THE SYNERGY OF LIQUIDITY, SOLVENCY, AND PROFITABILITY: ANALYZING INVESTOR BEHAVIOR IN STOCK EXCHANGES

Abstract

It is essential to use a profitability ratio and a solvency ratio to examine financial statements to ascertain a company's financial performance. The purpose of this study is to assess the financial performance of companies by analyzing key profitability and solvency ratios, specifically to understand their effects on stock return and liquidity. Utilizing secondary data from the financial statements of paper and board companies listed on the Pakistan Stock Exchange (PSX) 100 index between 2018 and 2022, the study employs multiple linear regression and mediation analysis conducted via IBM SPSS Statistic 25. Key variables include Return on Assets (ROA), Debt to Equity Ratio (DER), stock return, and stock liquidity. The findings reveal that while profitability has a significant negative impact on stock liquidity and return, solvency exhibits a positive and considerable influence. The study’s contributions are particularly relevant for investors and market participants seeking to understand stock behavior during periods impacted by the pandemic. The research provides valuable insights into the dynamics between financial ratios and stock performance, aiding in more informed decision-making and financial planning.