

◦ The industry average of the current is similar to total average, the debt ratios are less than 50%, so we can describe the ability to repay the short-term debt of company is shortage in this industry.

◦ And the profitability ratios are comparatively high.

◦ Also, the PER is high, however the PER is high.


19. Nonmetal mineral product manufacturing industry

◦ The industry the current ratios are mostly “1.0” ~ “2.0”, that do not exceed “2.0”, therefore the companies are not safe about a short-term debt,

◦ Only the glass and glass product manufacturing industry is safe to the short-term debt because the current ratio is “4.99”.

◦ The debt ratios are less than 50%. ◦ In case of profitability, the companies which are ranked in high level don’t achieve

good rate of return.◦ In market value, the PERs are relatively high though they are lower than total

average. ◦ To the contrary the PBRs are the low level. It means that the company does not

have potentially an ability of the comprehensive management.



20. Textile products manufacturing industry

◦ The industry the current ratios are less than “1.5”, that do not exceed “2.0”, therefore the companies are not safe about a short-term debt,

◦ Only the glass and glass product manufacturing industry is safe to the short-term debt because the current ratio is “4.99”.

◦ The debt ratios are less than 50%. ◦ In case of profitability, the companies which are ranked in high level don’t achieve

good rate of return.◦ In market value, the PERs are relatively high though they are lower than total

average. ◦ To the contrary the PBRs are the low level, it means that the company does not

have potentially an ability of the comprehensive management.



21. Food commodity manufacturing industry

◦ The debt ratios are a relatively low, the current ratios are less than total average, consequently the ability to repay the short-term debt of company is shortage in this industry.

◦ In case of profitability, the companies achieve low rate of returns. ◦ Also, the PER is generally high level, it implies that the stock price is highly ranked

in the stock market. ◦ In other words, the companies are highly overrated in spite of their low returns.



22. Beverage manufacturing industry

◦ The current financial condition of the companies that is no good.

◦ And the profitability ratios are a little low and the PERs are relatively high even though that is lower than the average of the total.


23. Clothing, clothing accessories and fur piece manufacturing industry

◦ The current ratios are widely distributed from “0.0” to “5.0”.

◦ And the profitability shows the very variety return.

◦ The PERs also express a various figures.

◦ Only the PBR is similar values about “1.0”.

◦ So, in this industry we can not find the industry’s character.


24. Medical, precision, optical instrument and timepiece manufacturing industry

◦ The current ratios are almost “2.0”, so the stability about the short-term debt of the

company is in a good condition.◦ The debt ratios are a relatively low, so the companies is stable about financial

structure.◦ In case of profitability, the companies achieve bad rate of return, even the some

company generates the loss. ◦ The profitability is poorly, on the contrary the PERs are high. In conclusion, the

companies are not good investment alternative in stock market.




25. Braided fabric and braiding product manufacturing industry

◦ The industry average of the current ratio is “2.15”, it is higher than total average.

◦ But, examining in detail, the ILKYUNG and the WONLIM are not exceed “2.0” about current ratio, so the three companies which are IL JEONG INDUSTRIAL, VGX International, BYC have stability about a short-term debt.

◦ The debt ratios are under 50%. ◦ In case of the profitability ratios, returns are

lower than total average. ◦ The PERs are lower than total average, and

PBRs are low. ◦ In this industry, the profitability is low, And

the PERs are relatively high, although these lower than total average, so we think very careful if we invest our money in this industry.

26. Braided fabric and braiding product manufacturing industry

◦ The current ratios are mostly “1.0” ~ “2.0”, these are under average for overall industry, so the companies are not safe about a short-term debt.


◦ Also, examining the profitability ratios, the companies show the very various returns.

◦ That’s also the case with PER. Only the PBR is similar values about “1.0”.

◦ So, in this industry we can not find the industry’s quality.


27. Automobile and trailer manufacturing industry

◦ In this industry, most of companies their current ratio are less than “2.0”,generally if the current ratio is above “2.0”, the company has an ability to repay the short-term debt, therefore the companies in the automobile part manufacturing industry are not too bad stability of the short-term debt.

◦ The debt ratios relatively is good about 50%.◦ In case of profitability, there are so many different rate of return, even some companies make a

loss. ◦ In case of the PER figures are completely the reverse between two type of business, so we can

not find out the characteristics.



28. Electrical equipment manufacturing industry

◦ The current ratios are less than “2.0”, we conclude the stability of short-term debt is rather low, but some companies in Electric motor, generator and electric conversion · supply · controlling device manufacturing industry are more than “2.0”, so these companies is able to repay the short-term debt.

◦ The debt ratios are less than “50%”, so financial structure is good.◦ In case of profitability, the companies achieve a low profit.◦ The PER is generally high level expect for Electric motor, generator and electric

conversion · supply · controlling device manufacturing industry it implies that the stock price is highly ranked in the stock market.

◦ The PBR is generally low level.



29. Electronic component, computer, vision, sound and communication equipment manufacturing industry

◦ The current ratios are mostly “1.0” ~ “2.0”, if the current ratio exceeds the “2.0”, we can say the company is able to repay the short-term debt.

◦ The debt ratios are higher than 50% expect for some companies.◦ From the profitability aspect, the companies generate the weak rate of return, even

some companies achieve minus rate of return. ◦ On the other hand, the PER is high, it seems that the stock trade the higher price

that their real value. And in case of the PBR, that is the low level.



30. Pulp, paper and paper product manufacturing industry

◦ The debt ratios are a relatively low, but The current ratios are mostly “1.0” ~ “2.0”, so the stability about the short-term debt of the company is in a bad condition.

◦ Consequently, the ability to repay the short-term debt of company is shortage in this industry.

◦ Looking into the profitability indexes, the returns do not exceed total average. ◦ The companies included in this industry are poor condition about the stability and

the profitability. ◦ Also, the PER is generally high level, it implies that the stock price is highly ranked

in the stock market.



31. Chemical material and chemical product manufacturing industry

◦ The debt ratios are a relatively low, but, the current ratios are mostly under “2.0”,

therefore we can say the stability of short-term debt is rather low in this industry. ◦ In case of profitability, the average of companies in this industry is lower than total

average, even some companies achieve minus rate of return. ◦ Also, the profitability index of companies are low but the PER is high, it implies

that the stock price will be decrease, so if we select the chemical material and

chemical product manufacturing industry for the investment alternative, it seems to

be inadequate.



32. Publication, vision, broadcasting communication and information service industry

◦ The debt ratios are approximately 50%, the current ratio is around “1.0”, that do not exceed “2.0”, therefore the companies are not safe about a short-term debt, Only the companies in Data processing, hosting, portal and internet information intermediation service industry is safe to the short-term debt because the current ratio is “3.6”.

◦ In case of profitability, the companies make a loss, so companies are no good concerning the stability and profitability.

◦ Also, the PER is generally high level, it implies that the stock price is highly ranked in the stock market.




The concluding remarks

A total number of the industrial classifications of today listed in KOSPI (Korea Composite Stock Price Index) are 770 companies.

To research, the scope of the work will be confined to the stocks listed in KOSPI more than 5 years.

We took in total 32 industries including over 2 companies.



The characteristics of stocks in terms of industries according to profitability analysis

◦ The average of current ratios in terms of industries are “2.06” and the debt ratios in terms of industries are “50.33%”.

• So, we can be describe the companies have enough ability to repay

the short-term debt.

• And we can say the companies has stable financial structure.



The characteristics of stocks in terms of industries according to profitability analysis

◦ The average of ROTA and ROE in terms of industries are “3.05%”, “5.61%” respectively.

• The profitability ratios are relatively low.

The characteristics of stocks in terms of industries according to market value analysis

◦ The average of PER and PBR in terms of industries are “17.50”, “1.15” respectively.

• In case of market value analysis, it seems that the stock trade the

higher price that their real value.

gyutai kim, suhee jung department of industrial engineering, chosun university, gwangju, korea

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